REGULATORY

BURDEN

Some Agencies'

Claims Regarding Lack

of Rulemaking

Discretion Have Merit

United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Commercial and Administrative Law,

Committee on the Judiciary, House of

Representatives

January 1999

GAO/GGD-99-20

United States

General Accounting Office

Washington, D.C. 20548

General Government Division

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GAO

January 8, 1999

The Honorable George W. Gekas

Chairman, Subcommittee on Commercial and Administrative Law

Committee on the Judiciary

House of Representatives

Dear Mr. Chairman:

In November and December 1996, we reported what officials from 15

private sector companies said were the federal regulations that were most

problematic for their businesses.1

 The 125 concerns that the officials

identified focused on a variety of regulatory issues, including the perceived

high cost of compliance; excessive paperwork; unreasonable, unclear, and

inflexible requirements; and severe penalties for noncompliance. Our

report also listed responses from the 19 federal agencies that issued the

regulations underlying the 125 company concerns. In response to about

one-quarter of the concerns, the agencies indicated that the companies’

concerns were, at least in part, attributable to statutory requirements

underlying their regulations.

This report responds to your request that we examine the agencies’

assertions that some of the 125 regulatory concerns were, at least in part,

attributable to the underlying statutes. Our specific objectives were to

determine, for each of 27 such concerns that we focused on in this report,

(1) the amount of discretion the underlying statutes gave the rulemaking

agencies in developing the regulatory requirements that the agencies had

said were attributable to the underlying statutes,2

 (2) whether the

regulatory requirements at issue were within the authority granted by the

underlying statutes, and (3) whether the rulemaking agencies could have

developed regulatory approaches that would have been less burdensome

to the regulated entities while still meeting the underlying statutory

requirements.

We concluded that the statutes underlying 13 of the 27 regulatory concerns

that we examined gave the rulemaking agencies no discretion in

establishing the regulatory requirements at issue. In these cases, the

 

1

 Regulatory Burden: Measurement Challenges and Concerns Raised by Selected Companies

(GAO/GGD-97-2, Nov. 18, 1996); and Regulatory Burden (GAO/GGD-97-26R, Dec. 11, 1996).

2

 In some of the concerns, the statutory provisions were enforced through the use of policy statements

or directly through the statutes themselves. Therefore, we interpreted “regulatory requirements” to

include the various approaches used by the agencies to enforce their statutory requirements.

Results in Brief
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underlying statutes specifically stated what the regulated entities must do

and, by inference, what the related regulations must require. We

concluded that the underlying statutes for 12 of the 27 concerns gave the

agencies some discretion in developing the regulatory requirements at

issue. In these cases, the agencies often had no rulemaking discretion with

regard to certain issues but had some or broad discretion regarding other

issues (e.g., the exact type and/or frequency of the action required). We

concluded that the agencies had broad discretion in developing the

regulatory requirements at issue in the two remaining concerns.

We also concluded that the regulatory provisions the agencies developed

in relation to all of the 27 company concerns were within the authorities

granted by the underlying statutes. For those concerns in which the

underlying statutes gave the agencies no discretion as to how the

associated regulations could be developed, those regulations were

consistent with, and often mirrored, the specific requirements in the

statutes. For those concerns in which the statutes gave the agencies some

or broad rulemaking discretion, the regulations did not appear to exceed

the discretion allowed in those statutes.

Finally, for the 13 concerns for which we concluded agencies had no

discretion, we also concluded that there were no less burdensome

regulatory approaches available to the agencies that would have met the

requirements of the statutes. We could not determine whether less

burdensome regulatory approaches were available for the remaining 14 of

the 27 concerns, for which the statutes gave the agencies some or broad

rulemaking discretion. To make those determinations, we would have had

to conduct a detailed examination of the implementation of each of the

regulatory provisions that the agencies had said were attributable to the

underlying statutes and/or the implications of alternative approaches—

analyses that would have required time and resource commitments that

were beyond the scope of this review.

Although this review focused on only 27 regulatory concerns, we believe

that it can offer insights into some broader issues. For example, the

review suggests that regardless of how much or how little rulemaking

discretion the underlying statutes permit, the entities being regulated may

still consider the associated regulations burdensome. Also, if an

underlying statute is the source of regulatory burden, that burden can be

alleviated only by changes in the statute. In such cases, regulatory reform

initiatives focused on the agencies (e.g., cost-benefit analysis

requirements) are unlikely to have much direct effect on the regulatory

burden that those agencies impose.
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Regulations generally start with an act of Congress and are the means by

which statutes are implemented and specific requirements are established.

The statutory basis for a regulation can vary in terms of its specificity,

from (1) very broad grants of authority that state only the general intent of

the legislation and leave agencies with a great deal of discretion as to how

that intent should be implemented to (2) very specific requirements

delineating exactly what regulatory agencies should do and how they

should do it. For example, the Agricultural Adjustment Act provides a

broad grant of authority to the Secretary of Agriculture, stating only that

agricultural marketing should be “orderly” but providing little guidance

regarding which crops should have marketing orders or how to apportion

the market among growers. On the other hand, the Department of

Transportation (DOT) has concluded that it has no discretion in setting the

average fuel economy standards (known as the “Corporate Average Fuel

Economy” or “CAFE” standards) for light trucks. DOT’s 1998

appropriations act stated that “(n)one of the funds in this Act shall be

available to prepare, propose, or promulgate any regulations (prescribing

CAFE standards for automobiles) . . . in any model year that differs from

standards promulgated for such automobiles prior to the enactment of this

section.” At the time this appropriations act was enacted, DOT was

preparing the CAFE standard for model year 2000. Therefore, DOT

concluded that it was required to keep the same light truck CAFE standard

for model year 2000 that applied to model year 1999—20.7 miles per

gallon.3

Some regulatory analysts believe that Congress too often writes overly

broad laws that provide too much discretion to regulatory agencies.4

Similarly, the perception by some Members of Congress that federal

agencies have promulgated regulations that go beyond the intent of

Congress helped lead to the establishment of expedited congressional

regulatory review procedures in the Small Business Regulatory

Enforcement Fairness Act (SBREFA) of 1996.5

 In a joint statement

 

3

 DOT ‘s 20.7 mile per gallon CAFE standard for model year 1999 was a continuation of the standard for

model years 1998 and 1997 because of similar language in DOT’s 1997 and 1996 appropriation acts.

See Department of Transportation, National Highway Traffic Safety Administration: Light Truck

Average Fuel Economy Standard, Model Year 2000 (GAO/OGC-98-42, Apr. 17, 1998).

4

 See, for example, David Schoenbrod, Power Without Responsibility: How Congress Abuses the People

Through Delegation (New Haven: Yale University Press, 1993).

5

 Under SBREFA’s congressional review procedures, Congress can review rules before they take effect

and disapprove those it considers too burdensome, excessive, inappropriate, duplicative, or otherwise

objectionable. The act requires agencies to submit a copy of each final rule to both Houses of Congress

and the Comptroller General before they take effect. SBREFA also requires the Comptroller General to

provide a report on each “major” rule within 15 calendar days after the rule is submitted. In the first 2

years of the act, we received 8,284 rules, of which 122 were major rules. For an analysis of these rules,

Background

Views Regarding

Congressional Delegation of

Authority
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intended to provide a legislative history of the SBREFA review procedures,

some Members said:

“As the number and complexity of federal statutory programs has increased over the last

fifty years, Congress has come to depend more and more upon Executive Branch agencies

to fill out the details of the programs it enacts . . . . As more and more of Congress’

legislative functions have been delegated to federal regulatory agencies, many have

complained that Congress has effectively abdicated its constitutional role as the national

legislature in allowing federal agencies so much latitude in implementing and interpreting

congressional enactments . . . .”

“Because Congress is often unable to anticipate the numerous situations to which the laws

it passes must apply, Executive Branch agencies sometimes develop regulatory schemes at

odds with congressional expectations . . . . Rules can be surprisingly different from the

expectations of Congress or the public. Congressional review gives the public the

opportunity to call the attention of politically accountable, elected officials to concerns

about new agency rules.”

Similar concerns about agencies’ regulatory actions have led Congress to

establish analytical requirements that agencies must comply with during

the rulemaking process. For example, the Regulatory Flexibility Act of

1980, as amended, requires agencies to analyze the anticipated effects of

rules they plan to propose on small entities unless they certify that the

rules will not have a “significant economic impact on a substantial number

of small entities.” Title II of the Unfunded Mandates Reform Act of 1995

requires federal agencies (other than independent regulatory agencies)6

 to

prepare written statements for certain rules. Those written statements

must, among other things, contain a qualitative and quantitative

assessment of the anticipated costs and benefits of the rules.7

 Various

executive orders have imposed similar analytical requirements on federal

agencies.8

In contrast, other regulatory analysts have concluded that Congress has, at

times, been overly restrictive in writing the statutes underlying agencies’

regulations. For example, in an April 1998 policy statement, the

Committee for Economic Development (CED) pointed out that those

 see Regulatory Reform: Major Rules Submitted for Congressional Review During the First 2 Years

(GAO/GGD-98-102R, Apr. 24, 1998).

6

 Independent regulatory agencies include such agencies as the Federal Communications Commission,

the Securities and Exchange Commission, and the Consumer Product Safety Commission.

7

 For an analysis of these requirements, see Unfunded Mandates: Reform Act Has Had Little Effect on

Agencies’ Rulemaking Actions (GAO/GGD-98-30, Feb. 4, 1998).

8

 For example, Executive Order 12866 requires nonindependent regulatory agencies to assess the costs

and benefits of “economically significant” proposed and final rules.
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statutes can, at times, be too narrow.9 In particular, the policy statement

said that the traditional focus of regulatory reform on improving the way

federal agencies write regulations

“ignores the fact that the key decisions occur when Congress writes an Occupational Safety

and Health Act or an amendment to the Food, Drug, and Cosmetics Act or any other

important regulatory law, usually with hundreds of pages of detailed specifications. . . . The

way those statutes are written frequently precludes the agencies from even considering the

most cost-effective approaches.”

Therefore, CED concluded that the traditional focus of regulatory reform

should be shifted from regulatory agencies to Congress. CED

recommended, among other things, that each congressional committee be

required, when writing a regulatory statute, to articulate the expected

benefits and costs of the regulatory program in the report accompanying

the legislation. It also recommended that Congress eliminate provisions in

existing statutes that prevent or limit regulatory agencies from considering

costs or comparing expected benefits with costs.10

Several of our recent reports and testimonies have raised the issue of

whether regulatory burden was based on the underlying statutes. As noted

previously, in our 1996 reports on which this review is based, the agencies

responding to some of the companies’ concerns said that the specific

requirements that the businesses mentioned were statutorily driven.11 We

noted in our November 1996 report that we did not review the regulations

and statutes that the agencies cited to determine whether the underlying

statutes required the regulatory provisions that were of concern to the

companies. However, we said that if the statutes do not require those

regulatory provisions, the agencies have a responsibility to address those

concerns on their own and not shift the responsibility to Congress. We

also said that if Congress believes an agency’s regulation is inconsistent

with the intent of the underlying statute, Congress could amend the statute

to reflect current congressional intent and, in effect, require the agency to

amend its regulation.

 

9

 Committee for Economic Development, Modernizing Government Regulation: The Need for Action,

April 1, 1998.

10 See also Murray Weidenbaum, A New Approach to Regulatory Reform, Center for the Study of

American Business, Policy Study Number 147, August 1998.

11 In response to other company concerns, the agencies (1) indicated that the companies

mischaracterized, misstated, or misinterpreted the regulations involved; or (2) agreed that corrective

actions were needed and said they were taking or had taken such actions.

Related Reports and

Testimonies
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In three reviews of agencies’ implementation of the Paperwork Reduction

Act of 1995, we reported that agencies believed the paperwork burden

associated with their regulations had increased since the act was passed

because of congressionally imposed requirements.12 As a result of such

requirements, we said that some agencies believed that they were limited

in the amount to which they can reduce their paperwork burden. For

example, the Internal Revenue Service (IRS) said it could not reach the

burden reduction goals established in the Paperwork Reduction Act under

the current statutory framework and still carry out its mission. We noted

that we had not assessed the extent to which the paperwork burden

agencies impose is directly a consequence of statutory requirements and,

therefore, is out of the agencies’ control. However, we also noted that if

agencies’ paperwork requirements are truly statutorily mandated, those

agencies may not be able to reduce their burden-hour estimates by the

amounts envisioned in the 1995 act without changes in the legislation

underlying those requirements.

In our 1997 review of four agencies’ efforts to eliminate or revise pages in

the Code of Federal Regulations (CFR), we found that two of the four

agencies had added more pages to the CFR than they deleted. 13 Agency

officials said that statutory requirements imposed by Congress often drive

CFR page additions, and they provided several examples of those statutory

requirements. However, we did not examine those statutes to determine

the extent to which they required the CFR page additions.

This review focuses on a subset of the 125 regulatory concerns that

companies cited in our 1996 reports—the concerns that federal agencies

indicated were, at least in part, attributable to the statutes underlying the

relevant regulatory provisions. Our objectives were to determine, for each

such concern, (1) the amount of discretion the underlying statutes gave the

agencies in developing the regulatory requirements, (2) whether the

regulatory requirements at issue were within the authority granted by the

underlying statutes, and (3) whether the rulemaking agencies could have

developed regulatory approaches that would have been less burdensome

to the regulated entities while still meeting the underlying statutory

requirements.

 

12 Paperwork Reduction: Burden Reduction Goal Unlikely To Be Met (GAO/T-GGD-RCED-96-186, June

5, 1996); Paperwork Reduction: Governmentwide Goals Unlikely To Be Met (GAO/T-GGD-97-114, June

4, 1997); Paperwork Reduction Act: Implementation at IRS (GAO/GGD-99-4, Nov. 16, 1998).

13 Regulatory Reform: Agencies’ Efforts to Eliminate and Revise Rules Yield Mixed Results (GAO/GGD98-3, Oct. 2, 1997).

Objectives, Scope, and

Methodology
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Appendix I provides a detailed discussion of our scope and methodology.

In brief, we identified the 27 company concerns that we focused on in this

review by (1) subdividing some concerns in our December 1996 report to

facilitate the analysis; and (2) eliminating some of the concerns that were

too broad or that focused only on federal statutes, not agencies’ regulatory

requirements. For example, in one concern company officials said that the

Comprehensive Environmental Response, Compensation, and Liability Act

(CERCLA) was expensive and exposed the company to unforeseen

liability, but the officials did not cite any EPA regulations in their concern.

The 27 concerns were raised by officials from 10 of the 15 companies we

visited during the preparation of our 1996 reports, 7 of whom asked that

we use generic descriptors such as “Bank A” or “a paper company” to

identify them. A total of 11 federal departments and agencies issued the

regulations underlying the 27 company concerns at issue in the report.

To address our first objective we reviewed the statutory provisions

underlying each of the concerns and coded the level of discretion that we

believed those provisions permitted the agencies in developing the specific

regulatory requirements at issue in the concerns into one of three

categories— “no discretion,” “some discretion,” or “broad discretion.” We

coded statutory provisions as allowing rulemaking agencies “no

discretion” if they delineated specific actions that regulated entities or the

agencies themselves must take and did not allow the agencies to develop

their own regulatory requirements. We coded statutory provisions as

allowing the agencies “some discretion” if they delineated certain

requirements that had to be included in the regulations but gave the

agencies at least some discretion regarding other requirements (e.g., the

timing or frequency of a reporting requirement). We coded statutory

provisions as allowing the agencies “broad discretion” if they contained

few specific requirements or imposed few to no constraints on what the

agencies had to include in their regulations.

To address our second objective, we compared the relevant statutory and

regulatory provisions for each concern and decided whether we believed

the regulatory requirements at issue in the concerns were within the

authority granted by the underlying statutes.14 We coded the regulatory

provisions as being within the authority granted by the statutes if (1) the

statutory provision gave the agency no discretion in how the regulations

could be developed and the regulatory provision strictly adhered to the

statutory requirements; or (2) the statutory provision gave the agency

 

14 If a court considering this matter determined that a regulation exceeded the authority granted by the

underlying statute, that regulation could be invalidated.
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some or broad discretion, and the regulatory provision was consistent with

the requirements or the limitations in the statute.

To address our third objective we examined our answers to the previous

objectives and decided whether we believed the rulemaking agencies

could have developed regulatory approaches that would have been less

burdensome to the regulated entities while still meeting the underlying

statutory requirements. If the underlying statutes gave an agency no

rulemaking discretion and the agency adopted regulations that strictly

adhered to the statutory requirements, we concluded that the agency could

not have developed a less burdensome regulatory approach. If the

underlying statutes gave an agency some or broad rulemaking discretion,

we were not able to determine if the agencies could have developed a less

burdensome approach. To do this we would have needed detailed

information on how the agencies’ regulations were being implemented and

how alternative approaches would be perceived by the regulated entities in

order to determine whether a less burdensome approach was available. As

is discussed in Appendices III and IV, that information was not readily

available.

Because this review is based on a subset of the company concerns and

agency responses originally presented in our 1996 reports, the results of

our analysis are not generalizable to other companies, other regulatory

issues, or even to all of the original 125 regulatory concerns. However, as

we pointed out in our November 1996 report, the companies’ comments

were similar in many respects to comments made by companies in some of

our previous reports and in the literature.15 Therefore, we believe that the

companies’ comments, the agencies’ responses, and our analysis of the

related regulations and statutes are not atypical and can provide some

insights regarding the broader issues addressed in this report.

This report reflects the views of selected companies and regulatory

agencies gathered during our earlier effort but does not reflect the views of

other individuals and organizations that may be affected by the regulations

at issue (e.g., labor unions or potential beneficiaries). We did not attempt

to determine whether the companies’ or the agencies’ views were correct

with regard to issues that were outside the scope of this review (e.g.,

whether any of the agencies’ actions were, in fact, “burdensome”).

Although we approached this review systematically, our conclusions are

ultimately matters of judgement, not determinations that have a legally

 

15See, for example, Workplace Regulation: Information on Selected Employer and Union Experiences

(GAO/HEHS-94-138, June 30, 1994).
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binding effect on the agencies issuing the rules or the regulated

community.

The report focuses primarily on the amount of discretion that the relevant

statutes gave rulemaking agencies in developing the regulatory

requirements at issue in the companies’ concerns. However, the report

does not address the amount of discretion that the agencies had in writing

regulations outside of the specific issues raised by the companies.

Agencies may have broad discretion in how regulations can be developed

within a general area, but little or no discretion with regard to particular

issues within those areas. Also, the report does not address enforcement

issues. As our 1996 reports indicated, agencies may have considerable

discretion in carrying out their enforcement authority, and the use of that

discretion can significantly affect the burden felt by regulated entities. For

example, several companies expressed concerns about rigid and inflexible

regulations and about certain regulators’ “gotcha” enforcement approach.

In response to those concerns, the agencies sometimes indicated that they

reduced penalties in response to good faith efforts to comply, were not

“aggressively” enforcing certain technical requirements, or were changing

their enforcement approaches.

We initially gathered the company concerns and agency responses

between June 1994 and September 1996. We conducted our work for this

review between February and October 1998 in the Washington, D.C.,

headquarters offices of each of the 11 departments and agencies that

issued the regulations in accordance with generally accepted government

auditing standards. During the preparation of this report, the agencies

responsible for the regulations related to the company concerns reviewed

and commented on our observations regarding each applicable concern.

The agencies often offered suggestions regarding how the statutes and

regulations should be characterized in the report, and we incorporated

those suggestions where appropriate. The agencies ultimately concurred

with our analysis in all 27 concerns. At the end of our review we sent a

draft of this report for comment to the Director of the Office of

Management and Budget (OMB). Executive Order 12866 states that OMB’s

Office of Information and Regulatory Affairs (OIRA) is “the repository of

expertise concerning regulatory issues, including methodologies and

procedures that affect more than one agency . . . .” OIRA is also

responsible for reviewing significant regulations before their publication

as proposed and final rules and for approving agencies’ information

collection requests under the Paperwork Reduction Act. On December 10,

1998, we met with the Acting Administrator of OIRA, who said he had no

comments on the report.
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As shown in figure 1, we concluded that the statutory provisions

underlying 13 of the 27 company concerns that we reviewed provided the

agencies with no discretion in how the relevant regulatory provisions

could be developed. We concluded that the statutory provisions

underlying 12 of the remaining 14 concerns permitted the agencies some

discretion in establishing regulatory requirements, and the provisions

related to 2 concerns allowed the agencies broad rulemaking discretion.

Note 1: We reviewed twenty-seven concerns to determine the amount of discretion allowed by the

relevant statutory provisions.

Source: GAO analysis based on GAO/GGD-97-2 (Nov. 18, 1996); and GAO/GGD-97-26R (Dec. 11,

1996).

Table 1 shows the number of concerns at each level of discretion for each

agency issuing the related regulations.

Statutes Provided A

Range of Rulemaking

Discretion

Figure 1: Agencies Appeared to Have

No Discretion in Developing Rules

Related to About Half of the Company

Concerns
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Number of concerns by level of discretion

Agency

No

discretion

Some

discretion

Broad

discretion

Total number of

concerns

Board of Governors of the

Federal Reserve System

(FRB) 6 5 0 11

Environmental Protection

Agency (EPA) 31 0 4

Federal Deposit Insurance

Corporation (FDIC) 13 0 4

Internal Revenue Service

(IRS) 21 0 3

Office of the Controller of

the Currency (OCC) 0 2 1 3

Health Care Financing

Administration (HCFA) 0 2 0 2

Housing and Urban

Development (HUD) 0 1 0 1

Occupational Safety and

Health Administration

(OSHA) 1 0 0 1

Department of

Transportation (DOT) 0 1 0 1

Equal Employment

Opportunity Commission

(EEOC) 0 0 1 1

Pension Benefit Guaranty

Corporation (PBGC) 1 0 0 1

Total number of

concerns 14 16 2 32

Note: The total number of concerns is greater than 27 because the regulations relevant to 2 of the

concerns were issued by 3 agencies, and the regulations underlying another concern were issued by

2 agencies.

Source: GAO analysis based on GAO/GGD-97-2 (Nov. 18, 1996); and GAO/GGD-97-26R (Dec. 11,

1996).

For 13 of the 27 company concerns in this report, we concluded that the

relevant statutory provisions allowed the agencies no discretion in how the

related regulations could be developed. As discussed previously, we

considered statutory provisions as allowing rulemaking agencies “no

discretion” if they delineated the specific actions that regulated entities or

the agencies themselves must take and did not allow the agencies to

develop their own regulatory requirements.

The following examples illustrate the types of statutory provisions that we

concluded did not allow agencies any discretion in developing the relevant

regulations. These and other examples of statutory provisions that did not

appear to allow the agencies rulemaking discretion are discussed more

fully in appendix II.

Table 1: Number of Concerns by Agency

and Level of Discretion

Statutes Permitted No

Rulemaking Discretion for

About Half the Concerns
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• Officials from Multiplex Company, Inc. said increased premium costs paid

to PBGC to guarantee their employees’ pensions is costly for the company,

rising from $2.60 per participant in 1982 to $19.00 per participant in 1994.

PBGC officials said the agency’s insurance premiums are statutorily

established in Section 4006 of the Employee Retirement Income Security

Act (ERISA). We concluded that ERISA (codified at 29 U.S.C. 1001 et seq.)

gave PBGC no discretion in setting the pension insurance rates at issue in

this concern. Under the statute, the $19.00 rate is the minimum amount

businesses with single-employer plans must pay for basic benefits.

• Multiplex Company, Inc. officials also said that IRS-required

“nondiscrimination tests” for 401(k) thrift savings plans were of

questionable value after IRS lowered the amount of money that could be

contributed to the plans, thereby making it less likely that higher income

employees would dominate the plan. IRS said that both the test, known as

the actual deferral percentage test, and the limit on the amount that could

be contributed to a 401(k) plan were required by statute. We examined the

relevant statutory provisions and concluded that IRS had no discretion in

how the regulations could be developed. The deferral percentage test and

the deferral limit were both specifically established by statute. A

subsequently enacted statute that reduced the amount that could be

contributed to 401(k) plans did not eliminate the requirement that

companies perform this test.

• An official from Bank A said that a FRB regulation on the availability of

funds and the collection of checks (Regulation CC) requires information

that is time consuming for banks to develop. Officials from FRB said that

the Expedited Funds Availability Act requires depository institutions to

provide written copies of their funds availability policies to their

customers. We examined the act and concluded that it gave the agency no

discretion in how its regulations could be written. The statute specifically

requires depository institutions to provide their customers with preprinted

slips describing their policies regarding the amount of time between when

a deposit is made into a customer’s account and when funds can be

withdrawn from that deposit.

• A Metro Machine Corporation official said that EPA regulators establish

unrealistic requirements that are not attainable with current treatment

technology. For example, the official said that federal water quality

standards require that water the company discharges be made cleaner than

rainwater. In its response to this concern, EPA said that under the Clean

Water Act, it could not consider available treatment technologies or the

cost of treatment in the development of water quality criteria for a

particular designated use. We agreed that EPA had no discretion under the

act regarding the role that cost or treatment technologies can play in

establishing federal water quality criteria.
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For 12 of the 27 company concerns, we concluded that the underlying

statutory provisions gave the agencies some discretion in how the

associated regulations could be developed. As discussed previously, we

considered rulemaking agencies to have “some discretion” if the statutory

provisions delineated certain requirements that had to be included in the

regulations but allowed the agencies at least some flexibility regarding

other requirements.

The following examples illustrate the types of statutory provisions that we

concluded allowed agencies some discretion in developing the relevant

regulations. These and other examples of statutory provisions that

allowed some rulemaking discretion are discussed more fully in appendix

III.

• An official from Bank A said that provisions of Regulation DD under the

Truth in Savings Act requires the bank to disclose certain information to

its customers in a single document. The bank officials said that they had

been disclosing this information in a variety of brochures, but had to revise

their brochures to disclose this information in one document to comply

with Regulation DD. In response to this concern, officials at FRB said that

the Truth in Savings Act required all depository institutions to disclose

information about the rates paid and fees charged in a uniform manner.

We concluded that the Truth in Savings Act gave FRB some discretion in

how it could establish what became Regulation DD. Although the act gave

FRB no discretion regarding the disclosures that must be required in

Regulation DD, the act gave FRB discretion to determine how these

disclosures should be made to bank customers.16

• Officials from the paper company said DOT regulations that required

hazardous materials (“hazmat”) training and testing cost the company

$475,000 each year. According to DOT, the Hazardous Materials

Transportation Uniform Safety Act specifically required the issuance of

regulations requiring employers to provide hazmat training to certain

employees. We examined the training requirements in the act and

concluded that the act gave DOT no rulemaking discretion in some areas

and some discretion in other areas. For example, the act said the

Secretary of Transportation “shall prescribe by regulation requirements for

training that a hazmat employer must give hazmat employees of the

employer on the safe loading, unloading, handling, storing, and

transporting of hazardous material.” The act also required the regulations

to establish the date by which the training shall be completed and to

 

16 As discussed in appendix III, FRB’s regulations require only that these disclosures be made in a clear

and conspicuous manner, not in a single document.

Statutes Allowed Agencies

Some Rulemaking

Discretion for 12 Concerns
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require employers to certify that their hazmat employees have received

training and been tested on at least one of nine specific areas of

responsibility that are delineated in the statute. However, the statute also

said that DOT’s regulations “may provide for different training for different

classes or categories of hazardous material and hazmat employees.”

Because the statute gave DOT the flexibility to tailor its regulatory

requirements for hazmat training to different classes of hazmat materials

and employees, we concluded that DOT had some rulemaking discretion.17

• Officials from the fish farm said that pesticide manufacturers were either

not renewing the aquatic use of certain pesticides or were not seeking EPA

approval of the products for use in aquaculture because of the expense

associated with the testing requirements in EPA’s reregistration program.

EPA officials said that the Federal Insecticide, Fungicide, and Rodenticide

Act (FIFRA) requires EPA to certify that all pesticides meet current testing

standards for safety. We concluded that these FIFRA provisions gave EPA

some discretion regarding the requirements that manufacturers must

satisfy in the pesticide reregistration process. Section 4 of FIFRA

specifically states that the Administrator of EPA must reregister “each

registered pesticide containing any active ingredient contained in any

pesticide first registered before November 1, 1984,” and it prescribes in

detail the approach EPA is to use to reregister pesticides. However, the

statute gives the EPA administrator discretion in establishing the data

requirements that would be needed to support the reregistration of the

pesticides. These requirements can have a direct impact on the expense

incurred by manufacturers in the reregistration process.

We concluded that the statutory provisions underlying 2 of the 27 concerns

gave the agencies broad discretion in how regulatory provisions could be

developed. As noted previously, we coded statutory provisions as allowing

rulemaking agencies “broad discretion” if the provisions contained few

specific requirements or imposed few to no constraints on what had to be

included in agencies’ regulations.

In the first of the two concerns, Bank A officials said EEOC’s record

retention standards were inconsistent with the way EEOC pursued cases.

In response to the Bank’s concern, EEOC officials said that its record

retention requirements were tied to the filing periods in each of the civil

rights statutes. For example, EEOC officials said that because an

employee could file a discrimination suit under the Equal Pay Act within

either 2 or 3 years of the alleged discrimination, EEOC requires that

 

17 As discussed in appendix III, DOT’s hazmat training regulations reflect the statutory requirements

and require some additional information that the statute permits the agency to impose.

Statutes Allowed Agencies

Broad Rulemaking

Discretion for Two

Concerns
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related records be kept for 2 or 3 years. EEOC officials also said that

under all of the statutes, when a claim of discrimination is pending, the

employer must keep all relevant personnel records until final disposition

of the charge or action. We concluded that the statutory provisions

underlying EEOC’s record retention standards gave EEOC broad

discretion in developing the standards because those provisions (1) do not

specify how long employers must retain records and (2) give EEOC broad

authority to establish retention periods. For example, the Equal Pay Act

states that every employer must preserve records for such periods of time

as the Administrator of EEOC “shall prescribe by regulation or order as

necessary or appropriate for the enforcement of the provisions of this

chapter or the regulations or orders thereunder.” Title VII of the Civil

Rights Act of 1964, as amended, requires every employer to make such

reports from its personnel records “as the Commission shall prescribe by

regulation or order . . . .”18 Therefore, we concluded that EEOC had broad

discretion in establishing record retention requirements.

In the second of the two concerns, Bank B officials said that some banking

regulations gave “nonbanks” (e.g., investment brokerage firms) an unfair

competitive edge in the marketplace. For example, the officials said that

one regulation required banks (but not investment firms) to disclose the

risks associated with certain investment products. In their 1996 response

to this concern, OCC officials said that the examples of competitive

inequality cited by the bank officials “are due to the fact that banks and

nonbanks operate under different statutory schemes.” During this review

they explained that under these statutes, banks are subject to a different

regulatory scheme than nonbanks because they are federally insured.

Therefore, they said it is appropriate for banking agencies to adopt

additional disclosure requirements that address the unique features of the

banking industry. In 1994, OCC and the other banking agencies issued an

interagency policy statement at their own initiative requiring the

disclosures that Bank B found burdensome under their general statutory

authority to issue rules and regulations. Because (1) the statutes give OCC

and the other banking agencies authority to take whatever actions they

believe are necessary to remedy or prevent unsafe and unsound banking

practices (see 12 U.S.C. 1818), and (2) the disclosures required in the

policy statement appear related to that end, we believe that OCC had

broad discretion to issue the policy statement requiring the disclosures at

issue in this concern.

 

18 As discussed in appendix IV, EEOC’s record retention requirements align fairly closely with the

statutory time limits for filing discrimination complaints.
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Appendix IV contains our detailed analysis of the statutory and regulatory

provisions relating to both of the concerns for which we concluded the

agencies had broad rulemaking discretion.

Our second objective was to determine whether the regulatory

requirements at issue in each of the 27 company concerns were within the

authority granted by the underlying statutes. We concluded that the

regulatory provisions related to all of the concerns were within the

authority granted by those statutes.

For the 13 concerns in which we concluded the underlying statutes gave

the agencies no rulemaking discretion, the language in the agencies’

regulations either mirrored the language in the statutes or was

substantively consistent with the statutory requirement. Therefore, we

concluded that the regulations were within the authority granted by the

statutes. For example, in relation to a concern from Zaclon, Inc., regarding

a permit application under the Resource Conservation and Recovery Act

(RCRA), we compared the relevant RCRA statutory provisions with EPA’s

regulations and found that the language in the regulations mirrored the

language in the statute. The RCRA provisions (codified at 42 U.S.C.

6925(a)) required the EPA Administrator to “promulgate regulations

requiring each person owning or operating an existing facility or planning

to construct a new facility for the treatment, storage, or disposal of

hazardous waste . . . to have a permit issued pursuant to this section.”

EPA’s RCRA regulations (40 C.F.R. 270.1(c)) directly quote the statute’s

requirements that a permit is needed for the “treatment,’ ‘storage,’ and

‘disposal’ of any ‘hazardous waste’” and goes on to require companies to

obtain such permits. Because the regulatory provisions reflected the

specific statutory requirements, we concluded that those provisions were

within the authority granted by the statutes.

We reached a similar conclusion with regard to a concern from Multiplex

Company, Inc., involving what it referred to as IRS’ “nondiscrimination

tests” for companies’ 401(k) thrift savings plans. We compared the

nondiscrimination test provisions in the tax code with IRS’ regulations and

concluded that the regulations essentially mirror the statutory provisions

and add some explanatory language. The statute (codified at 26 U.S.C.

401(k)(3)(A)(ii)) specifically requires the test and establishes specific

dollar amounts for deferral limits and detailed procedures that companies

must follow. For example, the statute says that the “actual deferral

percentage for the group of eligible highly compensated employees is not

more than the actual deferral percentage of all other eligible employees

Agencies’ Regulatory

Requirements Were

Within Statutory

Authority
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Page 17 GAO/GGD-99-20 Regulatory Burden

multiplied by 1.25.” The related IRS regulations (26 C.F.R. 1.401(k)-1(b)

and 1.402(g)-1) repeat these statutory requirements word for word.

We concluded that the regulations underlying the 12 concerns for which

the agencies had some rulemaking discretion were within the authority

granted by the related statutes because they (1) contained the elements

required by those statutes and/or (2) did not exceed the authority granted

or limits imposed by those statutes. For example, we concluded that the

Expedited Funds Availability Act allowed FRB some discretion in

developing the regulation (Regulation CC) that established the periods

during which banks could hold funds before making them accessible to

depositors. Although the act gave FRB no discretion regarding the

maximum number of days banks could hold particular types of deposits, it

allowed FRB to establish hold periods that were less than those

maximums or to standardize those time periods. Regulation CC

established hold periods that were consistent with the maximum periods

specified in the statute. Therefore, we concluded that the regulation was

within the authority granted by the statute.

For the two concerns in which we concluded that the underlying statutes

gave the agencies broad rulemaking discretion, the statutes contained

language that allowed agencies to develop the rules they believed were

necessary to carry out their statutory missions. We viewed regulations

that agencies developed to carry out their statutory responsibilities as

being within the authority of those statutes. For example, we concluded

that EEOC had broad discretion under the various civil rights statutes to

impose record retention requirements. Therefore, we also concluded that

EEOC’s practice of establishing requirements closely related to the filing

periods of each statute was within the authority granted by those statutes.

Appendixes II, III, and IV describe our analyses of the relevant regulations

for all of the concerns that we categorized as allowing no discretion, some

discretion, and broad discretion, respectively.

Our third objective was to determine whether the rulemaking agencies

could have developed regulatory approaches that would have been less

burdensome to the regulated entities while still meeting the underlying

statutory requirements. We concluded that in relation to 13 of the 27

concerns, the agencies could not have developed less burdensome

regulatory approaches. For the remaining 14 concerns, we could not

determine whether less burdensome regulatory approaches were available

to the agencies without substantial additional information about how the

Less Burdensome

Regulatory

Approaches Were Not

Available for About

Half of the Concerns
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Page 18 GAO/GGD-99-20 Regulatory Burden

current approaches were being implemented or how alternative

approaches would be perceived by regulated entities.

We believe that an agency cannot develop regulatory requirements that are

less burdensome to a regulated entity if (1) the statute underlying the

regulation gives the agency no discretion regarding how regulatory

provisions can be developed, and (2) the agency develops regulations that

are consistent with (and sometimes mirror images of) the statutory

requirements. Because 13 of the 27 concerns met these criteria, we

concluded that the agencies involved in the concerns could not have

developed less burdensome regulatory provisions. For example, in one of

these concerns, officials from a paper company said that EPA regulations

under title V of the Clean Air Act were problematic because they regulated

extremely low levels of emissions. We concluded that under title V, EPA

had no discretion regarding the development of regulations on the

emissions levels that trigger the permitting requirements because the

statute specifically requires any “major source” of hazardous air pollutants

to obtain a title V permit and defines a major source as any source that

emits 10 tons or more a year of any hazardous air pollutant or 25 tons or

more per year of a combination of pollutants. EPA’s regulations

implementing title V are similar to the statutory language and specifically

refer to the definition of “major source” in the United States Code.

Therefore, we concluded that there was no less burdensome regulatory

approach that the agency could have selected that would have met the

requirements of the statute. (See app. II for a discussion of all of these

concerns.)

For the remaining 14 concerns in which we concluded the underlying

statutes gave the agencies some or broad discretion, we could not

determine whether a less burdensome regulatory approach was available.

To make such a determination in each of these cases, we would have had

to do an in-depth review of how the current regulations were being

implemented at each agency or how alternative approaches would be

viewed by regulated entities. For example, in one of the concerns, a Bank

A official complained about the time and effort required to complete call

reports that summarize bank operations. We concluded that the various

statutes that require or authorize the banking agencies to collect

information through the call reports gave the agencies some discretion in

drafting the relevant regulatory provisions. However, we could not

determine whether the banking agencies could have developed less

burdensome requirements without conducting a detailed review of each of

the nonstatutory data elements in the call reports and their consistency

with the requirements in the statute. This type of detailed analysis would
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Page 19 GAO/GGD-99-20 Regulatory Burden

have required significant time and resource commitments that were

beyond the scope of this review. (See app. III and IV for a discussion of all

of these concerns.)

For 2 of these 14 concerns, the agencies appeared to have discretion to

develop alternative regulatory approaches that may have addressed an

aspect of the companies’ original concerns. However, we also concluded

that the regulated entities might not have viewed those alternatives as less

burdensome than the approach that the agencies took. For example, in

one of the concerns a Bank A official said that Regulation CC required the

development and maintenance of expensive and time-consuming

information about the current availability of funds. In response, FRB

officials indicated that Regulation CC’s requirements were based on the

Expedited Funds Availability Act, which establishes different minimum

hold periods for different types of deposits (e.g., deposits of local versus

nonlocal checks). They said that to ensure compliance with this act, banks

must have a system for tracking those deposits. We examined the act and

concluded that it allowed FRB some discretion to establish hold periods

for various types of deposits. For example, the act said that the hold

period for nonlocal checks could not be more than 5 days, but it allowed

FRB to establish hold periods that were less than the maximum period.

However, FRB’s Regulation CC established a 5-day hold period for

nonlocal checks. To reduce Bank A’s burden of having to track holds on

different types of deposits, FRB could have established a standard hold

period in Regulation CC for all types of deposits—e.g., 1 day for all types of

deposits—that was still consistent with the statutory requirements.

However, it is unclear whether banks would welcome a standard 1-day

hold requirement because it would reduce the amount of time available to

the banks to determine whether sufficient funds existed to cover all

categories of checks.

In the other concern, we concluded that EEOC’s practice of establishing

personnel record retention requirements related to the length of the filing

periods of the particular civil rights statutes was within the broad

rulemaking authorities granted by those statutes. However, EEOC could

also have used its discretion to establish uniform record retention

requirements (e.g., 5 or 10 years) for all of the statutes instead of the

variable periods for the different statutes. Although this approach could

have helped eliminate what the company viewed as an inconsistency

between the requirements and the way EEOC pursues cases, it is not clear

whether regulated entities would view a record retention requirement that

is longer than the current requirement as being less burdensome.
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Our review focused on a limited set of issues. It did not attempt to assess

the amount of discretion that federal agencies had in enforcing the

requirements at issue in the companies’ concerns or whether those

requirements were, in fact, burdensome. The review focused on 27

regulatory concerns from 10 companies that the agencies issuing the

regulations indicated were based on the underlying statutes. Therefore,

the results of our review cannot be viewed as being representative of all

regulatory concerns, all regulations or statutes, or even all of the concerns

that the companies mentioned during our initial 1996 study. In fact, it is

important to remember that for about three-fourths of the companies’

original 125 concerns, the responding agencies did not indicate that the

concerns were based on the statutory requirements underlying their

regulations.

On the other hand, although our review focused on 27 regulatory concerns

that the agencies said were, at least in part, statutorily based, the

companies in our 1996 study mentioned 6 other concerns that centered on

the statutes themselves, not the regulations. For example, officials from

one company said that compliance with the Comprehensive

Environmental Response, Compensation, and Liability Act (not EPA’s

CERCLA regulations) was expensive and exposed the company to

unforeseen liability. These statute-directed concerns suggest that the

companies understood the degree to which their problems were traceable

to the statutes. Also, the comments that the companies made during our

1996 study were similar in many respects to comments made by companies

in some of our previous reports and in the literature. Therefore, we

believe that the companies’ comments are not atypical, and our analysis of

the regulations and statutes underlying those concerns can offer some

insights into how regulatory concerns arise and how they can best be

addressed.

For about half of the concerns that we reviewed, we concluded that the

statutory provisions underlying the regulations that companies perceived

as problematic gave the agencies no discretion in how they could develop

those regulations. Some of the statutory provisions specifically delineated

the actions regulated entities had to take and therefore limited rulemaking

agencies’ discretion regarding what their regulations could require. As a

result, the agencies often mirrored the language of the statutes in their

regulations. We therefore concluded that the agencies’ regulations were

within the authority granted by the underlying statutes and represented the

least burdensome option permitted by those statutes. Nevertheless, during

our 1996 review the companies told us that the requirements for these 27

concerns were burdensome.

Conclusions
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The statutes underlying other company concerns gave the agencies some

or broad discretion in developing associated regulatory provisions. In

these cases the agencies appeared to have developed regulations that were

within the authorities permitted by or the limitations of the statutes.

However, we could not determine whether the agencies could have

developed less burdensome regulatory alternatives with regard to these

concerns because to do so would have required detailed information about

how the current requirements were being implemented and/or how

alternative regulatory approaches would be perceived by regulated

entities. In two of these cases, we concluded that the agencies could have

developed alternative regulatory requirements that may have addressed

some aspects of the companies’ concerns. However, even in those cases,

the regulated entities may not have perceived these alternative actions as

less burdensome than the actions the agencies took.

Different perspectives exist regarding the amount of discretion that

Congress should give agencies to establish regulatory requirements. Some

observers believe that giving agencies broad discretion to develop

regulations represents an abrogation of Congress’ legislative

responsibilities and is an open invitation for agencies to impose

burdensome requirements on the public. They contend that Congress

should closely direct agencies’ regulatory efforts through narrowly defined

statutory requirements. However, other observers believe that some

statutory requirements may be to blame for certain types of regulatory

burden. In those cases in which Congress has specifically required certain

actions or limited agencies’ rulemaking discretion, the agencies are

precluded from considering the most cost-effective approaches.

Our review indicated that regardless of how much or how little rulemaking

discretion is permitted in the underlying statutes, the associated

regulations can still be regarded as burdensome by regulated entities. For

13 of the 27 company concerns that we examined, Congress gave the

regulatory agencies no discretion in how the relevant regulatory provisions

could be developed. Although the statutes specifically delineated the

requirements that should be imposed, the companies considered those

requirements to be burdensome. In the statutes underlying the other 14

concerns, Congress gave the regulatory agencies some or broad

rulemaking discretion. Although the agencies’ regulatory requirements

were within the authority granted by the relevant statutes, the companies

again viewed the requirements as burdensome. Also, it is unclear whether

alternative regulations could be developed that would be perceived as less

burdensome.

Statutory Discretion

Appears Unrelated to

Regulatory Burden
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Efforts to reduce regulatory burden and reform the regulatory process are

often based on the belief that agencies’ rulemaking actions must be

carefully limited. Several of the executive and legislative branch

regulatory reform efforts during the past 20 years have directed federal

agencies to conduct cost-benefit or regulatory flexibility analyses for

certain regulations to ensure that those rules impose as little burden as

possible on the regulated public. When the statutes directing or

authorizing agencies to develop regulations give those agencies discretion

as to the regulatory approach that they can take and the particular

requirements that can be imposed, analytical requirements imposed on the

agencies (e.g., cost-benefit analysis and regulatory flexibility analysis) can

help ensure that they consider all available regulatory options and select

the least burdensome option.

However, when the statutes underlying those regulations give agencies no

discretion in how their regulations can be developed, analytical

requirements imposed on the agencies are unlikely to have much direct

effect on the regulatory burden that those agencies impose. Agencies

cannot adopt regulatory alternatives that are outside the boundaries

permitted in the underlying statutes. If a statute underlying a regulation is

the source of a company’s regulatory concern, that concern can be

addressed only by changes in the statute. Similarly, if Congress

disapproves of a regulation pursuant to its authority under SBREFA

because of requirements that are based on the underlying statute, sending

the regulation back to the issuing agency for further consideration will not

resolve the issue. If a statute established the conditions that Congress

finds objectionable, only Congress can address the problem by changing

that statute.

Nevertheless, analytical requirements imposed on agencies can serve a

useful purpose even when the underlying statutes give the agencies no

rulemaking discretion. For example, cost-benefit analysis can highlight the

potential advantages of alternative regulatory approaches not permitted in

the underlying statutes, perhaps leading to eventual changes in those

statutes and thereby alleviating at least some of the burden felt by the

regulated entities.

We are sending copies of this report to the Ranking Minority Member of

the House Judiciary Committee’s Subcommittee on Commercial and

Administrative Law; the Director of OMB; the Secretaries of Health and

Human Services, HUD, Department of Labor, DOT, and the Treasury; the

Comptroller of the Currency; the Administrator of EPA; EEOC; FDIC; FRB;

and PBGC. We will also make copies available to others on request.

Reduction of Statutorily

Based Burden Requires

Statutory Changes
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Major contributors to this report are listed in appendix V. Please contact

me on (202) 512-8676 if you or your staff have any questions concerning

this report.

Sincerely yours,

L. Nye Stevens

Director

Federal Management and

Workforce Issues
Page 24 GAO/GGD-99-20 Regulatory Burden

Contents

Letter 1

Appendix I

Objectives, Scope, and

Methodology

26

Appendix II

Concerns for Which

Agencies Appeared to

Have No Rulemaking

Discretion

34

Appendix III

Concerns for Which

Agencies Appeared to

Have Some

Rulemaking Discretion

58

Appendix IV

Concerns for Which

Agencies Appeared to

Have Broad Discretion

84

Appendix V

Major Contributors to

This Report

91
Contents

Page 25 GAO/GGD-99-20 Regulatory Burden

Abbreviations

ADA Americans with Disabilities Act of 1990

ADEA Age Discrimination in Employment Act

CAA Clean Air Act

CED Committee for Economic Development

CERCLA Comprehensive Environmental Response, Compensation, and Liability

Act of 1980

CFR Code of Federal Regulations

DOT Department of Transportation

EEOC Equal Employment Opportunity Commission

EPA Environmental Protection Agency

ERISA Employee Retirement Income Security Act of 1974

FDIC Federal Deposit Insurance Corporation

FDICIA Federal Deposit Insurance Corporation Improvement Act

FIFRA Federal Insecticide, Fungicide, and Rodenticide Act

FRB Federal Reserve Board

HCFA Health Care Financing Administration

HUD Department of Housing and Urban Development

IRS Internal Revenue Service

OCC Office of the Comptroller of the Currency

OIRA Office of Information and Regulatory Affairs

OMB Office of Management and Budget

OSHA Occupational Safety and Health Administration

PBGC Pension Benefit Guaranty Corporation

RCRA Resource Conservation and Recovery Act

RESPA Real Estate Settlement Procedure Act

SBREFA Small Business Regulatory Enforcement Fairness Act
Appendix I

Objectives, Scope, and Methodology

Page 26 GAO/GGD-99-20 Regulatory Burden

This review focuses on a subset of the 125 regulatory concerns that

companies cited in our 1996 reports—the concerns that federal agencies

indicated were, at least in part, based on the statutes underlying the

relevant regulatory provisions. Our objectives were to determine, for each

such concern, (1) the amount of discretion the underlying statutes gave the

agencies in developing the regulatory requirements that the agencies had

said were attributable to the underlying statutes, (2) whether the

regulatory requirements at issue were within the authority granted by the

underlying statutes, and (3) whether the rulemaking agencies could have

developed regulatory approaches that would have been less burdensome

to the regulated entities while still meeting the underlying statutory

requirements.

In 1996, the agencies indicated that 31 of the 125 company concerns were,

at least in part, statutorily based. However, we eliminated eight of those

concerns from this review because the companies were not expressing

concerns about federal agencies’ regulatory requirements. Two of the

eight concerns were very broad, asserting that “frequent changes to the tax

code are costly” and that doing business in multiple states was difficult

because of differences in state laws. The other six concerns involved

particular federal statutes but did not focus on agencies’ regulatory

requirements. For example, in one of the six concerns company officials

said that compliance with the requirements in the Comprehensive

Environmental Response, Compensation, and Liability Act (CERCLA) was

expensive and exposed the company to unforeseen liability. However, the

officials did not cite any particular Environmental Protection Agency

(EPA) regulations in their concern. Another of the six concerns focused

on the potential liability that officials from one company said its managers

faced with regard to certain environmental standards. In its response to

that concern, EPA indicated that criminal penalties for the violation in

question were established in a particular statute rather than in EPA’s

regulations. We eliminated this concern from our review because EPA is

not responsible for enforcing those provisions in criminal law, and the

issues in the concern were not associated with EPA regulations.

We eliminated another company’s concern from this review because the

agency that had issued the underlying regulations no longer contended

that the concern was statutorily based. In its 1996 response to a concern

that one company described as EPA’s “antidegradation policy,” EPA said

that the company was actually referring to the agency’s “antibacksliding”

requirements that were statutorily mandated by the Clean Water Act.

However, an EPA official told us during this review that (1) the company

concern was, in fact, about antidegredation; and (2) the policy was

Identification of Statutorily

Based Regulatory Concerns
Appendix I

Objectives, Scope, and Methodology

Page 27 GAO/GGD-99-20 Regulatory Burden

adopted by the State of Ohio, not EPA, and was not based on federal

environmental statutes. We therefore eliminated this concern from our

review.

We subdivided 4 of the remaining 22 concerns into 9 separate concerns in

order to facilitate our analysis. For example, one such concern involved

three separate provisions of Regulation DD, which was issued by the

Board of Governors of the Federal Reserve System (FRB) to implement

provisions of the Truth in Savings Act. By dividing this concern into three

separate concerns, we were able to assess each of the provisions

individually. One of the other concerns that we subdivided focused on

what one company viewed as a disparity in federal regulations

requirements between banks and nonbanks (e.g., an investment brokerage

firm) regarding (1) flood insurance and (2) public disclosure requirements.

We subdivided this concern into two concerns to focus on the

requirements for flood insurance and disclosure requirements separately.

After eliminating some company concerns and separating others into

multiple parts, what remained were 27 concerns about federal regulations

that the agencies indicated were, at least in part, based on the underlying

statutes. These 27 concerns were raised by officials from 10 of the 15

companies we visited during the preparation of our 1996 reports. In 1996,

many of the companies asked that their identities not be disclosed during

our discussions with regulators or in our reports. As a result, we used

generic descriptors in the 1996 reports to identify those companies. We

maintained the same policy in this report, using generic descriptors for 7 of

the 10 companies and identifying the remaining 3 companies by name.

Table I.1 shows the name or generic descriptor and the number of

concerns analyzed in this report for each of the 10 companies.
Appendix I

Objectives, Scope, and Methodology

Page 28 GAO/GGD-99-20 Regulatory Burden

Company name or generic

descriptor Description of company

Number of

concerns

Bank A A federally chartered community bank 8

Bank C A commercial bank 5

Bank B A state-chartered community bank 3

Fish farm A tropical fish farm 2

Hospital A teaching hospital 2

Paper company A manufacturer of paper and allied products 2

Metro Machine Corporation A ship repair and maintenance company

located in Norfolk, VA

2

Multiplex Company, Inc. A beverage dispenser equipment

manufacturer headquartered in St. Louis,

MO

2

Glass company A manufacturer of consumer glassware and

fiber optic systems

1

Zaclon, Inc. A chemical manufacturing company located

in Cleveland, OH

1

Total number of concerns 28

Note: The total number of concerns is greater than 27 because 2 companies expressed 1 of the

concerns.

Source: GAO analysis based on GAO/GGD-97-2 (Nov. 18, 1996); and GAO/GGD-97-26R (Dec. 11,

1996).

A total of 11 federal departments and agencies issued the regulations

underlying the 27 company concerns at issue in this report. Table I.2

shows the number of those concerns that were applicable to each of the 11

departments or agencies.

Department or agency name

Number of

concerns

Board of Governors of the Federal Reserve System (FRB) 11

Environmental Protection Agency (EPA) 4

Federal Deposit Insurance Corporation (FDIC) 4

Internal Revenue Service (IRS) 3

Office of the Comptroller of the Currency (OCC) 3

Health Care Financing Administration (HCFA) 2

Department of Housing and Urban Development (HUD) 1

Occupational Safety and Health Administration (OSHA) 1

Department of Transportation (DOT) 1

Equal Employment Opportunity Commission (EEOC) 1

Pension Benefit Guaranty Corporation (PBGC) 1

Total number of concerns 32

Note: The total number of concerns is greater than 27 because the regulations relevant to 2 of the

concerns were issued by 3 agencies, and the regulations underlying another concern were issued by

2 agencies.

Source: GAO analysis based on GAO/GGD-97-2 (Nov. 18, 1996); and GAO/GGD-97-26R (Dec. 11,

1996).

Table I.1: Companies and Number of

Concerns Reported by Each Company

Table I.2: Number of Concerns

Applicable to Each Department and

Agency
Appendix I

Objectives, Scope, and Methodology

Page 29 GAO/GGD-99-20 Regulatory Burden

To address our first objective regarding the amount of discretion the

underlying statutes gave the agencies in developing regulatory

requirements, we first had to identify the regulatory provisions at issue in

the company concerns and the underlying statutory requirements for those

provisions. For most of the concerns, either the company or the

responding agency provided relevant statutory and/or regulatory citations.

However, for other concerns we had only limited information and had to

contact the relevant agencies for additional details. For example, in one

concern, Bank A said it was frustrating to spend the time and resources

comply with so many bank reporting requirements but did not cite any

specific relevant regulations or statutes. In its response to this concern,

FDIC said that some bank reporting requirements were mandated by

statute, but it did not provide any examples of those requirements to

support its statement. During this review, we asked FDIC to identify the

specific regulatory reporting requirements that it considered to be

statutorily mandated and to provide the relevant statutory citations.

We then reviewed the statutory provisions underlying each of the company

concerns and coded the level of discretion that we believed those

provisions permitted the agencies in developing the specific regulatory

requirements at issue in the concerns into one of three categories— “no

discretion,” “some discretion,” or “broad discretion.” We coded statutory

provisions as permitting “no discretion” if they delineated specific actions

that regulated entities or the agencies themselves must take and did not

allow the agencies to develop the regulatory requirements at issue in the

concern. For example, using a hypothetical illustration unrelated to any of

the concerns in this report, assume that a company raised a concern about

what it viewed as a burdensome recordkeeping requirement that EPA

imposed regarding its recycling efforts. If a statutory provision required

companies with 100 or more employees to provide recycling information

to EPA on January 30 of each year delineating, for the previous calendar

year and for each company work site, (1) the specific materials that were

recycled, (2) the manner of recycling, and (3) the costs associated with

their recycling efforts, we would have coded the provision as allowing EPA

no rulemaking discretion.

We coded statutory provisions as allowing rulemaking agencies “some

discretion” if they delineated certain requirements that had to be included

in the agencies’ regulations but gave the agencies at least some discretion

regarding other requirements. For example, in the above illustration, if the

statute gave EPA discretion regarding the timing or the frequency with

Amount of Discretion

Permitted by Statutes
Appendix I

Objectives, Scope, and Methodology

Page 30 GAO/GGD-99-20 Regulatory Burden

which recycling information had to be provided by the companies, but

EPA still had no discretion regarding the content of the reporting

requirement, we would have coded the statutory provision as allowing

some rulemaking discretion.

We coded statutory provisions as allowing the rulemaking agencies “broad

discretion” if the provisions contained few specific requirements or

imposed few to no constraints on what the agencies had to include in their

regulations. In the hypothetical recycling example, if the statutory

provision only required EPA to periodically report to Congress on

businesses’ recycling efforts, we would have coded the provision as

allowing EPA broad rulemaking discretion. In this scenario, EPA could

unilaterally decide what information to collect, from which businesses to

collect the information, and the timing and frequency of companies’

reporting requirements.

To address our second objective, we compared the relevant statutory and

regulatory provisions for each concern and decided whether we believed

the regulatory requirements at issue in the concerns were within the

authority granted by the underlying statutes.1

 We coded the regulatory

provisions as being within the authority granted by the statutes if (1) the

statutory provisions gave the agency no discretion in how the regulations

could be developed and the regulatory provision strictly adhered to the

statutory requirements; or (2) the statutory provisions gave the agency

some or broad discretion, and the regulatory language was consistent with

the requirements or the limitations in the statutes. For example, if the

relevant statutory provision in the above recycling illustration allowed

EPA to establish whatever reporting requirements it “deemed necessary”

to determine the status of companies’ recycling efforts, we would have

considered almost any regulatory reporting requirements that EPA

established as being within the authority granted by the statute. However,

if the statutory provision said EPA could collect information from

companies no more than twice annually but the regulation established

quarterly reporting requirements, we would have considered the regulatory

requirements outside of the authority granted by the statute.

Our third objective was to determine whether the rulemaking agencies

could have developed regulatory approaches that would have been less

burdensome to the regulated entities while still meeting the underlying

statutory requirements. We considered agencies to have been unable to

 

1

 If a court considering this matter determined that a regulation exceeded the authority granted by the

underlying statute, that regulation could be invalidated.

Statutory Authority and

Less Burdensome Options
Appendix I

Objectives, Scope, and Methodology

Page 31 GAO/GGD-99-20 Regulatory Burden

develop less burdensome regulatory approaches if the underlying statutes

gave the agencies no rulemaking discretion and the agencies adopted

regulations that strictly adhered to the statutory requirements. If the

underlying statutes gave the agencies some or broad rulemaking

discretion, we were not able to determine if the agencies could have

developed a less burdensome approach. To do so, we would have needed

detailed information on how the agencies’ regulations were being

implemented and how alternative approaches would be perceived by the

regulated entities in order to determine whether a less burdensome

approach was available. As discussed in Appendices III and IV, that

information was not readily available.

Because this review is based on a subset of the company concerns and

agency responses originally presented in our 1996 reports, several of the

limitations discussed in those reports are also applicable to this report. As

we noted in our November 1996 report, the companies from whom we

initially gathered the concerns were generally those that (1) were

identified by interest groups, identified by officials from the Small

Business Administration, or were in the literature; and (2) were willing to

participate in our review. Therefore, neither the companies’ concerns nor

the results of our analysis are generalizable to other companies or to other

regulatory issues. The results of this analysis are not even generalizable to

all of the original 125 regulatory concerns because this review focuses only

on the subset of the concerns and related regulations that the agencies

indicated were, at least in part, statutorily based. However, as we pointed

out in our November 1996 report, the companies’ comments were similar

in many respects to comments made by companies in some of our

previous reports and in the literature.2

 Therefore, we believe that the

companies’ comments, the agencies’ responses, and our analysis of the

related regulations and statutes are not atypical and can provide some

insights regarding the broader issues addressed in this report.

In preparing both of the 1996 reports and during this review, we did not

collect information from individuals and organizations outside of the

companies and federal agencies responsible for the regulatory issues

mentioned by the companies. For example, we did not obtain information

from labor unions or other employee organizations about the regulations

the companies mentioned. Neither did we collect information from

individuals and organizations that were the potential beneficiaries of the

regulations cited by the companies as being problematic. Collecting the

 

2

See, for example, Workplace Regulation: Information on Selected Employer and Union Experiences

(GAO/HEHS-94-138, June 30, 1994).

Review Limitations
Appendix I

Objectives, Scope, and Methodology

Page 32 GAO/GGD-99-20 Regulatory Burden

views of all such organizations for all the regulations and statutes cited in

the 1996 reports and this report would have been very time consuming, if

not impossible. Therefore, as was the case in the 1996 reports, this report

does not reflect the full range of opinions that may exist regarding the

issues raised during the reviews. However, this report reflects the views of

the two stakeholder groups in which we were most interested—the

elements of the regulated community that raised these concerns and the

agencies that issued the underlying regulations.

Our approach in the 1996 reports was to present the views of both the

businesses and the agencies without attempting to resolve the many

differences in perspectives and interpretation that arose between the two

groups. We followed the same approach in this review, and we did not

attempt to determine whether the companies’ or the agencies’ views were

correct with regard to issues that were outside of the scope of this review.

For example, one company said that certain IRS-required tests were of

questionable value to the agency in determining whether thrift savings

plans were being fairly administered. We focused our analysis on whether

the tests were (as IRS contended) statutorily required, not on whether they

were of value to IRS. Also, we did not attempt to determine whether any

of the agencies’ actions were, in fact, “burdensome.”

The report focuses primarily on the amount of discretion that the relevant

statutes gave rulemaking agencies in developing the regulatory

requirements at issue in the companies’ concerns. However, the report

does not address the amount of discretion that the agencies had in writing

regulations outside of the specific issues raised by the companies.

Agencies may have broad discretion in how regulations can be developed

within a general area, but little or no discretion with regard to particular

issues within those areas. Also, the report does not address enforcement

issues. As our 1996 reports indicated, agencies may have considerable

discretion in carrying out their enforcement authority, and the use of that

discretion can significantly affect the burden felt by regulated entities. For

example, several companies expressed concerns about rigid and inflexible

regulations and about certain regulators’ “gotcha” enforcement approach.

In response to those concerns, the agencies sometimes indicated that they

reduced penalties in response to good faith efforts to comply, were not

“aggressively” enforcing certain technical requirements, or were changing

their enforcement approaches.

We approached our review objectives systematically. First, we developed

a coding scheme for each objective to ensure consistency of analysis.

Multiple staff members then analyzed the issues related to each concern,
Appendix I

Objectives, Scope, and Methodology

Page 33 GAO/GGD-99-20 Regulatory Burden

reviewed the statutory and regulatory requirements, and agreed on how

each concern should be coded. However, determining how much

discretion a statute gives a rulemaking agency, whether a regulation is

within the authority granted by the underlying statute, and whether less

burdensome regulatory approaches could have been developed are

ultimately matters of judgement. Therefore, our conclusions should be

viewed in that light, not as determinations that have a legally binding effect

on the agencies issuing the rules or the regulated community.

We initially gathered the company concerns and agency responses

between June 1994 and September 1996. In this review, we analyzed the

statutory and regulatory provisions as they existed between 1994 and 1996.

If a statutory or regulatory provision changed after this period, we noted

those changes in this report. We conducted our work between February

and October 1998 in the Washington, D.C., headquarters offices of each of

the previously identified agencies in accordance with generally accepted

government auditing standards.
Appendix II

Concerns for Which Agencies Appeared to

Have No Rulemaking Discretion

Page 34 GAO/GGD-99-20 Regulatory Burden

One of the objectives of our review was to determine, for each of 27

company concerns, the amount of discretion the underlying statutes gave

rulemaking agencies in drafting the regulatory requirements that the

agencies said were attributable to the underlying statutes. The agencies

that issued those requirements indicated in two of our 1996 reports that

the concerns could, at least in part, be traced to statutory requirements

underlying their regulations.1

 In this review we concluded that the

statutory provisions underlying 13 of the 27 concerns gave the rulemaking

agencies no discretion in how the related regulatory requirements could be

drafted. We coded statutory provisions as allowing agencies “no

discretion” if they delineated specific actions that regulated entities or the

agencies themselves must take and did not allow the agencies to develop

their own regulatory requirements.

This appendix provides our detailed analysis of each of these 13 company

concerns. Specifically, for each such concern it provides the following

information: (1) the portion of the concern in our 1996 reports that the

agency or agencies indicated was statutorily based, (2) the portion of the

agency response in our 1996 reports that indicated the concern was

statutorily based, (3) our analysis of the amount of rulemaking discretion

the relevant statutory provisions gave the agencies (the first objective of

our review), (4) our analysis of whether the regulatory requirements at

issue in the concern were within the authority granted by the underlying

statutes (the second objective of our review), (5) our analysis of whether

the rulemaking agencies could have developed regulatory approaches that

would have been less burdensome to the regulated entities while

accomplishing the underlying statutory objectives (the third objective of

our review), and (6) the main purpose of the underlying statutes (where

such purpose statements were available). Appendix I of this report

contains a detailed discussion of our scope and methodology.

A Metro Machine Corporation official said that EPA regulators establish

regulations that are not relevant to the industry and establish unrealistic

requirements that are not attainable or verifiable with current treatment

technology and measurement systems. For example, the official said that

federal water quality standards require that the water the company

discharges be made cleaner than rainwater. The official also said that up

to 90 percent of pollution reduction generally can be achieved with

 

1

 Regulatory Burden: Measurement Challenges and Concerns Raised by Selected Companies

(GAO/GGD-97-2, Nov. 18, 1996); and Regulatory Burden (GAO/GGD-97-26R, Dec. 11, 1996).

Concern 1

Company Concern
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 35 GAO/GGD-99-20 Regulatory Burden

reasonable costs, but the last 10 percent of pollution reduction is very

difficult or costly (sometimes up to double the cost) because the needed

technology is either not available or very expensive.

EPA officials noted that Metro Machine Corporation is located in Virginia

and said that the State of Virginia establishes water quality standards for

state waters. They also said that the State of Virginia is authorized to

administer the National Pollutant Discharge Elimination System (NPDES)

program related to this concern. Under the standard-setting process, EPA

officials said that states initially establish the “designated use” or water

quality goal for individual bodies of water to protect aquatic life and

human health. Once states make those designations, they typically adopt

EPA-developed water quality criteria to support the designated use. EPA

officials said the Clean Water Act stipulates that EPA cannot consider

available treatment technologies or the cost of treatment in the

development of water quality criteria. EPA officials also noted that, in

certain cases, air pollution carried to earth by rainwater may cause surface

water to be harmful to aquatic life and/or human health. Because

Virginia’s water quality criteria are designed to protect aquatic life and

human health, the criteria may indeed be more restrictive than for polluted

rainwater in certain instances. However, Virginia has the option of

providing economic relief in its water quality standards, where justified by

the State and approved by EPA, through modification of its goals for a

water body or by providing a water quality-based variance for specific

discharges.

The issue that we focused on in this concern is EPA’s assertion that it

cannot consider cost or available treatment technologies when it

establishes water quality criteria under the Clean Water Act.

Although the State of Virginia had discretion in establishing the designated

use for the body of water at issue in the concern, we believe EPA had no

discretion to consider cost or available treatment technologies in

developing water quality criteria pursuant to the Clean Water Act (codified

at 33 U.S.C. Chapter 26). Under the statute (33 U.S.C. 1313(c)(2)), water

quality standards consist of designated uses for the body of water involved

(e.g., public water supplies or recreation) and water quality criteria. Water

quality criteria provide technical information on the effects of pollution on

water quality and frequently identify what maximum safe concentrations

of pollutants would be to protect particular designated uses.

Agency Response

Amount of Discretion

Permitted in the Statute in

Drafting Regulatory

Requirements
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 36 GAO/GGD-99-20 Regulatory Burden

The statute (33 U.S.C. 1314 (a)(1)) also says that the EPA Administrator

must develop and publish criteria for water quality “accurately reflecting

the latest scientific knowledge (A) on the kind and extent of all identifiable

effects on health and welfare . . . ; (B) on the concentration and dispersal

of pollutants, or their byproducts . . . ; and (C) on the effects of pollutants

on biological community diversity, productivity, and stability . . . .” The

statute also requires the Administrator to develop and publish information

“on the factors necessary to restore and maintain the chemical, physical,

and biological integrity” of water.

The Clean Water Act sets forth EPA’s responsibilities and the factors that

it must consider in the development of water quality criteria. Because the

consideration of costs and available treatment technologies are not among

those factors, we do not believe that EPA could consider costs or

technology limits in developing water quality criteria pursuant to the act.

We believe that EPA’s regulatory provisions delineating the factors that

states should consider in establishing water quality standards (codified at

40 C.F.R. Part 131) are within the authority granted by the Clean Water

Act. According to those regulations (40 C.F.R. 131.10(a)), in establishing

such standards, states must "take into consideration the use and value of

water for public water supplies, protection and propagation of fish,

shellfish, and wildlife, recreation in and on the water, agricultural,

industrial, and other purposes including navigation." Subsection 131.10(b)

of the regulation also says, "the State shall take into consideration the

water quality standards of downstream waters" and shall ensure that the

water quality standards that will be established provide for the attainment

and maintenance of the standards for the downstream waters. Also, 40

C.F.R. 131.11 (a)(1) says that states must adopt water quality standards

that protect the designated use and “must be based on sound scientific

rationale and must contain sufficient parameters or constituents to protect

the designated use.” Because these regulatory requirements essentially

mirror or are logically related to the requirements in the Clean Water Act

regarding the establishment of water quality standards, we believe the

requirements are within the authority granted by the Clean Water Act.

We do not believe that EPA could have developed less burdensome water

quality criteria by taking cost or treatment technology into account and

still meet the requirements of the Clean Water Act. The regulatory

requirements regarding the establishment of water quality standards either

mirrored the statutory provisions or were logically related to those

provisions.

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 37 GAO/GGD-99-20 Regulatory Burden

According to 33 U.S.C. 1251(a), the purpose of the Clean Water Act is to

restore and maintain the chemical, physical, and biological integrity of the

nation's waters.

Zaclon, Inc. officials said the company was appealing a fine for failure to

respond on time to an EPA letter asking them for information related to

the Resource Conservation and Recovery Act (RCRA). They said EPA

fined them without any follow-up or other communication regarding the

original request. The officials also said they were disturbed that the fine

was imposed on them because of a procedural matter (failing to file

information) rather than something that had a real environmental impact.

EPA officials said the agency sent Zaclon, Inc. a certified letter, which the

company acknowledged receiving, notifying the company of its

responsibility to either file a RCRA permit application for a hazardous

waste pile at a facility that the company had acquired, or submit a

demonstration of equivalency indicating that the waste pile had been

“clean closed.” EPA officials said that the agency initially proposed

assessing a penalty against the company of approximately $81,000.

However, after discussions with the company, EPA later reduced the

penalty to $37,600. EPA officials said the obligation to obtain either the

permit or demonstrate that the waste pile has been “clean closed.” They

also said this is not a “procedural matter.” They said this is a substantive

requirement to ensure that hazardous waste management units are

designed and operated to prevent releases of hazardous waste. The

officials also said that under RCRA, companies have a positive obligation

to comply even if EPA does not issue any reminders of their responsibility.

The issues that we focused on in this concern are EPA’s assertions that

RCRA requires the company to obtain a hazardous waste permit and to

comply with the statutory requirement in the absence of a notice from

EPA.2

We believe that RCRA gave EPA no discretion in how it could draft its

regulations requiring a hazardous waste permit. The statute (42 U.S.C.

6925(a)) says that the EPA Administrator must promulgate regulations

requiring each person owning or operating an existing facility or planning

 

2

 Another issue in this concern was the fine imposed by EPA on the company for the company not

obtaining the hazardous waste permit. Because the agency response to this concern had not indicated

that the fine imposed on the company was established in the statute, our analysis did not address this

issue.

Statutory Purpose

Concern 2

Company Concern

Agency Response

Amount of Discretion

Permitted in the Statute in

Drafting Regulatory

Requirements
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 38 GAO/GGD-99-20 Regulatory Burden

to construct a new facility for the treatment, storage, or disposal of

hazardous waste to have a permit. It also states that the treatment,

storage, or disposal of any such hazardous waste and the construction of

any new facility for the treatment, storage, or disposal of hazardous waste

is prohibited except in accordance with such a permit. Therefore, EPA

had no discretion in drafting its regulations about requiring a permit for

those facilities in existence or under construction that treat, store, or

dispose of hazardous waste. Also, the statute does not indicate that EPA is

required to notify companies of their responsibility to obtain a RCRA

permit.

We believe that EPA’s regulations requiring a RCRA permit are within the

authority granted the agency by the statute. The regulations (40 C.F.R.

270.1(c)) require companies to obtain a RCRA permit for the treatment,

storage, or disposal of hazardous wastes identified or listed in 40 C.F.R.

261. The regulation also says that owners and operators of hazardous

waste management units must have permits during the active lives of the

units, including the closure period. Because these regulatory provisions

closely follow the statutory language in 42 U.S.C. 6925(a), we believe that

EPA’s regulations are within the authority granted by the statute.

We do not believe that EPA could have developed a less burdensome

regulatory approach for its RCRA permit process while still meeting the

underlying statutory requirements. RCRA gave the agency no discretion in

drafting the regulatory requirements at issue in this concern, and those

requirements closely followed the requirements in the statute.

RCRA does not contain a statement of purpose.

Officials from the paper company said that regulations under Title V of the

Clean Air Act (CAA) are problematic because they regulate extremely low

levels of emissions. They said that they are required to get a title V permit

for methanol emissions that, at the company's fence line, are no more

concentrated than the methanol in a person's breath.

According to EPA, the emission levels that trigger Title V coverage are

specified in CAA, ranging from 10 to 100 tons of emissions per year

depending on the pollutant and/or the location of the emissions' sources.

Companies capable of emissions above these levels are called "major"

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 3

Company Concern

Agency Response
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 39 GAO/GGD-99-20 Regulatory Burden

sources under the act, triggering title V permitting requirements. For

hazardous air pollutants, EPA said that title V coverage is triggered by

annual emissions of 10 tons of a given pollutant or 25 tons or more of a

combination of pollutants. EPA also said that although specific

information about the company was not provided, a typical paper mill

emits about 600 tons per year of hazardous air pollutants other than

methanol, including approximately 20 of the 189 hazardous air pollutants

listed in CAA.

The issue that we focused on in this concern is EPA’s assertion that Title V

of CAA establishes the level of emissions of hazardous air pollutants that

subjects a company to permit requirements.

We believe that CAA (codified at 42 U.S.C. 7401 et seq.) gave EPA no

discretion in developing its regulations regarding the emissions levels that

trigger title V permitting requirements (codified at 42 U.S.C. 7661-7661f)

when those emissions are above a certain level.3

 The act requires any

“major source” of hazardous air pollutants to obtain a title V permit, and

defines a major source in 42 U.S.C. 7412(a)(1) as “any stationary source or

group of stationary sources located within a contiguous area and under

common control that emits or has the potential to emit considering

controls, in the aggregate, 10 tons per year or more of any hazardous air

pollutant or 25 tons per year or more of any combination of hazardous air

pollutants.” Methanol is specifically listed in 42 U.S.C. 7412(b)(1) as a

hazardous air pollutant, so a company would have to obtain a title V permit

if it emitted 10 tons of methanol per year or more. However, a company

could also be required to obtain a permit if it emitted no methanol but

emitted 10 tons of any other hazardous air pollutant or 25 or more tons of

any combination of covered pollutants.

We believe that EPA’s regulatory provisions regarding the emissions levels

that trigger the title V permitting requirements are within the authority

granted by CAA. The regulation (40 C.F.R. 70.2) defines a “major source”

that is required to have a permit by specifically referencing the statutory

definition of the term in 42 U.S.C. 7412(a)(1). By using the same definition

of a major source, EPA’s regulations are consistent with CAA’s

requirements regarding the emissions levels that trigger title V permit

 

3

 CAA provides that the EPA Administrator may consider a facility to be a “major source” at levels less

than 10 tons of any hazardous air pollutant per year or 25 tons of any combination of hazardous air

pollutants per year "on the basis of the potency of the air pollutant, persistence, potential for

bioaccumulation, other characteristics of the air pollutant, or other relevant factors." Therefore, EPA

has some discretion to require permits for facilities that emit levels of hazardous air pollutants that are

lower than the level specified in the statute.

Amount of Discretion

Permitted in the Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 40 GAO/GGD-99-20 Regulatory Burden

requirements, and therefore they are within the authority granted by the

statute.

We do not believe that EPA could have developed a less burdensome

regulatory approach while still meeting the underlying requirements of

CAA. The act gave the agency no discretion in drafting the regulatory

requirements at issue in this concern, and those requirements were

consistent with the requirements in the statute.

According to 42 U.S.C. 7401(c), a primary goal of CAA’s air pollution

prevention and control program is to "encourage or otherwise promote

reasonable Federal, State, and local governmental actions . . . for pollution

prevention.” Section 7401(b) says that the purposes of the subchapter on

“Programs and Activities” are

“ (1) to protect and enhance the quality of the Nation’s air resources so as to promote the

public health and welfare and the productive capacity of its population; (2) to initiate and

accelerate a national research and development program to achieve the prevention and

control of air pollution; (3) to provide technical and financial assistance to State and local

governments in connection with the development and execution of their air pollution

prevention and control programs; and (4) to encourage and assist the development and

operation of regional air pollution prevention and control programs.”

Fish farm officials said IRS rules on how to account for the capital costs of

company construction projects done by the firm's employees are complex

and costly. They said prior to a 1986 change in the tax code, indirect costs

(e.g., telephone costs associated with the construction project) could be

treated as a business expense and therefore could be deducted from that

year's taxes. After 1986, IRS required that indirect costs be included as a

capital expense; therefore, they could be deducted only over a long period

of time. They said because of this change, the company's deductions

decreased and taxable income increased, and they had to pay higher taxes.

IRS officials said the requirement to capitalize indirect costs allocable to

the production of self-constructed assets was established by statute rather

than by IRS regulations. They said Congress enacted the uniform

capitalization rules as a part of the Tax Reform Act of 1986 for two

reasons. First, Congress wanted to provide a series of uniform rules of

capitalization for construction contractors, manufacturers, and taxpayers

that produce property for their own use. Second, Congress believed that

allowing the immediate deduction of indirect costs (1) resulted in a

mismatch of costs and the income produced by those expenses, (2)

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 4

Company Concern

Agency Response
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 41 GAO/GGD-99-20 Regulatory Burden

permitted an unwarranted deferral of federal income tax, and (3) resulted

in differences in the tax treatment of costs between purchased and selfconstructed assets. IRS officials said Congress clearly intended that 26

U.S.C. 263A would result in a decrease in the taxpayer's current

deductions and a corresponding increase in taxable income.

The issue that we focused on in this concern is IRS’ assertion that the

requirement that taxpayers capitalize indirect costs of construction

projects was established by statute.

We believe that the tax code gave IRS no discretion as to how it could

write its regulations with regard to the capitalization of indirect costs.

According to 26 U.S.C. 263A(a), any “allocable costs” (defined as a

property’s direct costs and a property’s “proper share” of indirect costs

that are allocable to the property) must be capitalized. However, if the

property “is inventory in the hands of the taxpayer,” the statute says that

those costs must be included in inventory costs.

We believe that IRS’ regulatory provisions regarding the capitalization of

indirect costs are within the authority granted by the statute. The

provisions are substantively the same as the statutory requirements and

specifically reference several portions of the statute. For example, 26

C.F.R. 1.263A-2(a)(3)(i) says that "[e]xcept as specifically provided in

section 263A(f) with respect to interest costs, producers must capitalize

direct and indirect costs properly allocable to property produced under

section 263A, without regard to whether those costs are incurred before,

during, or after the production period (as defined in section

263A(f)(4)(B))."

We do not believe that IRS could have developed a less burdensome

regulatory approach that would have met the requirements of the

underlying statute. The tax code gave IRS no discretion in how it could

draft the regulatory requirements at issue in this concern, and IRS’

regulations were consistent with (and specifically referenced) the

statutory requirements.

This section of the tax code does not contain a statement of purpose.

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

 Statutory Purpose
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 42 GAO/GGD-99-20 Regulatory Burden

Officials from Multiplex Company, Inc., said that the IRS-required

nondiscrimination tests for 401(k) thrift savings plans are of questionable

value because IRS lowered the amount of money that can be contributed

to the plans, thereby making it less likely that higher income employees

will dominate the plans.

IRS officials said that the “IRS-required nondiscrimination test” that

Multiplex Company, Inc. officials mentioned appears to refer to the actual

deferral percentage test, which is required by section 401(k)(3) of the

Internal Revenue Code. Similarly, they said that the limit on deferrals

under a 401(k) plan was imposed by section 402(g) of the Internal Revenue

Code. Therefore, they said it is incorrect to claim that the “IRS lowered

the amount of money that can be contributed.”

The issues that we focused on in this concern are IRS’ assertions that the

“nondiscrimination tests” used to determine the actual deferral percentage

for highly compensated employees and the amount of money that can be

contributed to 401(k) plans are established by statute.

We believe that IRS had no discretion in drafting its regulations requiring

the test or setting the dollar amount of the deferral limit because they were

both specifically established by statute. According to 26 U.S.C.

401(k)(3)(A)(ii) “the actual deferral percentage” (i.e., the amount that can

be put into the thrift savings plan) for eligible highly compensated

employees must meet one of the following tests:

“(I) The actual deferral percentage for the group of eligible highly compensated employees

is not more than the actual deferral percentage of all other eligible employees multiplied by

1.25.

“(II) The excess of the actual deferral percentage for the group of eligible highly

compensated employees over that of all other eligible employees is not more than 2

percentage points, and the actual deferral percentage for the group of eligible highly

compensated employees is not more than the actual deferral percentage of all other eligible

employees multiplied by 2.”

With regard to the amount that can be contributed and deferred each year,

26 U.S.C. 402(g)(1) states that “the elective deferrals of any individual for

any taxable year shall be included in such individual's gross income to the

Concern 5

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 43 GAO/GGD-99-20 Regulatory Burden

extent the amount of such deferrals for the taxable year exceeds $7,000.”4

Also, 26 U.S.C. 402(g)(5) states that “[t]he Secretary shall adjust the $7,000

amount under paragraph (1) at the same time and in the same manner as

under section 415(d); except that any increase under this paragraph which

is not a multiple of $500 shall be rounded to the next lowest multiple of

$500.”

We believe that IRS’ regulatory provisions regarding the

“nondiscrimination test” referred to in the company’s concern are within

the authority granted by the statute. IRS' implementing regulations for this

requirement (26 C.F.R. 1.401(k)-1(b) and 1.402(g)-1) essentially mirror the

language of the statute with some additional explanatory language. For

example, 26 C.F.R. 1.401(k)-1(b)(2)(i) contains almost identical language

to that in 26 U.S.C. 401(k)(3)(A)(ii). It says that a cash or deferred

arrangement satisfies the regulation only if:

“(A) [t]he actual deferral percentage for the group of eligible highly compensated

employees is not more than the actual deferral percentage for the group of all other eligible

employees multiplied by 1.25; or (B) [t]he excess of the actual deferral percentage for the

group of eligible highly compensated employees over the actual deferral percentage for the

group of all other eligible employees is not more than two percentage points, and the actual

deferral percentage for the group of eligible highly compensated employees is not more

than the actual deferral percentage for the group of all other eligible employees multiplied

by two.”

The regulation is also similar to the statute with regard to the limits on the

amount that can be contributed to the plans. For example, 26 C.F.R.

1.402(g)-1(d) states that “[t]he applicable limit for an individual's taxable

year beginning in the 1987 calendar year is $7,000. This amount is

increased for the taxable year beginning in 1988 and subsequent calendar

years in the same manner as the $90,000 amount is adjusted under section

415(d).”

We do not believe that IRS could have developed a less burdensome

regulatory approach that would have satisfied the underlying statutory

requirements. The statute gave IRS no discretion in drafting the regulatory

requirements at issue in this concern, and its regulations essentially mirror

the language in the statute.

 4

Although the company referred to an "approximately $9,000 per year" limit and 26 U.S.C. 402(g)(1)

establishes the limit as $7,000, 26 U.S.C. 402(g)(5) allows for this amount to be increased annually in

accordance with 26 U.S.C. 415(d).

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 44 GAO/GGD-99-20 Regulatory Burden

This section of the tax code does not contain a statement of purpose.

Multiplex Company, Inc. officials said that increased premium costs paid

to PBGC to guarantee their employees’ pensions is costly for the company

(over $2,600 in 1994). They said the mandated premium per participant

increased from $2.60 in 1982 to $19.00 in 1994.

PBGC officials said that the insurance premiums the agency charges are

statutorily established in Section 4006 of the Employee Retirement Income

Security Act (ERISA).

The issue that we focused on in this concern is PBGC’s assertion that the

increase in pension insurance premiums that Multiplex mentioned was

statutorily driven.

We believe that ERISA (codified at 29 U.S.C. 1001 et seq.) gave PBGC no

discretion to set pension insurance premium rates below $19 per

participant in 1994. The statute establishes specific premium rates for

certain types of employer plans. For example, 29 U.S.C. 1306(a)(3)(A)

states that the annual premium rate payable to PBGC in the case of a

single-employer plan for basic benefits for plan years beginning after

December 31, 1990, at “an amount equal to the sum of $19 plus the

additional premium (if any) determined under subparagraph (E) for each

individual who is a participant in such plan during the plan year.” The

statute allows PBGC to raise the premium rate for particular plans under

certain circumstances. However, the $19 rate is the minimum amount

businesses with single-employer plans must pay for basic benefits.

We believe that PBGC’s regulatory provisions concerning premium rates

are within the authority granted by the statute. According to 29 C.F.R.

4006.3,5

 “. . . the premium paid for basic benefits guaranteed under section

4022(a) of ERISA shall equal the flat-rate premium under paragraph (a) of

this section plus, in the case of a single-employer plan, the variable-rate

premium under paragraph (b) of this section.” In paragraph (a) the flatrate premium is calculated as “. . . equal to the number of participants in

the plan on the last day of the plan year preceding the premium payment

year, multiplied by-- (1) $19 for a single-employer plan . . . .”

 

5

In the 1994 and 1995 editions of the Code of Federal Regulations this section is found at 26 C.F.R.

2610.

Statutory Purpose

Concern 6

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 45 GAO/GGD-99-20 Regulatory Burden

We do not believe that PBGC could have developed less burdensome

premium rates while still meeting the requirements of ERISA. The statute

gave the agency no discretion in drafting the regulatory requirements at

issue in this concern, and the regulations mirror the statutory

requirements.

According to 29 U.S.C. 1001 (a),

“ [t]he Congress finds that the growth in size, scope, and numbers of employee benefit

plans in recent years has been rapid and substantial; that the operational scope and

economic impact of such plans is increasingly interstate; that the continued well-being and

security of millions of employees and their dependents are directly affected by these plans;

that they are affected with a national public interest; that they have become an important

factor affecting the stability of employment and the successful development of industrial

relations; that they have become an important factor in commerce; . . . that owing to the

lack of employee information and adequate safeguards concerning their operation, it is

desirable in the interests of employees and their beneficiaries, and to provide for the

general welfare and the free flow of commerce, that disclosure be made and safeguards be

provided with respect to the establishment, operation, and administration of such plans;

that they substantially affect the revenues of the United States because they are afforded

preferential [f]ederal tax treatment; . . . and that it is therefore desirable in the interests of

employees and their beneficiaries, for the protection of the revenue of the United States,

and to provide for the free flow of commerce, that minimum standards be provided

assuring the equitable character of such plans and their financial soundness.”

Also, 29 U.S.C. 1001(b) states that

“[i]t is hereby declared to be the policy of this chapter to protect interstate commerce and

the interests of participants in employee benefit plans and their beneficiaries, by requiring

the disclosure and reporting to participants and beneficiaries of financial and other

information with respect thereto, by establishing standards of conduct, responsibility, and

obligation for fiduciaries of employee benefit plans, and by providing for appropriate

remedies, sanctions, and ready access to the [f]ederal courts.”

Finally, 29 U.S.C. 1001(c) says that

“[i]t is further declared to be the policy of this chapter to protect interstate commerce, the

[f]ederal taxing power, and the interests of participants in private pension plans and their

beneficiaries by improving the equitable character and the soundness of such plans by

requiring them to vest the accrued benefits of employees with significant periods of service,

to meet minimum standards of funding, and by requiring plan termination insurance.”

An official from Metro Machine Corporation said that OSHA should

differentiate between corporate negligence and employee responsibility in

assessing workplace safety. He said OSHA currently holds companies, not

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 7

Company Concern
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 46 GAO/GGD-99-20 Regulatory Burden

individual employees, accountable for violations caused by employee

negligence or willful removal of company-installed safety devices.

OSHA officials said that Section 5 of the Occupational Safety and Health

Act of 1970 places specific responsibilities for workplace safety and health

on both employers and employees. Although the act gives OSHA the

authority to enforce safety and health standards and issue citations to

employers for violations of the act, the officials said the act does not

authorize OSHA to penalize individual employees for misconduct related

to safety or health standards. They noted that in Atlantic & Gulf

Stevedores v. OSHRC, 534 F.2d 541, 555 (3rd Cir., 1976), the Court found

that the Occupational Safety and Health Act does not confer upon the

Secretary of Labor the power to sanction employees who disregard safety

standards because the act's enforcement scheme is directed only against

employers. Therefore, OSHA officials said its enforcement policy of

holding companies liable for safety and health violations is wholly

consistent with the intent of the act.

However, OSHA officials also noted that since the early 1980s OSHA's

policy has been to excuse the employer from a violation when an OSHA

compliance officer determines that employees are systematically refusing

to comply with safety and health standards and rules. To be excused from

the violation, they said the employer would have to demonstrate that (1)

his or her employees had received appropriate training and the necessary

equipment, (2) the employer had communicated and enforced the work

rules designed to prevent employee misconduct, (3) the employees failed

to observe work rules that led to the violation, and (4) the employer had

taken reasonable steps to discover the violation.

The issue that we focused on in this concern is OSHA’s assertion that the

Occupational Safety and Health Act does not allow it to hold individual

employees accountable for violations of health and safety rules.

We believe that the Occupational Safety and Health Act (codified at 29

U.S.C. 651 et seq.) gave OSHA no discretion in how it could write its

regulations holding companies responsible for health and safety violations.

Several sections of the act specifically mention holding employers

accountable for violations, but none of those sections say that employees

should be held accountable. For example, 29 U.S.C. 658(a) says that “[i]f,

upon inspection or investigation, the Secretary . . . believes that an

employer has violated a requirement of section 654 of this title, of any

standard, rule or order promulgated pursuant to section 655 of this title, or

of any regulations prescribed pursuant to this chapter, he shall with

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 47 GAO/GGD-99-20 Regulatory Burden

reasonable promptness issue a citation to the employer.” Another section

of the act (29 U.S.C. 659) says that “[i]f, after an inspection or

investigation, the Secretary issues a citation . . . he shall . . . notify the

employer . . . of the penalty . . . .” The act goes on to say that “the citation

and the assessment shall be deemed a final order . . . [i]f the Secretary has

reason to believe that an employer has failed to correct a violation for

which a citation has been issued . . . .”

We believe that OSHA’s regulations holding employers and not employees

accountable for safety violations are within the authority granted by the

Occupational Safety and Health Act. The regulations, like the statute,

specifically hold employers accountable for violations of the act. For

example, 29 C.F.R. 1903.14 states that

“ [t]he Area Director shall review the inspection report of the Compliance Safety and Health

Officer. If, on the basis of the report the Area Director believes that the employer has

violated a requirement of section 5 of the [a]ct, of any standard, rule or order promulgated

pursuant to section 6 of the [a]ct, or of any substantive rule published in this chapter . . . he

shall issue to the employer either a citation or a notice of de minimis violations. . . .”

We do not believe that OSHA could have developed a less burdensome

regulatory approach while still meeting the requirements of the

Occupational Safety and Health Act. The statute gave OSHA no discretion

in drafting the regulatory requirements at issue in this concern, and the

agency’s regulations were consistent with the statutory requirements.

As stated in 29 U.S.C. 651(b), the purpose of the Occupational Safety and

Health Act is to ensure so far as possible every working man and woman in

the nation safe and healthful working conditions and to preserve human

resources. The statute delineates 13 actions intended to achieve this goal,

including (1) encouraging employers and employees in their efforts to

reduce the number of occupational safety and health hazards at their

places of employment, and to stimulate employers and employees to

institute new and perfect existing programs for providing safe and

healthful working conditions; (2) providing that employers and employees

have separate but dependent responsibilities and rights with respect to

achieving safe and healthful working conditions; and (3) authorizing the

Secretary of Labor to set mandatory occupational safety and health

standards applicable to businesses affecting interstate commerce.

An official from Bank A said that the regulation on the Availability of

Funds and Collection of Checks (Regulation CC) requires the development

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 8

Company Concern
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 48 GAO/GGD-99-20 Regulatory Burden

and maintenance of expensive and time-consuming information on the

current availability of funds. The official said that to provide this

information to clients as the regulation requires, the bank must regularly

review, update, and reprint brochures with this information.

Officials at FRB said that Regulation CC implements the Expedited Funds

Availability Act (12 U.S.C. 4001-4010), which limits the length of time

depository institutions may place holds on deposits to transaction

accounts. They said the act and the regulation also require depository

institutions to provide to their customers written copies of their

availability policies and written notices when certain types of extended

holds are placed on deposits. In addition to providing general policy

disclosure notices to customers, depository institutions also incur the

ongoing costs of providing exceptions to hold notices and change-in-policy

notices, as well as costs related to employee training. FRB officials said

that because the disclosure provisions in Regulation CC are required by

the Expedited Funds Availability Act, statutory amendments would be

necessary to relieve any of the burdens on depository institutions

associated with those provisions.

The issue that we focused on in this concern is FRB’s assertion that the

Expedited Funds Availability Act requires banks to maintain and disclose

specific information about their funds availability policies.

We believe that the Expedited Funds Availability Act gave FRB no

discretion in how it could write its regulations requiring depository

institutions to disclose their funds availability policies. The statute (12

U.S.C. 4004) requires depository institutions to disclose to their customers,

on preprinted deposit slips, their policies regarding the withdrawal of

deposits. The statute also requires these disclosures to be provided before

an account is opened, whenever there is a policy change within the

institution, if the customer requests a copy of the policy, and when

deposits are accepted at automated teller machines.

We believe that Regulation CC’s provisions requiring the disclosure of

bank policies on funds availability (codified at 12 C.F.R. Part 229, Subpart

B) are within the authority granted by the Expedited Funds Availability

Act. The regulation’s requirements essentially repeat the requirements in

the statute. For example, 12 C.F.R. 229.17 states that before an account is

opened, a bank shall provide a potential customer with its funds

availability policy. Section 229.18 states that disclosure notices shall be on

all preprinted deposit slips and posted at all locations where the bank

accepts deposits, including automated teller machines. The regulation also

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 49 GAO/GGD-99-20 Regulatory Burden

requires disclosure information to be provided upon customer request and

sent to customers at least 30 days before a change in the bank's policy on

funds availability is implemented.

We do not believe that FRB could have developed a less burdensome

regulatory approach that would have satisfied the requirements of the

Expedited Funds Availability Act. The act gave the agency no discretion in

drafting the regulatory requirements at issue in this concern, and those

requirements essentially repeat the requirements in the act.

Neither the Expedited Funds Availability Act nor in the Competitive

Equality Banking Act, of which this act was a part, contain a statement of

purpose.

Bank B officials said that Regulation DD, which implements the Truth in

Savings Act, should be simplified by reducing the number of times that

banks are required to disclose transaction information.

Officials at FRB said that the Truth in Savings Act requires institutions to

provide information about rates paid and fees charged for consumer

deposit accounts (a) upon request, (b) before an account is opened, (c)

before terms previously disclosed are adversely changed, (d) if periodic

statements are sent, and (e) before automatically renewable ("rollover")

time accounts mature. They also said that promoting certain account

terms in advertisements triggers the duty to disclose additional account

terms.

In adopting Regulation DD, FRB officials said the agency sought to

facilitate compliance with the disclosure requirements in several respects.

For example, they said change-in-term notices are not required when

institutions lower rates for variable-rate accounts or for changes in check

printing charges, which are often under the control of third-party vendors.

Similarly, information regularly provided to consumers about their

certificates of deposit or passbook savings accounts does not trigger the

periodic statement disclosure requirements. Finally, although institutions

are required to provide account-opening disclosures to all maturing

rollover certificates of deposit, Regulation DD provides flexibility in the

timing and content of these disclosures. However, because the number

and timing of these disclosure provisions of Regulation DD are required by

the Truth in Savings Act, the officials said that statutory amendments

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 9

Company Concern

Agency Response
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 50 GAO/GGD-99-20 Regulatory Burden

would be needed to further relieve the burdens associated with those

provisions.

The issue that we focused on in this concern is FRB’s assertion that the

Truth in Savings Act requires banks to disclose information about interest

rates and fees to their customers repeatedly.

We believe that the Truth in Savings Act (codified at 12 U.S.C. 4301 et seq.)

gave FRB no discretion in drafting Regulation DD’s requirements for

repeated disclosures of depository institutions’ terms and conditions.

Various provisions in the act require disclosures at various points in time.

For example, 12 U.S.C. 4302(a) requires, with certain exceptions, that each

institution disclose such information as annual percentage yields and

minimum account balances. The institution must also provide a statement

that an interest penalty is required for early withdrawal in conjunction

with each advertisement, announcement, or solicitation that includes a

reference to a specific rate of interest payable. According to 12 U.S.C.

4305(a), a schedule of fees, charges, interest rates, and terms and

conditions applicable to each class of accounts offered by a depository

institution must be (1) made available to any person upon request, (2)

provided to any potential customer before an account is opened or a

service is rendered, and (3) provided to depositors at least 30 days before

the date of maturity of any time deposits that are renewable at maturity

without notice from the depositor.

Before any change is made in any term or condition that is to be disclosed

in the required schedule that may reduce the yield or adversely affect any

account holder, 12 U.S.C. 4305(c) requires institutions to notify customers

and provide them with a description of the change by mail at least 30 days

before the change takes effect. According to 12 U.S.C. 4307, each

depository institution must include on or with each periodic statement

provided to each account holder a clear and conspicuous disclosure of the

annual percentage yield earned, the amount of interest earned, the amount

of any fees or charges imposed, and the number of days in the reporting

period.

We believe that the requirements in Regulation DD regarding repeated

disclosures (codified at 12 C.F.R. Part 230) are within the authority granted

to FRB by the Truth in Savings Act. Many of the regulatory requirements

mirror the requirements in the statute. For example, according to 12

C.F.R. 230.4, depository institutions must provide account disclosures to a

consumer (a) upon request; or (b) before an account is opened or a service

is provided, whichever is earlier. According to 12 C.F.R. 230.5, institutions

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 51 GAO/GGD-99-20 Regulatory Burden

must give at least 30 calendar days’ advance notice to affected consumers

of any change in a term required to be disclosed if the change may reduce

the annual percentage yield or adversely affect the consumer. Also,

institutions must provide disclosure for time accounts with maturity longer

than 1 month that renew automatically. According to 12 C.F.R. 230.6,

institutions must include disclosures in the periodic statements mailed or

delivered to consumers.

We do not believe that FRB could have developed a less burdensome

regulatory approach that would have satisfied the requirements of the

Truth in Savings Act. The act gave the agency no discretion in drafting the

regulatory requirements at issue in this concern, and Regulation DD’s

requirements were consistent with the statutory requirements.

According to 12 U.S.C. 4301(b), the purpose of the Truth in Savings Act is

“to require the clear and uniform disclosure of (1) the rates of interest

which are payable on deposit accounts by depository institutions; and (2)

the fees that are assessable against deposit accounts, so that consumers

can make a meaningful comparison between the competing claims of

depository institutions with regard to deposit accounts.”

Bank B officials said that Regulation Z (which implements the Truth in

Lending Act) requires the bank to disclose the same information regarding

bank practices (e.g., interest rates and loan terms) several times during a

single transaction (e.g., when taking out a loan or opening an account).

They recommended that Regulation Z be simplified to permit banks to

disclose information only once during the transaction, or to give them the

latitude to ask customers how often they need the disclosure information

during a transaction.

Officials at FRB said that the Truth in Lending Act and Regulation Z

require creditors to provide increasing levels of detail about the potential

cost of a transaction as the consumer progresses through the creditshopping process. For example, promoting certain terms in

advertisements triggers the duty to state additional credit terms; but these

disclosures are limited to key terms, such as annual fees for a credit card

plan or repayment terms for an installment loan. When consumers apply

for a line of credit or certain variable-rate loans secured by their homes,

general disclosures about the loan terms are provided that assist

consumers in deciding whether to obtain the credit. Disclosures can also

be required during the term of a loan, such as when the lender implements

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 10

Company Concern

Agency Response
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 52 GAO/GGD-99-20 Regulatory Burden

an adverse change to previously disclosed account terms in a revolving

credit line or other "open-end" credit plan. Transaction-specific

disclosures are given before the consumer becomes obligated for the

credit. FRB officials also said that the timing of the disclosures is

mandated by the Truth in Lending Act itself and not by Regulation Z.

Amendments to the Truth in Lending Act would be required for changes in

when and how often a lender must provide most of these disclosures.

The issue that we focused on in this concern is FRB’s assertion that the

Truth in Lending Act establishes the frequency with which banks must

disclose certain types of information to customers.

We believe the Truth in Lending Act (codified at 15 U.S.C. 1601 et seq.)

gave FRB no discretion in drafting the regulatory requirements governing

when banks are required to make certain disclosures. The act’s

requirements in this area are very specific. For example, 15 U.S.C. 1637(a)

states that before opening an account under an open-end consumer credit

plan, the creditor must disclose to the person getting the credit such items

as the conditions under which a finance charge may be imposed and the

method for determining the balance upon which to impose the finance

charge. Also, 15 U.S.C. 1637(b) states that at the end of each billing cycle

for an open-end consumer credit plan for which there is an outstanding

balance in that account or with respect to which a finance charge is

imposed, the creditor must transmit a statement containing several

specific items (as applicable). For example, the statute says the statement

should contain the outstanding balance in the account at the beginning and

end of the period and the total amount credited to the account during the

period. Finally, according to 15 U.S.C. 1637(c), certain information must

be disclosed on an application for a credit card or charge card. For

example, the application must disclose the annual percentage rates, annual

and other fees, any grace period, and method by which the credit balance

is calculated.

We believe that the requirements in Regulation Z are within the authority

granted by the Truth in Lending Act. The regulatory requirements closely

parallel the requirements in the statute. For example, 12 C.F.R. 226.5(b)(1)

and (2) state that for open-end credit, the creditor must furnish initial

disclosures before the first transaction is made under the plan and

periodically provide a statement for each billing cycle at the end of which

an account has a debit or credit balance of more than $1 or on which a

finance charge has been imposed. Section 226.5a of the regulation says

that the credit and charge card issuer must provide the disclosures

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 53 GAO/GGD-99-20 Regulatory Burden

specified on or with a solicitation or an application to open a credit or

charge card account.

We do not believe that FRB could have developed a less burdensome

regulatory approach that would have met the requirements of the Truth in

Lending Act. The act gave the agency no discretion in drafting the

regulatory requirements at issue in this concern, and the agency’s

regulatory requirements were consistent with the statutory requirements.

The Truth in Lending Act is a subchapter within the Consumer Credit

Protection Act. The subchapter (15 U.S.C. 1601(a)) says that the purpose

of the Truth in Lending Act is to ensure a meaningful disclosure of credit

terms so that the consumer will be able to compare more readily the

various credit terms available to him and avoid the uninformed use of

credit and to protect the consumer against inaccurate and unfair credit

billing and credit card practices.

A Bank C official said that Regulation DD reduces the bank's flexibility in

providing services to customers. The official said that the bank cannot

customize accounts for customers, put customers on analyzed accounts,6

or do bonus programs because of the expensive and complex computer

system changes that would be needed to comply with the regulation.

Officials of FRB said the agency made a concerted effort during the

development of Regulation DD to provide flexibility to institutions in order

to minimize compliance costs and maximize the development of new

products. However, the Truth in Savings Act requires disclosure of the

fees that may be assessed against a consumer's account. The officials said

if an institution chooses to offer different fees or other terms to different

consumers, the disclosures must reflect the terms agreed to by the parties.

The issue that we focused on in this concern is FRB’s assertion that the

Truth in Savings Act requires the disclosure of potential fees and other

terms, which may have the effect of reducing a bank’s flexibility in

providing services to its customers.

 

6

 According to an official at FRB, an analyzed account usually refers to the bundling of individual

accounts to determine, on the basis of the total of the balances of all the accounts in one bank (rather

than on the basis of each of the accounts), what fees must be paid on the accounts or how much

interest the accounts will earn.

Whether Less Burdensome

Approach Was Available

Statutory Purpose

Concern 11

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 54 GAO/GGD-99-20 Regulatory Burden

We believe the Truth in Savings Act gave FRB no discretion in how it could

draft Regulation DD’s disclosure requirements. According to 12 U.S.C.

4303(a) through (c), each institution must maintain a schedule of fees,

charges, interest rates, and terms and conditions applicable to each class

of accounts offered by the institution. The statute specifies the items that

must be on the schedule. For example, the statute says that the schedule

must contain (1) descriptions and amounts of all fees and service charges

and the conditions under which those fees would be applicable; (2) all

minimum balance requirements that would affect fees, charges, and

penalties; (3) any minimum amount required to open the account; and (4)

information on interest rates, such as any annual rate of simple interest

and the frequency with which the interest would be compounded and

credited. Although the statute does not specifically address whether banks

must maintain similar schedules of disclosures about customized and

analyzed accounts or bonus programs, it appears that disclosures would be

required for these accounts or programs under the general heading of

“terms and conditions.”

We believe the referenced provisions of Regulation DD are within the

rulemaking authority granted by the Truth in Savings Act because they are

similar to the requirements in the act. For example 12 C.F.R. 230.4(a) and

(b) state that a financial institution must provide account disclosures to a

consumer before an account is opened, before a service is provided, or

upon request. The regulation also states that the disclosures shall include

rate information, compounding and crediting information, balance

information, fees, transaction limitations, features of time accounts, and

bonuses.

We do not believe that FRB could have developed a less burdensome

regulatory approach that would have satisfied the requirements of the

Truth in Savings Act. The act gave the agency no discretion in drafting the

regulatory requirements at issue in this concern, and the agency’s

regulatory requirements were consistent with the statutory requirements.

According to 12 U.S.C. 4301(b), the purpose of the Truth in Savings Act is

“to require the clear and uniform disclosure of (1) the rates of interest

which are payable on deposit accounts by depository institutions; and (2)

the fees that are assessable against deposit accounts, so that consumers

can make a meaningful comparison between the competing claims of

depository institutions with regard to deposit accounts.”

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 12
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 55 GAO/GGD-99-20 Regulatory Burden

A Bank C official said that Regulation DD requires as part of its

“redisclosure” rules that the bank provide customers with a written

description of all the bank's services and fees each time the customer

opens, changes, or reopens an account--even if the customer had

previously received the same information.

Officials at FRB said that the Truth in Savings Act requires financial

institutions to provide complete account disclosures when an account is

opened, and it also requires institutions to provide consumers with a

notice of any change in terms. They said disclosures are required if an

account is "re-opened" only if the institution deemed the account closed at

some point in time.

The issue that we focused on in this concern is FRB’s assertion that the

Truth in Savings Act establishes when a bank must disclose information on

the terms of their accounts to customers.

We believe that the Truth in Savings Act gave FRB no discretion in how it

could draft Regulation DD regarding disclosures when an account is

opened or when there are changes to the account. According to 12 U.S.C.

4305(a)(2), institutions are required to provide complete account

disclosures when an account is opened or when a service is rendered.

According to 12 U.S.C. 4305(c), all account holders who may be affected

by changes in terms or conditions or adversely affected by changes must

be notified and provided with a description of the changes by mail at least

30 days before the changes take effect.

We believe that FRB’s disclosure requirements in Regulation DD are within

the authority granted by the Truth in Savings Act. The regulatory

requirements parallel the statutory requirements in many respects. For

example, according to 12 C.F.R. 230.4(a), a depository institution must

provide account disclosures to a consumer before an account is opened or

a service is rendered, whichever is earlier. The regulation states that an

institution is considered to have provided a service when a fee required to

be disclosed is assessed. Also, 12 C.F.R. 230.5(a) states that institutions

are to provide consumers with advance notice of any change in terms if the

change may reduce the annual percentage yield or adversely affect the

consumer. No notice is required for variable rate changes, check printing

fees, or short-term time accounts. The notice of change shall include the

effective date of the change and shall be mailed or delivered at least 30

calendar days before the effective date of the change.

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 56 GAO/GGD-99-20 Regulatory Burden

We do not believe that FRB could have developed a less burdensome

regulatory approach that would have satisfied the requirements of the

Truth in Savings Act. The act gave the agency no discretion in drafting the

regulatory requirements at issue in this concern, and those requirements

are consistent with the statutory requirements.

According to 12 U.S.C. 4301(b), the purpose of the Truth in Savings Act is

to require the clear and uniform disclosure of the rates of interest and the

fees that can be assessed against deposit accounts so that consumers can

make a meaningful comparison between the competing claims of

depository institutions with regard to deposit accounts.

A Bank C official said that regulations requiring federally insured

institutions to require flood insurance for properties located in floodplains

are not applicable to nonbanking organizations such as the Money Store,

where the public can apply for loans without having to acquire flood

insurance.

Officials at FRB and FDIC said the Flood Disaster Protection Act of 1973

created a significant disparity between the treatment of mortgage

companies or other nondepository lenders and depository institutions with

respect to flood insurance purchase requirements. The act also directed

federal banking agencies to adopt regulations applicable to depository

institutions to require the purchase of flood insurance for any improved

property used to secure a loan if the property was located in a flood hazard

area. No similar requirements were placed on mortgage banks.

The issue that we focused on in this concern is FDIC’s assertion that the

Flood Disaster Protection Act created the disparity between depository

and nondepository institutions with respect to flood insurance

requirements.

We believe the Flood Disaster Protection Act gave FRB and FDIC no

discretion in writing their regulations in this area. The statute (particularly

42 U.S.C. 4121(a)(13) and 42 U.S.C. 4012a(b)(1)) requires that regulated

lending institutions not make real estate loans in an area having special

flood hazards unless the building or property is covered by flood

insurance. Also, 42 U.S.C. 4012a(b)(1) requires regulated lending

institutions not to make, increase, extend, or renew any loan secured by

improved real estate or a mobile home located, or to be located, in an area

having special flood hazards and in which flood insurance has been made

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 13

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix II

Concerns for Which Agencies Appeared to Have No Rulemaking Discretion

Page 57 GAO/GGD-99-20 Regulatory Burden

available under the National Flood Insurance Act of 1968,unless the

building or mobile home and any personal property securing the loan is

covered for the term of the loan by flood insurance. A “regulated lending

institution” is defined in 42 U.S.C. 4121(a)(13) in such a way that

nondepository lenders such as the Money Store would not be subject to

the requirements of 42 U.S.C. 4012a(b)(1).

We believe that FRB’s and FDIC’s regulatory requirements regarding flood

insurance are within the authority granted by the Flood Disaster

Protection Act of 1973 because those requirements are, in essence, the

same as the statutory requirements. According to 12 C.F.R. 208.23(c), a

state member bank may not make, increase, extend, or renew any

designated loan unless the building securing the loan is covered by flood

insurance for the term of the loan.

We do not believe that FRB and FDIC could have developed a less

burdensome regulatory approach while still meeting the underlying

statutory requirements of the Flood Disaster Protection Act of 1973. The

statute gave the agencies no discretion in drafting the regulatory

requirements at issue in this concern, and those requirements were

consistent with the statutory requirements.

According to 42 U.S.C. 4002(b), the purpose of the Flood Disaster

Protection Act of 1973 is to (1) substantially increase the limits of coverage

authorized under the national flood insurance program; (2) provide for the

expeditious identification of, and the dissemination of information

concerning, flood-prone areas; (3) require states or local communities, as a

condition of future federal financial assistance, to participate in the flood

insurance program and to adopt adequate flood plan ordinances with

effective enforcement provisions consistent with federal standards to

reduce or avoid future flood losses; and (4) require the purchase of flood

insurance by property owners who are being assisted by federal programs

or by federally supervised, regulated, or insured agencies or institutions in

the acquisition or improvement of land or facilities located, or to be

located, in identified areas having special flood hazards.

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Approach Was Available

Statutory Purpose
Appendix III

Concerns for Which Agencies Appeared to

Have Some Rulemaking Discretion

Page 58 GAO/GGD-99-20 Regulatory Burden

One of the objectives of our review was to determine, for each of 27

company concerns, the amount of discretion the underlying statutes gave

rulemaking agencies in drafting the regulatory requirements that the

agencies said were attributable to the underlying statutes. The agencies

that issued those requirements indicated in two of our 1996 reports that

the concerns could, at least in part, be traced to statutory requirements

underlying their regulations.1

 In this review we concluded that the

statutory provisions underlying 12 of the 27 concerns gave the rulemaking

agencies some discretion in how the related regulatory requirements could

be drafted. We coded statutory provisions as allowing agencies “some

discretion” if they delineated certain requirements regarding how the

agencies’ regulations could be drafted but gave the agencies at least some

flexibility regarding other requirements.

This appendix provides our detailed analysis of each of these 12 company

concerns. Specifically, for each such concern it provides the following

information: (1) the portion of the concern in our 1996 reports that the

agency or agencies indicated was statutorily based, (2) the portion of the

agency response in our 1996 reports that indicated the concern was

statutorily based, (3) our analysis of the amount of rulemaking discretion

the relevant statutory provisions gave the agencies (the first objective of

this review), (4) our analysis of whether the regulatory requirements at

issue in the concern were within the authority granted by the underlying

statutes (the second objective of our review), (5) our analysis of whether

the rulemaking agencies could have developed regulatory approaches that

would have been less burdensome to the regulated entities while meeting

the underlying statutory requirements (the third objective of our review),

and (6) the main purpose of the underlying statutes (where such purpose

statements were available). Appendix I of this report contains a detailed

discussion of our scope and methodology.

Officials from the paper company said DOT’s required hazardous materials

(hazmat) training is expensive. Under the regulations that took effect in

January 1994, they said employees who deal with hazardous materials

must be trained and tested, and this training costs the company $475,000

per year.

DOT officials said the Hazardous Materials Transportation Uniform Safety

Act, implemented in 1990, specifically required the issuance of regulations

 

1 GAO/GGD-97-2 (Nov. 18, 1996); and GAO/GGD-97-26R (Dec. 11, 1996).

Concern 1

Company Concern

Agency Response
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 59 GAO/GGD-99-20 Regulatory Burden

requiring that hazmat employers provide training to their hazmat

employees.2 They said DOT’s Hazardous Materials Regulations were

revised May 15, 1992, to reflect those statutory requirements.

The issue that we focused on in this concern is DOT’s assertion that the

Hazardous Materials Transportation Safety Act requires employers to

provide certain employees with hazmat training.

We believe that the Hazardous Materials Transportation Uniform Safety

Act (now codified at 49 U.S.C. 5101 et seq.) gave DOT some discretion

regarding how its regulations on hazmat training could be drafted. The

statute said that the Secretary of Transportation “shall prescribe by

regulation requirements for training that a hazmat employer must give

hazmat employees of the employer on the safe loading, unloading,

handling, storing, and transporting of hazardous material. . .” The statute

also said the regulation must establish the date by which the training shall

be completed, and to require employers to certify that their hazardous

materials employees have received training and been tested on at least one

of nine specific areas of responsibility that are delineated in the statute.

Therefore, DOT had no discretion regarding whether to issue regulations

requiring hazmat training or how it could draft those regulations with

regard to the provisions described in the statute. However, we believe that

DOT had some discretion in how it could draft other regulatory

requirements. For example, the statute said that DOT’s regulations “may

provide for different training for different classes or categories of

hazardous material and hazmat employees.” It also said that the Secretary

of Transportation “may require by regulation” documentation to support

employers’ training certifications.

We believe that DOT’s regulatory provisions requiring hazardous material

training (49 C.F.R. 172.700-172.704) are within the authority granted by the

Hazardous Materials Transportation Uniform Safety Act. DOT’s

regulations contain the requirements that were specifically delineated in

the statute. For example, the statute required the regulation to establish

the date by which the hazardous materials training shall be completed, and

the regulation (49 C.F.R. 172.704 (c)(ii)) says that employees must

complete the training within 90 days after beginning employment or a

change in job function. In other areas, the regulatory provisions appear to

fall within the discretion afforded DOT by the statute. For example, the

statute said that the Secretary of Transportation “may require by

 

2

 In 1994, the Hazardous Materials Transportation Uniform Safety Act was recodified as the Federal

Hazardous Materials Transportation Law.

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by

Statute
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 60 GAO/GGD-99-20 Regulatory Burden

regulation” documentation to support employers’ training certifications,

and the regulation (49 C.F.R. 172.704 (d)) requires such documentation.

We could not determine whether DOT could have developed an alternative

approach to hazmat training that would have been less burdensome to

regulated entities while still accomplishing the requirements of the

Hazardous Materials Transportation Uniform Safety Act. To make that

determination we would have had to conduct a detailed examination of

DOT’s training requirements that were not statutorily mandated and

determine whether the Department could have eliminated them or used an

alternative approach that regulated entities would have perceived as less

burdensome. For example, we would have had to examine DOT’s

regulatory requirement that employers provide documentation to support

training certifications and determine whether DOT could have eliminated

or amended that requirement and still met the requirements of the

underlying statute. Such an examination of each nonstatutory requirement

would have demanded extensive time and resource commitments that

were beyond the scope of this assignment.

According to 49 U.S.C. 5101, “[t]he purpose of this chapter is to provide

adequate protection against the risks to life and property inherent in the

transportation of hazardous material in commerce by improving the

regulatory and enforcement authority of the Secretary of Transportation.”

According to hospital officials, it is very difficult to keep pace with

frequently changing Medicare and Medicaid billing rules. Although the

hospital’s computer programmers have spent many hours trying to keep

their automated patient billing system up to date, the hospital officials said

it is like “chasing a moving target.”

According to HCFA officials, in a number of situations, the changes to

hospital billing procedures are due to enhancements or changes made by

Congress.

The issue that we focused on in this concern is HCFA’s assertion that

changes to Medicare and Medicaid billing rules are, at times,

congressionally driven.

HCFA officials said that the general mechanisms the government uses to

pay for medical services are spelled out in the Code of Federal Regulations

but are operationalized through the billing instructions published in

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 2

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 61 GAO/GGD-99-20 Regulatory Burden

numerous HCFA manuals. Although these billing rules do not appear in

the Code of Federal Regulations and therefore do not have the force and

effect of law, we considered them to be “regulatory requirements” in this

report. HCFA’s Medicare Hospital Manual contains billing procedures that

hospitals must follow when submitting bills to “fiscal intermediaries”

(insurance companies with which HCFA contracts for hospital bill

processing and payment). Although other HCFA publications may

indirectly affect the billing procedures at issue in the hospital’s concern

(e.g., changes to HCFA’s Medicare Part A Intermediary Manual that

describe the procedures that intermediaries must follow when processing

bills from hospitals), we focused our review on the changes to the billing

procedures in HCFA’s Medicare Hospital Manual.

We believe that HCFA had some discretion in deciding whether to make

specific changes to its billing rules. In general, HCFA has authority to

require that certain types of information be submitted and to change those

information requirements. For example, one provision of the Social

Security Act (codified at 42 U.S.C. 1395g) says

“ [t]he Secretary [of the Department of Health and Human Services] shall periodically

determine the amount which should be paid under this part to each provider of services . . .

except that no such payments shall be made to any provider unless it has furnished such

information as the Secretary may request in order to determine the amounts due such

provider under this part for the period with respect to which the amounts are being paid or

any prior period.” (Emphasis added.) ”

To determine the extent to which specific changes to HCFA’s Medicare

Hospital Manual were driven by statutory requirements, we reviewed the

13 changes that HCFA made to the manual in 1995 (the year prior to our

1996 reports on which this review is based). We concluded that 5 of these

13 changes were directly traceable to statutory requirements that gave the

agency no rulemaking discretion. For example, one of the changes to the

manual implemented a new subsection to the Social Security Act that

delineated procedures to be used in calculating payment for surgical

dressings. The statute said that

“[p]ayment under this subsection for surgical dressings . . . shall be made in a lump sum

amount for the purchase of the item in an amount equal to 80 percent of the lesser of (A)

the actual charge for the item; or (B) a payment amount determined in accordance with the

methodology described in subparagraphs (B) and (C) of subsection (a)(2) (except that in

applying such methodology, the national limited payment amount referred to in such

subparagraphs shall be initially computed based on local payment amounts using average

reasonable charges for the 12-month period ending December 31, 1992, increased by the

covered item updates described in such subsection for 1993 and 1994.”
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 62 GAO/GGD-99-20 Regulatory Burden

Because the statute specified that payment must be made for surgical

dressings, the amount of those payments, and how those charges should

be paid, we concluded that HCFA did not have discretion with regard to

making changes to its billing instructions in this area.

The other eight changes to the Medicare Hospital Manual appeared to be

clarifications and technical corrections to HCFA’s billing procedures, and

HCFA appeared to rely on its general authority to require “such

information as the Secretary may request” in making these changes. In

these cases, we believe that HCFA had considerable discretion in deciding

whether to make the changes. For example, two of the changes affected

billing requirements for inpatient hospital stays. One of the changes added

a new requirement that bills be submitted in the sequence in which

services were furnished. The other change clarified the previous change,

noting that if the new policy disadvantaged (i.e., raised the liability of) the

hospital, the beneficiary, or a secondary insurer, the hospital should notify

its intermediary to arrange reprocessing of all affected claims.

We believe that the changes that HCFA made to the Medicare Hospital

Manual’s billing procedures were within the authority granted by the

underlying statutes. In those cases in which HCFA had no discretion to

make statutorily directed changes, the changes were consistent with (and,

in some cases, identical to) the statutory requirements. Therefore, we

concluded that those changes were within the authority granted by the

statutes. For example, in the above illustration involving surgical

dressings, HCFA changed the Medicare Hospital Manual to provide

instructions for billing and payment that mirrored the requirements in the

new subsection of the Social Security Act. In those cases in which HCFA

appeared to make the changes at its own initiative, the agency relied on its

authority to “periodically determine the amount which should be paid” and

to collect “such information as the Secretary may request.” The statute

also authorizes the Secretary to prescribe “such regulations as may be

necessary to carry out the administration of the insurance programs . . . .”

We believe that the changes that HCFA initiated to the billing procedures

were within the authority provided to the agency in the statute.

We could not determine whether HCFA could have made changes to its

Medicare Hospital Manual that would have been perceived as less

burdensome to the hospitals while still meeting the requirements of the

underlying statutes. To do so we would have had to initiate a separate

review of each change for which HCFA had at least some rulemaking

discretion and determine whether the agency needed to make the change

and, if so, whether another approach would have been less burdensome.

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 63 GAO/GGD-99-20 Regulatory Burden

Those reviews would have required extensive time and resource

commitments that were beyond the scope of this review.

The Social Security Act contains no specific statement of purpose.

However, 42 U.S.C. 1395c states that

“ [t]he insurance program for which entitlement is established by sections 426 and 426-1 of

this title provides basic protection against the costs of hospital, related post-hospital, home

health services, and hospice care in accordance with this part for (1) individuals who are

age 65 or over and are eligible for retirement benefits under subchapter II of this chapter,

(2) individuals under age 65 who have been entitled for not less than 24 months to benefits

under subchapter II of this chapter, and (3) certain individuals who did not meet the

conditions specified in either clause (1) or (2) but who are medically determined to have

end stage renal disease.”

Officials from the hospital said the annual Medicare cost report is

extremely difficult to prepare. They said the report’s information

requirements place a considerable recordkeeping burden on the hospital’s

health care providers. For example, they said each housekeeping

supervisor must spend 2 to 3 hours each month preparing the necessary

paperwork that will feed into this annual report, and some staff members

must devote all of their time to compiling the required information.

HCFA officials said section 1886(f)(1) of the Social Security Act requires

the Secretary of Health and Human Services to maintain a system of cost

reporting for prospective payment system hospitals. They also said that

under sections 1815(a) and 1861(v)(1)(A) of the act, providers of service

participating in the Medicare program must submit annual information to

achieve settlement of costs for health care services rendered to Medicare

beneficiaries.

The issue that we focused on in this concern is HCFA’s assertion that the

Social Security Act requires the information in the annual Medicare cost

report.

We believe that the Social Security Act gave HCFA some discretion in how

its regulations in this area could be drafted. The act contains several

provisions that require the Department of Health and Human Services or

HCFA to collect information from hospitals in order to determine the

amount of reimbursements that hospitals are due for patient care.

Therefore, the agency had no discretion in whether to require a system for

reporting cost information by hospitals. However, the Social Security Act

Statutory Purpose

Concern 3

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 64 GAO/GGD-99-20 Regulatory Burden

gave HCFA discretion in determining the specific information required in

the reports. For example, section 1815(a) of the act (codified at 42 U.S.C.

1395g) states that the Secretary “shall periodically determine the amount

which should be paid under this part to each provider of services with

respect to the services furnished by it . . . .” This section goes on to say

that “no such payments shall be made to any provider unless it has

furnished such information as the Secretary may request (emphasis added)

in order to determine the amounts due such provider....” Section 1861 of

the act (codified at 42 U.S.C. 1395x) states that “[t] he reasonable cost of

any services shall be the cost actually incurred . . . and shall be determined

in accordance with regulations establishing the method or methods to be

used, and the items to be included, in determining such costs . . . .” The

section goes on to delineate certain factors the Secretary must take into

account in prescribing the regulations, such as considering both direct and

indirect costs and using principles generally applied by national

organizations.

We believe that HCFA’s regulatory provisions for cost reports (codified at

42 C.F.R. Parts 412 and 413) are within the authority granted by the Social

Security Act. According to 42 C.F.R. 412.52, “[a]ll hospitals participating in

the prospective payment systems must meet the recordkeeping and cost

reporting requirements of [paragraph] 413.20 and [paragraph] 413.24 of this

chapter.” According to 42 C.F.R. 413.24(a), “[p]roviders receiving payment

on the basis of reimbursable cost must provide adequate cost data. This

must be based on their financial and statistical records which must be

capable of verification by qualified auditors.” Similarly, section 413.24(c)

states that “[a]dequate cost information must be obtained from the

provider’s records to support payments made for services furnished to

beneficiaries.” Other portions of 42 C.F.R. 413 delineate the periods

covered by the reports and the frequency with which they must be

submitted. All of these regulatory requirements appear to fall within the

rulemaking authority granted to HCFA by the Social Security Act.

We could not determine whether HCFA could have developed cost

reporting requirements that would have been perceived as less

burdensome to hospitals while still meeting the requirements of the Social

Security Act. To do so we would have had to initiate a separate review of

the Medicare cost reports and how HCFA uses the information that it

collects—a review that would have required extensive time and resource

commitments that were beyond the scope of this review.

The Social Security Act does not contain a statement of purpose regarding

the cost reporting requirements. However, section 1811 of the act

Whether Regulatory

Provisions Are Within the

Authority Granted by

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 65 GAO/GGD-99-20 Regulatory Burden

(codified at 42 U.S.C. 1395c) states that the purpose of the hospital

insurance program is to provide “basic protection against the costs of

hospital, related post-hospital, home health services, and hospice care . . .”

for covered individuals.

An official from Bank A said the regulation on the Availability of Funds

and Collection of Checks (Regulation CC) requires the development and

maintenance of expensive and time-consuming information on the current

availability of funds.

Officials at FRB said that Regulation CC implements the Expedited Funds

Availability Act (codified at 12 U.S.C. 4001-4010), which places limits on

the length of time depository institutions may place holds on deposits to

transaction accounts. To ensure compliance with the act and the

regulation, they said a depository institution must have the capacity to

assign and track the availability of each check it accepts for deposit. The

costs of developing and maintaining such a system likely vary with the

complexity of the depository institution’s availability policy. Because the

availability provisions of Regulation CC are required by the act, FRB

officials said that statutory amendments would be necessary in order to

relieve any of the burdens on depository institutions associated with those

provisions.

The issue that we focused on in this concern is FRB’s assertion that the

Expedited Funds Availability Act limits the amount of time that banks can

hold deposits, thereby requiring banks to keep track of the availability of

funds they accept for deposit.

We believe that the Expedited Funds Availability Act gave FRB some

discretion in how it could draft its regulations on funds availability.

According to 12 U.S.C. 4002, depository institutions must make funds from

different types of deposits available for withdrawal within specified

periods of time ranging from 1 day to several days. For example, 12 U.S.C.

4002(b)(2) says that funds must be available for withdrawal not more than

5 business days after the deposit of a check drawn on a nonlocal bank.

Therefore, FRB had no rulemaking discretion in establishing the maximum

lengths of time banks can hold funds before making them available to the

depositor. However, the statute gives the agency discretion to require

shorter holds on funds than the maximums established in the act as long as

that period of time is within the time in which a bank can reasonably

expect to learn of nonpayment on most items for each category of check.

Concern 4

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 66 GAO/GGD-99-20 Regulatory Burden

Although the act established varying maximum hold periods for different

types of deposits, there is no statutory (or regulatory) provision requiring

banks to develop and maintain a system for tracking the availability of

deposits. However, in practice, banks need to develop tracking systems to

enable themselves to comply with the act and the relevant regulation. FRB

officials said that the bank could avoid the need for such a system by

providing immediate availability for all deposits.

We believe that Regulation CC’s requirements for expedited funds

availability are within the authority granted the agency by the Expedited

Funds Availability Act. Subsections 10, 12, and 13 of 12 C.F.R. 229 require

that funds be available for withdrawal not later than specified periods of

time ranging from 1 to several days. The time periods established in the

regulations are consistent with the time periods in the statute for the

different types of deposits.

As discussed earlier, FRB had some discretion to write regulations

requiring banks to hold deposits for less than the maximum time allowed

in the statute. Therefore, FRB could have standardized the hold periods at

less than the maximum period. Standardizing the hold periods could have

been perceived as less burdensome to banks because it would have

eliminated the need for banks to have tracking systems for different

categories of deposits (e.g., deposits of local checks, government checks,

or out-of-state checks). FRB’s discretion, however, is limited in that FRB

can shorten a hold period only if banks would have a reasonable period of

time to learn of the return of checks subject to the shorter hold.

Standardization of hold periods across all categories of checks would

require that all hold periods be set to the minimum period established by

the act (1 day). In today’s check system, one day would not allow banks to

learn of the return of most dishonored checks. Therefore, FRB does not

appear to have the discretion to standardize the hold period for all

categories of checks. Even if the hold periods were standardized for only

some categories of checks, imposing shorter hold periods could also

increase a bank’s risk of fraud on those checks. Banks may not have

viewed such an approach as less burdensome. Ultimately, we could not

determine whether FRB could have developed less burdensome regulatory

approaches because to do so would have required extensive time and

resource commitments (e.g., surveying the banks on whether standardized

minimums would have been less burdensome) that were beyond the scope

of this review.

The Expedited Funds Availability Act does not contain a statement of

purpose.

Whether Regulatory

Provisions Are Within the

Authority Granted by

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 67 GAO/GGD-99-20 Regulatory Burden

An official from Bank A said the Truth in Savings Act’s (Regulation DD)

requirements have not provided substantive benefits to either the bank or

its customers. The official also said that before the act was passed, the

bank provided savings account information to customers in several

different documents. However, under the act this information must be

consolidated into one document.

Officials at FRB said Congress enacted the Truth in Savings Act in 1991 to

enhance consumer shopping among deposit accounts. Its purpose is to

require all depository institutions to disclose information about the rates

paid and fees charged in a uniform manner. They said FRB’s Regulation

DD requires institutions to disclose terms in a uniform way but allows

flexibility in the format of the disclosures. For example, disclosures may

be provided in a single document or in several documents, and they may

be combined with other contractual provisions or disclosures required by

federal or state law.

The issue we focused on in this concern is FRB’s assertion that the Truth

in Savings Act requires banks to provide disclosure statements to

customers in a uniform manner.

We believe that the disclosure requirements in the Truth in Savings Act

(codified at 12 U.S.C 4301 et seq.) gave FRB some discretion regarding

how its regulations in this area could be drafted. Although the statute gave

the agency no discretion regarding much of the information that had to be

disclosed about customers’ savings accounts, we believe the agency had

some discretion with regard to certain types of information and the format

of the disclosures.

The Truth in Savings Act’s disclosure requirements were intended to allow

consumers to make meaningful comparisons between the competing

claims of depository institutions with regard to deposit accounts. The act

describes in great detail the specific elements that such institutions must

disclose to their customers. For example, 12 U.S.C. 4303(a) states that

each banking institution must maintain a schedule of fees, charges,

interest rates, and terms and conditions applicable to each class of

accounts offered by the institution. According to 12 U.S.C. 4303(b), the

schedule for any account must contain (1) a description of all fees,

periodic service charges, and penalties that may be charged or assessed

against the account, the amount of any fees, charges, or penalties and the

conditions under which any amount will be assessed; (2) all minimum

Statutory Purpose Concern 5

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 68 GAO/GGD-99-20 Regulatory Burden

balance requirements that affect fees, charges, and penalties, including a

clear description of how the minimum balance is calculated; and (3) any

minimum amount required with respect to the initial deposit in order to

open the account. Section 4303(c) states that the information on interest

rates in the schedules must include 10 specific items, including any annual

percentage yield and the effective period of the annual yield, the annual

rate of simple interest, the frequency with which interest will be

compounded and credited, a clear description of the method used to

determine the balance on which interest is paid, any minimum balance that

must be maintained to earn the rates and obtain the yields disclosed and

how such a minimum balance is calculated, and a description of any

minimum time requirements to obtain the yield advertised.

On the other hand, the Truth in Savings Act also gives FRB rulemaking

discretion in some areas, particularly with regard to certain types of

information and accounts and in the format of the required disclosures.

For example, 12 U.S.C. 4303(d) states that the schedule required under

subsection (a) “shall include such other disclosures as the Board may

determine to be necessary (emphasis added) to allow consumers to

understand and compare accounts . . . .” Section 4304 of title 12 permits

FRB to make such modifications “as may be necessary” in the disclosure

requirements relating to annual percentage yield for certain types of

accounts. Section 4303(e) states that the schedules required in section

4303(a) must be “presented in a format designed to allow consumers to

readily understand the terms of the accounts offered,” but it does not

specify the particular format that must be used. Section 4308 of title 12

requires FRB to issue regulations on the disclosure requirements and

requires the agency to publish model forms and clauses to facilitate

compliance. However, the section goes on to say that depository

institutions are not required to use any such model form or clause, and the

institutions must be considered in compliance with the disclosure

requirements if they use an alternative format that “does not affect the

substance, clarity, or meaningful sequence of the disclosure.”

We believe that the disclosure provisions in Regulation DD (12 C.F.R. Part

230) are within the authority granted by the Truth in Savings Act. The

regulation’s requirements regarding the content of account disclosures

mirror, in many respects, the requirements in the statute. For example, 12

C.F.R. 230.4(b) states that account disclosures must (as applicable)

include certain elements, including rate information (e.g., the annual

percentage yield and the interest rate); balance information (e.g., minimum

balance requirements); and the amount of any fees. All of these elements

were required in the statute. Although Regulation DD also requires other

Whether Regulatory

Provisions Are Within the

Authority Granted by

Statute
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 69 GAO/GGD-99-20 Regulatory Burden

disclosures that are not expressly listed in the statute (e.g., any limitations

on the number or dollar amount of withdrawals or deposits), these

requirements appear to fall within FRB’s authority in 12 U.S.C. 4303(d) to

require such disclosures in the regulations “as the Board may determine to

be necessary.”

Regulation DD also states (12 C.F.R. 230.3) that depository institutions

must make the required disclosures “clearly and conspicuously in writing

and in a form the consumer may keep.” It also says that disclosures for

each account “may be presented separately or combined with disclosures

for the institution’s other accounts . . . .” Appendix B to Part 230 states

that institutions may modify model disclosure clauses “as long as they do

not delete required information or rearrange the format in a way that

affects the substance or clarity of the disclosures.” Because the regulation

gives discretion to depository institutions and mirrors the statute’s

requirements in this area, we believe the regulation is within the authority

granted by the statute.

With regard to the elements that the Truth in Savings Act required

institutions to disclose, we do not believe that FRB could have developed

regulations that would have been less burdensome to financial institutions.

For example, the act specifically required the disclosure of information on

annual yields and interest rates, so Regulation DD had to contain those

elements. However, we could not determine whether FRB could have

refrained from requiring other information that is not expressly listed in

the statute. To do so would have required us to determine if the

information was, in fact, necessary to allow consumers to understand and

compare accounts. Making that determination would have required an

extensive analysis of consumer understanding and behavior that was

beyond the scope of this review.

With regard to the format of the disclosures, we believe that FRB could not

have chosen a less burdensome approach than the one taken in Regulation

DD. The agency did not require that banks disclose the information in a

single document, and (as the statute required them to do) it allowed

financial institutions to vary from the model clauses and sample forms as

long as those variances did not affect the substance of the disclosures.

According to 12 U.S.C. 4301(b), the purpose of the Truth in Savings Act is

“to require the clear and uniform disclosure of (1) the rates of interest that

are payable on deposit accounts by depository institutions; and (2) the fees

that are assessable against deposit accounts, so that consumers can make

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 70 GAO/GGD-99-20 Regulatory Burden

a meaningful comparison between the competing claims of depository

institutions with regard to deposit accounts.”

A Bank C official said that Regulation DD requires that every fee charged

to a customer's account must be separately described on the customer's

statement.

Officials at FRB said that the Truth in Savings Act requires institutions that

provide periodic statements to consumers to disclose the annual

percentage yield earned, any fees imposed, and certain other information

on the statements. In adopting the final version of Regulation DD, the

officials said that the Board considered concerns raised by commenters on

the proposed regulation and implemented several changes to help

minimize costs, particularly those associated with periodic statements.

For example, information sent in connection with time accounts and

passbook savings accounts is exempt from the periodic statement rules.

The issue that we focused on in this concern is FRB’s assertion that the

Truth in Savings Act establishes the disclosures that must be made to

customers on their statements. We believe that the Truth in Savings Act

gave FRB some discretion in how these regulatory provisions could be

drafted. According to 12 U.S.C. 4307, each depository institution must

include on or with each periodic statement to each account holder a “clear

and conspicuous disclosure” of the following information for each

account: (1) the annual percentage yield earned, (2) the amount of interest

earned, (3) the amount of any fees or charges imposed, and (4) the number

of days in the reporting period. Only separate description of fees on

customers’ accounts with periodic statements would appear to meet the

statutory requirement that institutions include a “clear and conspicuous”

disclosure of “any fee” imposed. However, 12 U.S.C. 4308(a)(3) states that

FRB’s regulations

“may contain such classifications, differentiations, or other provisions, and may provide for

such adjustments and exceptions for any class of accounts as, in the judgement of the

Board, are necessary or proper to carry out the purposes of this chapter, to prevent

circumvention or evasion of the requirements of this chapter, or to facilitate compliance

with the requirements of this chapter.”

Therefore, the statute allowed FRB to write regulations excluding certain

types of accounts from the fee disclosure requirements if the Board

believed such exclusions were “necessary or proper.”

Concern 6

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 71 GAO/GGD-99-20 Regulatory Burden

We believe that this provision of Regulation DD is within the authority

granted by the Truth in Savings Act because its requirements either mirror

those in the act or are within the rulemaking discretion provided to the

agency by the act. According to 12 C.F.R. 230.6, the periodic statement to

consumers must include the annual percentage yield earned, the amount of

interest, any fees imposed, and the length of the statement period. When

FRB promulgated the final rule in September 1992, the agency said it had

exercised its exception authority in the act to exclude specific types of

accounts (i.e., time accounts and passbook savings accounts) from the

periodic statement requirements of the final rule. FRB said it believed

exempting these accounts from the disclosure requirements was

appropriate because it would encourage institutions to continue providing

certain information to customers.

We could not determine whether FRB could have developed a less

burdensome regulatory approach that would have satisfied the

requirements of the Truth in Savings Act. To do so we would need to

know whether it was “necessary or proper” for FRB to exclude other types

of accounts from the periodic statement requirements. Making that

determination would have required extensive time and resource

commitments that were beyond the scope of this review.

According to 12 U.S.C. 4301(b), the purpose of the Truth in Savings Act is

“to require the clear and uniform disclosure of (1) the rates of interest

which are payable on deposit accounts by depository institutions; and (2)

the fees that are assessable against deposit accounts, so that consumers

can make a meaningful comparison between the competing claims of

depository institutions with regard to deposit accounts.”

Bank A officials said bank regulators should require only reports that the

regulators will use. They said it is very frustrating to spend the time and

resources needed to complete required reports and not know if the

regulators actually use them.

Officials from FDIC said that some bank reporting requirements are

specifically mandated by statute. However, they also recognized that some

of these requirements might be unduly burdensome for banks compared to

the value of the information to FDIC as it seeks to discharge its

responsibilities as an insurer and bank supervisor. In such situations, the

officials said that FDIC makes recommendations for legislative changes to

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 7

Company Concern

Agency Response
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 72 GAO/GGD-99-20 Regulatory Burden

eliminate burdensome reporting requirements. They also said banks are

urged to express their opinions on specific reports they consider unused.

The issue that we focused on in this concern is FDIC’s assertion that some

bank reporting requirements are specifically required by statute. We did

not examine whether the reports are actually used by bank regulators.3

We believe that FDIC had some discretion in developing regulations

governing bank reporting requirements. Some of the relevant statutes did

not give FDIC rulemaking discretion, but other statutes gave the agency at

least some discretion to impose reporting requirements.

FDIC officials said that as of March 31, 1998, the agency had 58 active

“information collections” that had been approved by the Office of

Management and Budget (OMB) under the Paperwork Reduction Act.4

 Of

these, the officials said that 54 were statutorily mandated. We reviewed

the statutory provisions underlying many of the 54 information collections

and concluded that some of those provisions gave FDIC no discretion in

drafting its regulations.5

 For example, 12 U.S.C. 1972(2)(G)(i) requires

certain bank executive officers and principal shareholders to submit a

written report to the board of directors for any year during which they

have an outstanding extension of credit. The statute describes in detail the

information required in this report. Therefore, FDIC had no discretion in

drafting its regulations regarding whether the report was required, what

information the report must contain, or the timing of the report. However,

other statutory provisions gave FDIC considerable discretion in

establishing reporting requirements. For example, 12 U.S.C. 1817(i)

requires insurance of trust funds, and it permits FDIC’s Board of Directors

to “prescribe such regulations as may be necessary (emphasis added) to

clarify the insurance coverage under this subsection and to prescribe the

manner of reporting and depositing such trust funds.”

 

3

 In our December 1996 report (GAO/GGD-97-26R), two other banking agencies responded to this

concern about the usefulness of bank reports. Officials from FRB said there was an interagency effort

to review the content of reports to determine the ongoing need for the data. Similarly, officials at the

Office of the Comptroller of the Currency said they were taking steps to eliminate duplicative or

unhelpful reports, if the required reports were not used.

4

Under the Paperwork Reduction Act, agencies must obtain OMB approval before collecting or

sponsoring the collection of information from nonfederal entities. FDIC officials said that they could

not determine what information collection requirements were in place at the time that we did our

earlier review in 1995.

5

We did not review the statutory provisions underlying all 54 of the collections because of time and

resource constraints and because doing so would not have altered our conclusion that FDIC had some

rulemaking discretion.

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 73 GAO/GGD-99-20 Regulatory Burden

We reviewed the relevant regulatory provisions for many of the

information collections that FDIC said were statutorily mandated and

concluded that of those we reviewed, the regulatory provisions were

within the authority granted by the statutes. In those cases in which the

underlying statutes gave the agency discretion to develop regulations, any

regulations in this area that the agency developed would be within the

authority granted by the statute. For example, in the above illustration in

which the statute gave FDIC the authority to prescribe the manner of

reporting on trust funds, any regulations specifying the reporting

requirements would be within the authority of the statute. In those cases

that we reviewed in which the underlying statute gave the agency no

discretion, the regulatory language closely mirrored the language in the

corresponding statute or specifically referenced the statutory

requirements. For example, in the above illustration concerning reports

from banks’ executive officers and principal shareholders, the language in

FDIC’s regulations is essentially the same as the language in 12 U.S.C.

1972(2)(G)(i).

We could not determine whether FDIC could have eliminated or developed

less burdensome regulatory approaches without doing an in-depth analysis

of each of the agency’s nonstatutory reporting requirements and how FDIC

uses the information collected. Such an analysis would have required

extensive time and resource commitments that were beyond the scope of

this assignment.

The statutes underlying the 54 information collections that FDIC said were

statutorily mandated often did not contain statements of purpose.

A Bank C official said that the Real Estate Settlement Procedures Act

(RESPA or Regulation X), which is administered by HUD, requires

extensive disclosure documents that are not easily understood by

customers or relevant to their concerns. For example, the bank official

said the loan package for a no-fee, no-point home equity loan contains

about 10 pages of federally required paperwork, only 2 pages of which

(dealing with the settlement statement of the loan) directly affect and are

of interest to the customer. The official said the other eight pages consist

of forms that are of little concern to the customer, such as the Servicing

Disclosure Statement and the Controlled Business Arrangement

Disclosure.

Whether Regulatory

Provisions Are Within the

Authority Granted by

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 8

Company Concern
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 74 GAO/GGD-99-20 Regulatory Burden

HUD officials said that Congress established the RESPA disclosure

requirements (12 U.S.C. 2601 et seq.) to which the bank official referred.

They said those requirements consist of a Good Faith Estimate of

Settlement Costs; an information booklet delivered to all home purchasers;

and, in the case of first lien loans, a disclosure of the lender’s mortgage

servicing practices. In the event the lender is referring the borrower to

one or more of its affiliated companies to provide settlement services, they

said RESPA requires disclosure of their relationship and that the borrower

has the option to choose other providers (except for appraisers, credit

reporting agencies, and lender’s counsel). At settlement, they said the

statute requires the settlement agent to provide the borrower with a

standardized accounting of the transaction, familiarly known as the HUD-1

or HUD-1A.

The issue that we focused on in this concern is HUD’s assertion that

RESPA establishes the disclosure requirements that the bank official found

burdensome.

We believe that RESPA gave HUD some discretion in drafting regulations

regarding the disclosure requirements at issue in this concern. The

documents that lenders are required to disclose and many of the specific

elements in those documents are explicitly required in the statute. For

example, 12 U.S.C. 2605 says that the lender of a federally related

mortgage loan must disclose to the applicant whether the servicing of the

loan may be assigned, sold, or transferred to any other person at any time

while the loan is outstanding. Also, 12 U.S.C. 2603(a) states that HUD

must develop and prescribe a standard real estate settlement form (with

regional variations, as necessary) for use in all transactions in the United

States that involve federally related mortgaged loans. The statute also says

that the form must clearly itemize all charges imposed upon the borrower

and the seller in connection with the settlement; and it must indicate

whether any title insurance premium included in such charges covers or

insures the lender’s, borrower’s, or both parties’ interest in the property.

Another provision of RESPA (12 U.S.C. 2604) requires HUD to prepare and

distribute informational booklets and also requires lenders to provide a

copy of the booklet to each person from whom they receive, or for whom

they prepare, a written application to finance a mortgage for a residential

property. The statute says that the booklet must be delivered or placed in

the mail not later than 3 business days after the lender receives the

application. Therefore, HUD had no discretion with regard to these

requirements.

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 75 GAO/GGD-99-20 Regulatory Burden

However, other parts of RESPA gave HUD discretion in how it could write

its regulations. For example, 12 U.S.C. 2604 says that the above-mentioned

informational booklets “shall be in such form and detail as the Secretary

may prescribe . . . .” Therefore, HUD had considerable discretion

regarding the format in which the information had to be presented and had

the authority to require additional information in the booklet beyond what

was stipulated in the statute.

We believe that the HUD regulatory provisions related to the abovementioned RESPA disclosure requirements are within the authority

granted to the agency by the statute. Several of these regulatory

provisions paraphrase the wording in the associated statutory

requirements. For example, the language in 24 C.F.R. 3500.6(a) and (1)

mirrors the language in RESPA regarding the lender’s responsibility to

provide the information booklet and when the booklet must be provided.

Also, 24 C.F.R. 3500.7(a) mirrors the language in the statute regarding the

lender’s responsibility to provide good faith estimates. Other regulatory

provisions do not mirror the statutory language but appear to be

substantively the same as the statutory provisions. For example, 24 C.F.R.

3500.21(b)(1) says that lenders must disclose to each person who applies

for a loan whether the servicing of the loan may be assigned, sold, or

transferred to any other person at any time while the loan is outstanding.

Section 3500.8(a) of the regulation says that unless specifically exempted,

the HUD-1 or HUD-1A settlement statement must be used in every

settlement involving federally related mortgage loans in which there is a

borrower. Section 3500.15(b) states that affiliated business arrangements

are not violations of 12 U.S.C. 2607 as long as certain conditions are met.

The conditions set out in the regulation are substantively the same as

those in 12 U.S.C. 2607(c); affiliated business arrangements or agreements

are not prohibited as long as (A) the person making the referral has

provided a written disclosure on the existence of such an arrangement to

the person referred, (B) such person is not required to use any particular

provider of settlement services, and (C) the only thing of value that is

received from the arrangement (other than payments, such as fees or

salaries) is a return on the ownership interest or franchise relationship.

We could not determine whether HUD could have developed less

burdensome disclosure requirements while still meeting the underlying

requirements of RESPA. To make that determination we would have had

to conduct a detailed examination of HUD’s disclosure requirements that

were not statutorily mandated and determine whether HUD could have

eliminated them or used an alternative approach that regulated entities

would have perceived as less burdensome. Such an examination of each

Whether Regulatory

Provisions Are Within the

Authority Granted by

Statute

Whether Less Burdensome

Regulatory Approach Was

Available
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 76 GAO/GGD-99-20 Regulatory Burden

nonstatutory requirement would have demanded extensive time and

resource commitments that were beyond the scope of this assignment.

According to 12 U.S.C. 2601, the purpose of RESPA is to (1) simplify and

improve the disclosures applicable to the transactions under these acts

including the timing of the disclosures; and (2) provide a single format for

the disclosures that will satisfy the requirements of each of the acts with

respect to the transactions.

An official from Bank A said that FDIC requires banks to complete call

reports, a quarterly statistical summary of bank operations, that are very

detailed (28 pages for the bank) and require a significant amount of time

for bank employees to complete. She said one employee spends 1 week

during each quarter preparing the report.

FDIC officials said that Section 7(a) of the Federal Deposit Insurance Act

requires each FDIC-insured depository institution to submit quarterly

“reports of condition,” also known as “call reports,” to the appropriate

federal banking agency. The officials said that bank call reports generally

consist of a balance sheet; an income statement; a statement of changes in

equity capital; and supporting schedules that provide additional

information on specific categories of assets and liabilities, off-balance

sheet items, past due and nonaccrual assets, loan charge-offs and

recoveries, and risk-based capital. FDIC officials said that the call report

also includes the information used by FDIC to calculate each institution’s

premiums for deposit insurance. An individual bank files one of four

versions of the call report, depending upon whether it has foreign offices

and on its size in total assets. The officials said the call report for banks

with foreign offices is the most detailed, and the report for small banks is

the least detailed.

Officials from OCC and FRB also commented on this concern. They said

that 12 U.S.C. 161(a) and 12 U.S.C. 324 require all banks to file call reports.

They said call reports provide financial information for public disclosure,

and regulators use them to evaluate the safety and soundness of the

banking system. The officials said the reports enable them to make a

proper assessment of a bank’s condition and are a critical element of the

supervisory process.

Statutory Purpose

Concern 9

Company Concern

Agency Response
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 77 GAO/GGD-99-20 Regulatory Burden

The issue that we focused on in this concern is the agencies’ assertion that

the call reports at issue in the concern are statutorily required.

We believe that the various statutes that require or authorize the banking

agencies to collect information through the call reports gave the agencies

some discretion in drafting the relevant regulatory provisions. Some of the

provisions in the relevant statutes, such as in the Federal Deposit

Insurance Act and the Federal Deposit Insurance Corporation

Improvement Act of 1991, are very specific and therefore gave the banking

agencies no discretion in how the regulatory provisions could be drafted.

For example, 12 U.S.C. 1817(a) requires each institution to submit reports

of conditions four times each year, stipulates that the reports include the

total amount of the institution’s liability for deposits, and specifies that

time and savings deposits and demand deposits be listed separately.

Other provisions in the statutes gave the banking agencies at least some

rulemaking discretion. For example, 12 U.S.C. 1817(a) requires financial

institutions to submit call reports four times each year and specifies that

two of those reports must be submitted between January and June and

two between July and December. However, the statute allows the banking

agencies to determine exactly when these reports must be filed. Also, 12

U.S.C. 161(a) says that financial institutions must file call reports with

OCC in accordance with the Federal Deposit Insurance Act (codified at 12

U.S.C. 1811 et seq.). That act (12 U.S.C. 1817(a)(1)), in turn, says that

certain banks (e.g., insured state nonmember banks) must submit those

reports in such form and containing such information as FDIC may

require. Therefore, although the relevant statutes require call reports to

include some specific types of information, the statutes also give agencies

the flexibility to require other information that they deem necessary and to

specify the format of the reports.

We believe that the regulatory provisions implementing these statutory

requirements (codified at 12 C.F.R. 304.4(a)) are within the authority

granted by the relevant statutes. The regulation (1) requires that the call

reports be prepared in accordance with instructions from the Federal

Financial Institutions Examination Council; (2) lists a number of items that

must be reported in, or taken into account during the preparation of, the

call reports; and (3) requires that the reports be submitted on March 31,

June 30, September 30, and December 31 of each year. These provisions

are consistent with specific requirements in the statute (e.g., that the

reports be submitted four times each year) or fall within the general

rulemaking authority granted by the statutes.

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by

Statute
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 78 GAO/GGD-99-20 Regulatory Burden

We could not determine whether FDIC, OCC, and FRB could have

developed less burdensome call report requirements while still meeting the

requirements of the relevant statutes. In order to make such a

determination, we would need to do a detailed review of each of the

nonstatutory data elements of the call reports. This type of detailed

analysis would require significant time and resource commitments that

were beyond the scope of this review.

The Federal Deposit Insurance Act and the Federal Deposit Insurance

Corporation Improvement Act of 1991 do not contain statements of

purpose.

An official from Bank A said that the information requirements for the call

report keep changing, which she said makes it difficult for the bank to plan

ahead.

Officials from OCC, FDIC, and FRB said the events that make call report

changes necessary include changes in statutes, regulations, accounting

rules, technology, and the nature of the business of banking. They said

existing items are deleted when they are no longer considered sufficiently

useful.

The issue that we focused on in this concern is the agencies’ assertion that

changes in the call report requirements are, at times, required by changes

in statutes.

We believe that the relevant statutes gave OCC, FDIC, and FRB some

discretion in how frequently they have made changes to the regulations

requiring information in the call reports. In general, the banking agencies

are required to review and make changes to the information required in the

call reports that they believe are necessary. According to 12 U.S.C.

4805(c), each federal banking agency must review the information required

by the schedules supplementing the core information on the call reports

and “eliminate requirements that are not warranted for reasons of safety

and soundness or other public purposes.”

However, to determine the extent to which specific changes to the

reporting requirements were driven by statutory changes, we reviewed the

annual Revisions to the Reports of Condition and Income for 1993, 1994,

and 1995—the 3-year period immediately prior to our 1996 study. During

that period, the agencies added, deleted, or modified a total of 280 items

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose

Concern 10

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 79 GAO/GGD-99-20 Regulatory Burden

from the call report requirements. Of these 280 changes, OCC officials

said that 44 (16 percent) were driven by statutory requirements in the

Federal Deposit Insurance Corporation Improvement Act of 1991

(FDICIA). We reviewed the statutory provisions in FDICIA that OCC

officials said mandated the 44 changes to the call report requirements to

determine how much discretion the statute permitted the banking agencies

to make those changes. We concluded that the agencies had some

discretion in what they could require with regard to 37 of the 44 changes.

The statute often required agencies to collect general types of information,

but left to the agencies’ discretion the specific information that banks were

required to submit and/or whether the information had to be in the call

reports. For example, 1 of the changes that OCC officials said resulted in

the addition of 30 items to the call reports in 1993 involved the collection

of information on loans to small businesses and small farms. Section 122

of FDICIA states that the agency must annually collect information on

small business and small farm lending in the call reports and provides

suggestions of the type of information that may be collected. Therefore,

the statute gave the banking agencies no discretion about collecting this

information and specifically required that the call reports serve as the

reporting mechanism. However, the statute gave the agencies discretion

regarding the specific information that banks had to report. In the

remaining 7 of the 44 changes, we believe the banking agencies had no

discretion with regard to changing the call report requirements. For

example, in one of the seven changes, the statute required the agencies to

collect information on all assets and liabilities in all banking reports.

Therefore, the information had to be collected and had to be in all banking

reports, including the call reports.

We believe the banking agencies’ actions to change the call reports’

requirements were within the authority granted by the statutes. All of the

changes that the agencies made to the call report requirements appeared

to be either specifically required by FDICIA or were within the discretion

that the statutes gave the agencies to make such changes.

We could not determine whether FDIC, OCC, or FRB could have avoided

making changes to the call report requirements while still meeting the

requirements of the underlying statutes. In order to make such a

determination, we would need to do a detailed review of each change to

the call reports that was not specifically required by statute. This type of

detailed analysis would require significant time and resource commitments

that were beyond the scope of this review.

Whether Regulatory

Provisions Are Within

Authority Granted by

Statute

Whether Less Burdensome

Regulatory Approach Was

Available
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 80 GAO/GGD-99-20 Regulatory Burden

FDICIA does not contain a statement of purpose.

The officials from Bank A and the glass company raised concerns about

staying current with and understanding the changing and increasingly

complex regulatory requirements related to ERISA.

IRS officials said the companies’ concerns fail to distinguish between the

complexity of and burden that results from the statutes governing

retirement plans and the effect of regulations promulgated by IRS and the

Department of the Treasury. The officials said the relevant statutes have

been amended frequently since ERISA was enacted, and have become

increasingly complex. They said the companies’ concerns about the

complexity of the statutes governing retirement plans are properly

addressed to Congress, not IRS or other administrative agencies.

The issue that we focused on in this concern is IRS’ assertion that the

complexity and frequent changes in ERISA regulations are traceable to

changes in the statute.

We believe that IRS had some discretion with regard to how ERISA

regulations could be drafted and how frequently those regulatory

requirements could be changed. To determine the extent to which specific

changes to ERISA regulatory requirements were driven by statutory

changes, we asked IRS to identify all of the changes it had made in the

relevant regulations between January 1994 and December 1995—the 2-year

period prior to the issuance of our December 1996 report.6

 IRS officials

identified 37 such regulatory changes, 24 of which were based on

amendments made to ERISA by 4 different statutes. For example, the Tax

Reform Act of 1986 amended ERISA provisions (codified at 26 U.S.C.

414(r)) relating to pension plans of employers operating separate lines of

business. Subparagraph (2) of 26 U.S.C. 414(r) states that an employer

should be treated as operating separate lines of business if, among other

things, it meets “guidelines prescribed by the Secretary or the employer

receives a determination from the Secretary that such line of business may

be treated as separate.” Therefore, we believe that IRS had discretion in

how it drafted regulations implementing these amendments. IRS made 15

changes to regulatory provisions in 26 C.F.R. 1.410 and 1.414 to interpret

the separate line of business provisions.

 

6

 We focused on published changes to the CFR, not revenue rulings or notices that also affect

companies’ ERISA responsibilities.

Statutory Purpose

Concern 11

Company Concern

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 81 GAO/GGD-99-20 Regulatory Burden

Also, statutory provisions in the Omnibus Budget Reconciliation Act of

1993 changed the compensation limit of an employee in a qualified trust

and amended the formula for increasing the cost-of-living adjustment. The

provision (codified at 26 U.S.C. 401(a)(17)) imposed a $150,000 limit on the

amount of annual compensation of each employee in a qualified trust. It

also required the Secretary of the Treasury to annually adjust the $150,000

limit for increases in the cost-of-living at the same time and in the same

manner as adjustments are made pursuant to another subsection.

However, the provision stipulated that a different base period be used and

that any increase that is not a multiple of $10,000 must be rounded to the

next lowest multiple of $10,000. We concluded that IRS had no discretion

in how it drafted its implementing regulations for these provisions. IRS

drafted a regulatory provision that reflects the statutorily prescribed

adjustment process and the statutory change in the $150,000 limit.

We believe that IRS’ ERISA regulations are within the authority granted by

statute. The regulations did not appear to exceed the amount of

rulemaking authority provided by the statutes. In each instance in which

the relevant statutory provision gave IRS latitude in how its regulation

could be written, the regulations appeared substantively consistent with

the statutory intent and within the agency’s authority. In each instance in

which the relevant statutory provision gave IRS no discretion in how its

regulations could be changed, the regulations mirrored the statutory

provisions. For example, the IRS regulation on the ERISA annual

compensation limit (26 C.F.R. 1.401(a)(17)-1) states that the annual

compensation limit is $150,000 and that the limit is adjusted for changes in

the cost of living at the same time and in the same manner as in another

subsection. The regulation also mirrors the statutory requirements

regarding the base period to be used to calculate the annual adjustments

and the rounding of adjustments to the nearest $10,000.

We could not determine whether IRS could have developed less

burdensome regulations that would have met the requirements of the

underlying statutes. To do so we would have had to initiate a separate

analysis of each provision for which IRS had rulemaking discretion—

analyses that would have required extensive time and resource

commitments that were beyond the scope of this assignment.

Many of the statutes amending ERISA did not contain a statement of

purpose.

Whether Regulatory

Provisions Are Within the

Authority Granted by

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 82 GAO/GGD-99-20 Regulatory Burden

Officials from the fish farm said that pesticide manufacturers were either

not renewing the aquatic use of certain pesticides or were not seeking EPA

approval of the products for use in aquaculture because of the expense

associated with EPA’s reregistration program.

EPA officials said that the Federal Insecticide, Fungicide, and Rodenticide

Act (FIFRA) (codified at 7 U.S.C. 136 et seq.) requires EPA to determine

that the use of pesticides does not cause unreasonable adverse effects on

humans or the environment. In 1988, Congress required (FIFRA section 4,

7 U.S.C. 136a-1) EPA to certify that all pesticides meet current testing

standards for safety, including products that were first approved many

years ago. These older pesticides were originally approved when the data

requirements were less stringent and the associated costs of testing for

safety were substantially less than they are today. Since much of the data

on older pesticides may not meet current standards, the cost of conducting

studies to support approval for use today may be substantial.

The issue that we focused on in this concern is EPA’s assertion that the

cost associated with the requirement that pesticide manufacturers

reregister pesticides is traceable to FIFRA. Although the requirement in

question has a direct effect only on manufacturers of covered pesticides,

the fish farm is affected secondarily by the decision of manufacturers to

not seek reregistration of the pesticides because of the cost of

reregistration.

We believe that FIFRA gave EPA some discretion regarding the

requirements that manufacturers must satisfy in the pesticide

reregistration process. In some areas, EPA appears to have had little

discretion. For example, 7 U.S.C. 136a-1 states that the Administrator of

EPA must reregister “each registered pesticide containing any active

ingredient contained in any pesticide first registered before November 1,

1984.” This section describes in some detail the approach EPA is to use in

the reregistration process. For example, the statute requires the

reregistration to be carried out in five separate phases and requires those

seeking reregistration of a covered pesticide to submit a summary of each

study the registrant considers adequate to meet the requirements of the

statute, as well as the data underlying each such study. However, the

statute gives the Administrator discretion regarding the specific data that

manufacturers must submit. The statute (7 U.S.C. 136a-1(d)(3)) requires

each registrant to submit all data required by regulations “issued by the

Administrator under section 136a of this title . . . .” Section 136a requires

Concern 12

Company Concern

Agency Response

Amount of Discretion

Permitted in the Statute in

Drafting Regulatory

Requirements
Appendix III

Concerns for Which Agencies Appeared to Have Some Rulemaking Discretion

Page 83 GAO/GGD-99-20 Regulatory Burden

the Administrator to publish guidelines specifying the kinds of information

that will be required to support the registration of a pesticide. Although

the statute provides general standards that the Administrator must

consider when establishing data requirements for “minor uses” (e.g.,

considering “the impact of the cost of meeting the requirements on the

incentives for any potential registrant to undertake the development of the

required data”), the Administrator appears to have considerable discretion

in establishing registration (and therefore reregistration) data

requirements. These requirements can have a direct impact on the

expense incurred by manufacturers in the reregistration process.

An EPA official said there are no EPA regulations requiring reregistration

of pesticides first registered before November 1, 1984. He said that the

statute was so specific in delineating this requirement that they did not

believe it was necessary to draft regulations that would mirror the

statutory language. However, 40 C.F.R. Part 152 delineates the regulatory

requirements for registration of pesticides under section 3 of FIFRA,

including the data requirements that are referenced in the reregistration

requirements of section 4 of the statute.7

 Because FIFRA gave the EPA

Administrator considerable discretion in establishing those data

requirements, we concluded that the data requirements in the regulation

pertinent to the reregistration process are within the authority granted by

the statute.

We could not determine whether EPA could have developed less

burdensome data requirements that would have accomplished the

underlying requirements of FIFRA. To do so, we would have had to

examine each data requirement and determine whether the information

was necessary to prevent unreasonable adverse effects on the

environment. Conducting such an analysis would have required extensive

time and resource commitments that were beyond the scope of this

assignment.

FIFRA does not contain a statement of purpose.

 7

 The regulation (40 C.F.R. 152.1) says that Part 152 “sets forth procedures, requirements and criteria

concerning the registration and reregistration of pesticide products under FIFRA sec. 3 . . . .”

(Emphasis added.) However, the reregistration requirements are in section 4 of FIFRA, not section 3.

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available

Statutory Purpose
Appendix IV

Concerns For Which Agencies Appeared to

Have Broad Rulemaking Discretion

Page 84 GAO/GGD-99-20 Regulatory Burden

One of the objectives of our review was to determine, for each of 27

company concerns, the amount of discretion the underlying statutes gave

rulemaking agencies in drafting the regulatory requirements that the

agencies said were attributable to the underlying statutes. The agencies

that issued those requirements indicated in two of our 1996 reports that

the concerns could, at least in part, be traced to statutory requirements

underlying their regulations.1

 In this review we concluded that the

statutory provisions underlying 2 of the 27 concerns gave the rulemaking

agencies broad discretion in how the related regulatory requirements

could be drafted. We coded statutory provisions as allowing agencies

“broad discretion” if the provisions contained few specific requirements or

imposed few to no constraints on whether, and if so how, an agency’s

regulations could be drafted.

This appendix provides our detailed analysis of these two company

concerns. Specifically, for each such concern it provides the following

information: (1) the portion of the concern in our 1996 reports that the

agency or agencies indicated was statutorily based, (2) the portion of the

agency response in our 1996 reports that indicated the concern was

statutorily based, (3) our analysis of the amount of rulemaking discretion

the relevant statutory provisions gave the agencies (the first objective of

our review), (4) our analysis of whether the regulatory requirements at

issue in the concern were within the authority granted by the underlying

statutes (the second objective of our review), (5) our analysis of whether

the rulemaking agencies could have developed regulatory approaches that

would have been less burdensome to the regulated entities while

accomplishing the underlying statutory objectives (the third objective of

our review), and (6) the main purpose of the underlying statutes (where

such purpose statements were available). Appendix I of this report

contains a detailed discussion of our scope and methodology.

An official from Bank A said EEOC’s record retention standard is

inconsistent with how EEOC pursues cases. He said EEOC requires the

retention of personnel files for former employees for only 1 year after

employees leave a company. The bank official said that if the bank had

followed the EEOC guidelines and kept employees' files for only 1 year, it

would have had a "major problem" on the several occasions when EEOC

staff questioned bank officials about employees who had left several years

ago.

 

1

 GAO/GGD-97-2 (Nov. 18, 1996); and GAO/GGD-97-26R (Dec. 11, 1996).

Concern 1

Company Concern
Appendix IV

Concerns for Which Agencies Appeared to Have Broad

Discretion

Page 85 GAO/GGD-99-20 Regulatory Burden

According to EEOC, the specific record retention standards in its

regulations are tied to the periods in each statute during which

discrimination complaints can be filed. For example, Title VII of the Civil

Rights Act of 1964 and the Americans with Disabilities Act (ADA)

recordkeeping regulations (29 C.F.R. 1602.14) require that personnel

records be kept for 1 year because charges can be filed up to 300 days after

the alleged discrimination. Similarly, the Age Discrimination in

Employment Act (ADEA) requires that employers retain employment

records for a period of 1 year from the effective date of the personnel

actions to which they relate because ADEA charges can be filed up to 300

days after the alleged age discrimination. However, ADEA recordkeeping

regulations (29 C.F.R. 1627.3) also require employers to keep basic payroll

information for 3 years because the Commission can investigate suspected

age discrimination based on an untimely charge or even absent a charge.

Finally, Equal Pay Act lawsuits must be filed within either 2 or 3 years of

the alleged discrimination, so the related regulations (29 C.F.R. 1620.32)

contain 2 and 3 year record retention periods.

EEOC officials said that under all of the statutes, when a claim of

discrimination is pending, the employer is required to preserve all relevant

personnel records until final disposition of the charge or action. If the

bank has complied with these requirements, destruction of records in the

normal course of business when there is no pending charge of

discrimination would not violate the law or give rise to an adverse

inference.

The issue that we focused on in this concern is EEOC’s assertion that its

record retention requirements are tied to the filing periods in various civil

rights statutes.

We believe that the statutes underlying EEOC’s record retention

requirements give the agency broad discretion in drafting the regulations

concerning those requirements. The statutory provisions do not specify

how long employers must retain records and give EEOC broad authority to

establish retention periods. For example, Title VII of the Civil Rights Act

of 1964 (42 U.S.C. 2000e-8(c)) requires every employer, employment

agency, and labor organization subject to this subchapter to “(1) make and

keep such records relevant to the determinations of whether unlawful

employment practices have been or are being committed, (2) preserve

such records for such periods, and (3) make such reports therefrom as the

Commission shall prescribe by regulation or order . . . .” (Emphasis

added.) ADA (42 U.S.C. 12117(a)), ADEA (29 U.S.C. 626(a)), and the Equal

Pay Act (29 U.S.C. 211(c)) give similarly broad discretion to the

Agency Response

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements
Appendix IV

Concerns for Which Agencies Appeared to Have Broad

Discretion

Page 86 GAO/GGD-99-20 Regulatory Burden

Commission to impose recordkeeping requirements. For example,

according to the Equal Pay Act,

“every employer subject to any provision of this chapter or of any order issued under this

chapter shall make, keep, and preserve such records of the persons employed by him and

of the wages, hours, and other conditions and practices of employment maintained by him,

and shall preserve such records for such periods of time, and shall make such reports

therefrom to the Administrator as he shall prescribe by regulation or order as necessary or

appropriate for the enforcement of the provisions of this chapter or the regulations or

orders thereunder.” (Emphasis added.)

We believe that EEOC’s regulatory recordkeeping requirements are within

the broad authority granted by the relevant statutes. For example, EEOC’s

recordkeeping regulations for Title VII of the Civil Rights Act of 1964 and

ADA (29 C.F.R. 1602.14) state that

“[a]ny personnel or employment record made or kept by an employer...shall be preserved

by the employer for a period of one year from the date of the making of the record or the

personnel action involved, whichever occurs later. . . [w]here a charge of discrimination has

been filed, or an action brought by the Commission or the Attorney General, against an

employer under title VII or the ADA, the respondent employer shall preserve all personnel

records relevant to the charge or action until final disposition of the charge or the action.”

Because the civil rights statutes do not specify how long employers must

retain records, and because those statutes permit EEOC to require that

records be kept for such periods as the Commission may prescribe, we

believe that EEOC’s recordkeeping requirements fall within the broad

discretion permitted in the statutes.

We could not determine whether EEOC could have developed

recordkeeping requirements that would have been less burdensome to

regulated entities than those that it developed while still accomplishing the

underlying statutory objectives. In a sense, EEOC’s recordkeeping

requirements appear to be the least burdensome approach in that they

closely relate to the filing periods in the antidiscrimination laws that EEOC

cited. For example, under Title VII, ADA, and ADEA employees have up to

300 days to file a discrimination charge. The relevant record retention

regulation states that records must be retained for 365 days. Filing periods

under the Equal Pay Act range from 2 to 3 years, and the record retention

requirements in EEOC’s regulations mirror those periods.

EEOC could have used its rulemaking discretion to establish uniform

record retention requirements (e.g., 5 or 10 years) for all of the statutes

instead of the variable periods for the different statutes. This approach

could have helped eliminate what the company viewed as an inconsistency

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available
Appendix IV

Concerns for Which Agencies Appeared to Have Broad

Discretion

Page 87 GAO/GGD-99-20 Regulatory Burden

between the requirements and the way EEOC pursues cases. However, it

is not clear whether regulated entities would view a record retention

requirement that is longer than the current requirement as being less

burdensome. To determine how regulated entities would have viewed

such a requirement (and therefore whether EEOC could have developed a

less burdensome regulatory approach), we would have had to conduct an

in depth review of those entities’ views regarding record retention. Such a

review would have required time and resource commitments that were

beyond the scope of this assignment.

According to 42 U.S.C. 12101(b), the purpose of ADA is

“ (1) to provide a clear and comprehensive national mandate for the elimination of

discrimination against individuals with disabilities; (2) to provide clear, strong, consistent,

enforceable standards addressing discrimination against individuals with disabilities; (3) to

ensure that the [f]ederal [g]overnment plays a central role in enforcing the standards

established in this chapter on behalf of individuals with disabilities; and (4) to invoke the

sweep of congressional authority, including the power to enforce the fourteenth

amendment and to regulate commerce, in order to address the major areas of

discrimination faced day-to-day by people with disabilities.”

According to 29 U.S.C. 621, the purpose of ADEA is “to promote

employment of older persons based on their ability rather than age; to

prohibit arbitrary age discrimination in employment; to help employers

and workers find ways of meeting problems arising from the impact of age

on employment.”

Although it is not codified, section 2 of the Equal Pay Act is a declaration

of purpose and states:

“ [t]he Congress hereby finds that the existence in industries engaged in commerce or in the

production of goods for commerce of wage differentials based on sex—(1) depresses

wages and living standards for employees necessary for their health and efficiency; (2)

prevents the maximum utilization of the available labor resources; (3) tends to cause labor

disputes, thereby burdening, affecting, and obstructing commerce; (4) burdens commerce

and the free flow of goods in commerce; and (5) constitutes an unfair method of

competition.”

Title VII of the Civil Rights Act of 1964 contained no statement of purpose.

Bank B officials said some bank regulations give nonbanks (e.g.,

investment brokerage firms) an unfair competitive edge in the

marketplace. For example, they said one regulation requires banks to

Statutory Purpose

Concern 2

Company Concern
Appendix IV

Concerns for Which Agencies Appeared to Have Broad

Discretion

Page 88 GAO/GGD-99-20 Regulatory Burden

disclose the risks faced by consumers with certain investment products,

although investment firms are not required to make similar disclosures. In

a recent 60 second media advertisement for Bank B, the bank officials said

about a quarter of the airtime they bought had to be spent publicizing

regulatory issues (e.g., rates and term disclosures). They said a nonbank

could have spent the same advertising time simply selling its products and

services.

In our December 1996 report, OCC officials said that the examples of

competitive inequality cited by Bank B are due to the fact that banks and

nonbanks operate under different statutory schemes. During this review,

OCC officials said banks operate as federally insured financial institutions

and nonbanks do not. Therefore, they said it is appropriate for banking

agencies to adopt additional disclosure requirements that address the

unique features of the banking industry.

OCC officials noted that the different disclosures provided by banks stem

not from a regulation but from a policy statement, issued jointly by OCC

and the other banking agencies in 1994, that provides guidance to the

industry concerning practices that are consistent with safe and sound

banking practices. Issuing the policy statement was an exercise of the

authority of the OCC and other banking agencies to determine what

constitutes safe and sound banking practices pursuant to 12 U.S.C. 1818.

OCC officials also said that because banks offer both insured and

uninsured investment products, it is important that banks inform

consumers whether a given product is insured. Failure to do so could

constitute an unsafe and unsound banking practice, resulting in liability to

the bank or, at a minimum, damage to the bank’s reputation. OCC officials

noted that OCC and other banking agencies issued the policy statement in

question to alert banks about the potential problems in this area and to

suggest practices—including providing the disclosures noted by Bank B

officials—that can help banks avoid these problems.

OCC officials concluded that it is appropriate to continue tailoring the

disclosures provided to purchasers of investment products according to

whether there is a significant risk of confusion over whether a product is

insured.

Agency Response
Appendix IV

Concerns for Which Agencies Appeared to Have Broad

Discretion

Page 89 GAO/GGD-99-20 Regulatory Burden

The issue that we focused on in this concern is OCC’s assertion that

differences in “statutory schemes” between banks and nonbanks require

differences in their disclosure requirements.

We believe that the statutes underlying the interagency policy statement

gave the banking agencies broad discretion in developing the disclosure

requirements. OCC officials indicated that the banking agencies issued the

policy statement under their authority in 12 U.S.C. 1818 to determine

whether a given practice is consistent with safe and sound banking. Given

the scope of this authority and because the disclosure requirements in the

policy statement appear related to the agency’s authority, we concluded

that the statutes gave OCC and the other the banking agencies broad

discretion to issue the policy statement requiring the disclosures at issue in

this concern. Also, because OCC’s and the other banking agencies’

statutory authority does not extend to nonbanks, the policy statement does

not apply to those institutions.

We believe that the interagency policy statement requiring certain types of

disclosures for nondeposit investment products is within the broad

rulemaking authority granted to OCC and the other banking agencies by

the underlying statutes. For example, the policy statement requires,

among other things, that insured depository institutions disclose that

certain products (1) are not insured by FDIC; (2) are not a “deposit or

other obligation of, or guaranteed by, the depository institution;” and (3)

are subject to investment risk, including possible loss of the principal

amount invested. The policy statement also says that the disclosures

should be provided to customers during any sales presentation and in

advertisements and other promotional materials. Because the underlying

statutes give OCC and the other banking agencies the authority to take the

actions that they believe are necessary to remedy or prevent unsafe and

unsound banking practices, we believe the policy statement is within

OCC’s statutory authority.

We could not determine whether OCC and the other banking agencies

could have developed disclosure requirements that would have been less

burdensome to regulated entities while still accomplishing the underlying

purpose of the statutes. To do so we would have had to conduct a detailed

review of each disclosure requirement and determine how important it

was to consumers in understanding which products are insured and which

are not. Such a review would require significant time and resource

commitments that were beyond the scope of this review.

Amount of Discretion

Permitted by Statute in

Drafting Regulatory

Requirements

Whether Regulatory

Provisions Are Within the

Authority Granted by the

Statute

Whether Less Burdensome

Regulatory Approach Was

Available
Appendix IV

Concerns for Which Agencies Appeared to Have Broad

Discretion

Page 90 GAO/GGD-99-20 Regulatory Burden

The above-cited statutory provisions do not contain a statement of

purpose.

Statutory Purpose
Appendix V

Major Contributors to This Report

Page 91 GAO/GGD-99-20 Regulatory Burden

Curtis Copeland, Assistant Director

Ellen Wineholt, Evaluator-in-Charge

Theresa Roberson, Senior Evaluator

Thomas M. Beall, Technical Analyst

Kiki Theodoropoulos, Communications Analyst

Alan N. Belkin, Assistant General Counsel

James M. Rebbe, Senior Attorney

General Government

Division

Office of the General

Counsel
Page 92 GAO/GGD-99-20 Regulatory Burden
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