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REGULATORY ACCOUNTING: COSTS AND BENEFITS

OF FEDERAL REGULATIONS

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY POLICY, NATURAL

RESOURCES AND REGULATORY AFFAIRS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

MARCH 12, 2002

Serial No. 107–155

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON ENERGY POLICY, NATURAL RESOURCES AND REGULATORY

AFFAIRS

DOUG OSE, California, Chairman

C.L. ‘‘BUTCH’’ OTTER, Idaho

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

STEVEN C. LATOURETTE, OHIO

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

——— ———

JOHN F. TIERNEY, Massachusetts

TOM LANTOS, California

EDOLPHUS TOWNS, New York

PATSY T. MINK, Hawaii

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

DAN SKOPEC, Staff Director

BARBARA KAHLOW, Deputy Staff Director

ALLISON FREEMAN, Clerk

ELIZABETH MUNDINGER, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on March 12, 2002 ............................................................................ 1

Statement of:

Graham, John D., Ph.D., Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget; and Thomas M. Sullivan, Chief Counsel for Advocacy, U.S. Small Business Administration .. 8

Miller, James C., III, former Director, Office of Management and Budget,

counselor to Citizens for a Sound Economy; Thomas D. Hopkins, former

Deputy Administrator, Office of Information and Regulatory Affairs,

Office of Management and Budget, dean, College of Business, Rochester

Institute of Technology; Susan Dudley, deputy director, regulatory

studies program, Mercatus Center, George Mason University; Joan

Claybrook, president, Public Citizen; and Lisa Heinzerling, professor

of law, Georgetown University Law Center ................................................ 47

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

Claybrook, Joan, president, Public Citizen, prepared statement of ............. 94

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

Center, George Mason University, prepared statement of ........................ 67

Graham, John D., Ph.D., Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget, prepared statement

of ..................................................................................................................... 11

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

prepared statement of ................................................................................... 125

Hopkins, Thomas D., former Deputy Administrator, Office of Information

and Regulatory Affairs, Office of Management and Budget, dean, College of Business, Rochester Institute of Technology, prepared statement

of ..................................................................................................................... 56

Miller, James C., III, former Director, Office of Management and Budget,

counselor to Citizens for a Sound Economy, prepared statement of ........ 49

Ose, Hon. Doug, a Representative in Congress from the State of California, prepared statements of.......................................................................... 4, 159

Sullivan, Thomas M., Chief Counsel for Advocacy, U.S. Small Business

Administration:

Congressional Record statement ..................................................................... 29

Prepared statement of ...................................................................................... 17

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

of Massachusetts, prepared statement of ................................................... 164

(1)

REGULATORY ACCOUNTING: COSTS AND

BENEFITS OF FEDERAL REGULATIONS

TUESDAY, MARCH 12, 2002

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY POLICY, NATURAL

RESOURCES AND REGULATORY AFFAIRS, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room

2154, Rayburn House Office Building, Hon. Doug Ose (chairman of

the subcommittee) presiding.

Present: Representatives Ose, Otter, Duncan, Tierney, and

Kucinich.

Staff present: Dan Skopec, staff director; Barbara F. Kahlow,

deputy staff director; Alison Freeman, clerk; Yier Shi, press secretary; Melica Johnson, press fellow; Elizabeth Mundinger and Alexandra Teitz, minority counsels; and Jean Gosa and Earley Green,

minority assistant clerks.

Mr. OSE. Good afternoon. Welcome to today’s hearing.

Last fall, Mark Crain and Thomas Hopkins estimated that in

2000 Americans spent $843 billion to comply with Federal regulations. Their report, commissioned by the Small Business Administration, states, ‘‘Had every household received a bill for an equal

share, each would have owed $8,164.’’ Their report also found that,

‘‘in the business sector, those hit hardest by Federal regulations

are small businesses. Firms employing fewer than 20 employees

face an annual regulatory burden of $6,975 per employee, a burden

nearly 60 percent above that facing a firm employing over 500 employees.’’ Regulations add to business costs and decrease capital

available for investment.

Today, we will examine the Office of Management and Budget’s—we will refer to them as OMB—annual regulatory accounting

reports. They were intended to disclose the off-budget costs and

benefits associated with Federal regulations and paperwork.

Because of congressional concern about the increasing costs and

incompletely estimated benefits of Federal rules and paperwork, in

1996, Congress required OMB to submit its first regulatory accounting report. In 1998, Congress changed the annual report’s due

date to coincide with the President’s budget. Congress established

this simultaneous deadline so that Congress and the public could

be given an opportunity to simultaneously review both the on-budget and off-budget costs associated with each Federal agency imposing regulatory or paperwork burdens on the public. In 2000, Congress made this a permanent annual reporting requirement. The

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law requires OMB to estimate the total annual costs and benefits

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

by agency program, and by major rule.

Agency-by-agency data and data by agency program are important for the public to know the aggregate costs and benefits associated with each agency and each major regulatory program. For example, what are the aggregate costs and benefits of the requirements imposed by the Environmental Protection Agency and the

Labor Department’s Occupational Health and Safety Administration? Is there a more cost-effective way for OSHA or EPA to accomplish the intended objective? Would another approach achieve the

same objective at less cost? Also, policymakers could make better

decisions about tradeoffs between alternatives.

To date, OMB has issued four regulatory accounting reports—in

September 1997, January 1999, June 2000, and December 2001.

All four have failed to meet some or all of the statutorily required

content requirements, and the last was submitted 8 months late.

This untimely submission was too late to be useful in the congressional appropriations process. Additionally, OMB’s December 2001

report was not presented as an accounting statement, did not include any estimates by agency or by agency program, and did not

include updated estimates from its prior annual report. Last, OMB

failed to submit its next report due February 4, 2002. Today, we

will hear testimony that OMB expects to issue its draft report this

month.

In 1996, OMB issued Best Practices Guidances to help standardize agency cost-benefit measures. Since then, OMB has not enforced agency compliance. As a consequence, agency practices continue to substantially deviate from OMB’s guidance, with some

agencies not even estimating costs or benefits.

Last October, I wrote to the OMB Director, asking if OMB will

be ready to provide agency-by-agency information and what steps

OMB has taken to ensure that costs and benefits data will be provided in a traditional accounting statement format, including by

agency and agency program.

For OMB’s Information Collection Budget and for the President’s

budget each year, OMB tasks agencies with preparing paperwork

and budgetary estimates respectively for each agency bureau and

program. OMB uses the Information Collection Budget to manage

the burden of Federal paperwork imposed on the public. In contrast, for Federal regulations, OMB does not similarly task agencies annually with preparing estimates of the costs and benefits associated with the Federal regulations imposed by each agency bureau and program. As a consequence, OMB’s annual regulatory accounting report is harder for OMB to prepare by agency and by

agency program.

Regulatory accounting is a useful way to improve the cost effectiveness and accountability of government. One of my goals when

I came to Congress was to make the government more efficient.

The only way that policymakers can innovate is to understand the

strengths and weaknesses of new proposals. Cost-benefit analyses

give Congress tools to modernize our government and make it more

responsive to the public.

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I look forward to the testimony of our witnesses about OMB’s

track record and the utility of its annual regulatory accounting reports due with the President’s budget.

I’d like to recognize the gentleman from Tennessee for the purpose of an opening statement.

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

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Mr. DUNCAN. Well, thank you very much, Mr. Chairman.

I don’t have a formal opening statement, but I do want to say

that I thank you for calling this hearing on what I think is a very

important topic.

I was a lawyer and then a circuit court judge for 71⁄2 years before

I came to Congress. I can tell you there are so many millions of

laws and rules and regulations on the books in this country today

that they haven’t even designed a computer that can keep up with

all of them, much less a human being. People, especially people in

business, are out there every day violating rules and regulations

that they didn’t even know were in existence.

I know that today it’s estimated that almost 40 percent of the average person’s income goes to pay taxes of all types—Federal,

State, local, property, gas, excise, etc.—and most people estimate at

least another 10 percent go for regulatory costs that are passed on

to the consumer in the form of higher prices. So Senator Fred

Thompson from our State had an ad the last time he ran for office.

He said, one spouse works to support the family while the other

spouse works to support the government.

I’m not as serious about what the tremendous costs are because

who they impact most the lower income and the poor and the working people of this country. That is who is hurt the most by a society

that’s overregulated.

But, also, I’m concerned about the effect on small businesses.

When you come in with excessive regulation, you first run the

small businesses out. Then you run the medium size out. So some

of these people who believe in regulating everything in the world

are the best friends that extremely big business has. It happens in

every industry. Every industry that’s overregulated ends up in the

hands of a few big giants.

We had 157 small coal companies in east Tennessee in 1978.

Then they opened up a Federal mining regulatory office there, and

now there are no small coal companies, and there are two or three

big giants. That’s happened in every industry in this country.

So thank you very much for calling this hearing. I look forward

to hearing the testimony of the witnesses.

Mr. OSE. I thank the gentleman.

The gentleman from Idaho.

Mr. OTTER. Thank you, Mr. Chairman.

I, too, would agree with my colleague from Tennessee on the importance of this hearing. I appreciate your leadership on this important effort, as I also believe it is important for Congress to be

provided with current, accurate, and timely information on the cost

of financial burdens and the benefit and effectiveness of Federal

regulations. To me, this is a simple matter of common sense.

In my last life I was a french fry salesman, and I don’t ever remember making a decision about building a plant or increasing a

distribution port, whether it was in the United States or one of the

82 countries that we operated in, on partial facts and incomplete

conclusions. If I had, I wouldn’t have been in business that long.

Without accurate and timely information, my colleagues and I are

being left to conduct the business of this Nation without all the

facts.

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As a businessman, as a lieutenant Governor and a member of the

Idaho State legislature, I also became well aware of the impact

that Federal regulations have on rural economies. The amount of

money spent each year to meet regulatory demands of the Federal

Government agencies is astounding.

In fact, in a report by an agency represented by Mr. Sullivan

here today, the Small Business Administration, it is estimated that

$843 billion—and this was a report that was put out in October of

last year—$843 billion to comply with Federal regulations. Now

that’s the actual cost. It does not also include the opportunity cost

of $843 billion. So as the financiers of the Federal regulatory agencies I think it’s imperative that Congress has access to all the necessary means to conduct a thorough review of the financial and

functional effectiveness of Federal regulations.

Again, I appreciate the chairman’s attention to this issue and am

proud to serve as the vice chairman of this subcommittee to look

through these important issues. I look forward to hearing the testimony of our witnesses.

Thank you, Mr. Chairman. I yield back the balance of my time.

Mr. OSE. Thank you, Mr. Vice Chairman.

We have two panels today. It’s the custom of this committee and

the subcommittees to swear their witnesses in. So, gentlemen, if

you would rise, please.

[Witnesses sworn.]

Mr. OSE. Let the record show the witnesses on the first panel answered in the affirmative.

We are joined today by two witnesses, by John Graham, who is

the Administrator of the Office of Information and Regulatory Affairs in the Office of Management and Budget. He’ll be first. Then

we also are joined by the Chief Counsel for Advocacy in the Small

Business Administration, Thomas M. Sullivan.

Dr. Graham, we have your testimony. We have entered it into

the record. If you could summarize within 5 minutes, that would

be great.

STATEMENTS OF JOHN D. GRAHAM, PH.D., ADMINISTRATOR,

OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET; AND THOMAS M. SULLIVAN, CHIEF COUNSEL FOR ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION

Dr. GRAHAM. Very well, Mr. Chairman.

Good afternoon. I appreciate the opportunity to be here.

Since this is my first oversight hearing with this particular subcommittee, I thought I should step back and say a few words about

the approach I’m taking to running the Office of Information and

Regulatory Affairs for the President. This is the office that oversees

all of the regulatory policy within the executive agencies.

As you know, the President supports regulations that are sensible and based upon sound science and economics; and, at the

same time, we’re determined to streamline the regulatory process

to make sure there are no other regulations that are outside that

basic criteria.

In terms of overall approach to the office, I’m trying to introduce

a greater degree of transparency and openness to the office. Since

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I was confirmed in July, I have had a virtually open door policy for

public visitors from various types of groups, have hosted about 100

different groups interested in different facets of Federal regulation.

We have also, through our Web site, been publishing the letters

that our office submits to agencies on regulatory issues. We’ve published our meetings with outside groups, and we provide daily updates of new regulations that are either under review at our office

or are being cleared, withdrawn, or returned.

We believe that this more open and public approach to the way

we do our work will enhance public scrutiny of the regulatory process and, in the long run, increase appreciation of the value of our

office.

Let me proceed now to the major topic of the hearing, which is

the regulatory accounting law and our implementation of it. From

your opening statement, Mr. Chairman, I realize we have a lot of

work to do to bring our office into compliance with the requirements as you have described them in your opening statement. Let

me say a couple things about what we’re doing modestly to move

in that direction.

The first point I would like to make is that we view better quality data and better analysis by agencies as the key to generating

the information to make this regulatory accounting report a more

effective and useful document. The key way we intend to do that

for new regulations is through intense scrutiny by my analytical

staff of these regulations when they are coming to our office. Since

July we have returned 20 rules, in most cases because of inadequate analysis; and that number is more than the total number

of rules returned in the entire Clinton administration.

We have also cleared six of these returned rules after the agencies improved their analysis and came back with stronger proposals. So a return does not necessarily mean the regulation is denied.

It means it needs to be improved.

The second thing we need to do to improve the underlying information for the regulatory accounting law is look at the very difficult problem of the sea of existing regulations that are out there.

The administration does not support an across-the-board review of

every existing regulation in every agency. We don’t believe that’s

practical. We don’t believe the agencies could handle it, and we

don’t think OMB could handle it. However, we do believe that a

public participation process rooted in the regulatory accounting law

is an effective way to identify those particular regulations that are

especially in need of reform and better analysis; and in the report

that you’ve received that we submitted in December we took our

first effort in this direction of seeking public comment on the existing regulatory state.

The third step we’re taking to improve this information is to update the analytic guidance that OMB asks agencies to adhere to

when they produce regulatory analyses that are submitted to our

office. Jointly with the Council of Economic Advisors, my office is

going to be refining this guidance after a process of public comment

and peer review. It’s through this guidance that the analysts and

the agencies are expected to follow that we hope to spawn better

data and better analysis from the agencies.

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The final point I want to make is with regard to the timing of

the regulatory accounting report. As you have mentioned, our statutory requirement is to release the report in February. I want to

remind you at the end of the previous fiscal year, on October 1st,

that left 4 months to generate a quality regulatory accounting report that has our office’s analysis, peer review, interagency review,

and the final analysis. Our position is we’re going to do our best

to get the draft regulatory accounting report to you in February of

next year, and in future years we’ll be working hard to do better

than that. So I hope I have given you a general sense of where

we’re headed with compliance.

Let me conclude by saying that the annual accounting report to

Congress we’re using in this administration is a crucial vehicle to

stimulate both specific regulatory reforms and to spawn in the long

run better data and analysis from the agencies. I look forward to

working with the subcommittee to pursue that agenda.

Mr. OSE. Thank you, Dr. Graham.

[The prepared statement of Dr. Graham follows:]

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Mr. OSE. Our next witness is Thomas Sullivan.

Mr. Sullivan, if you could summarize—we do have a copy of your

testimony—for 5 minutes. Thank you.

Mr. SULLIVAN. Chairman Ose, other members of the subcommittee, good afternoon and thank you for the opportunity to appear before you today, as the recently confirmed Chief Counsel for Advocacy, to discuss regulatory accounting.

I’m pleased that my written statement has been accepted into

the record, and I will briefly summarize the key points.

First, let me tell you what an honor and privilege it is for me

to have been appointed Chief Counsel for Advocacy by President

Bush. This is my first statement before this subcommittee since my

confirmation, and I am grateful for the tremendous support that I

have already had from other committees in the House and the Senate, Members of Congress, from SBA administrator Hector Barreto,

from government leaders like Dr. John Graham, and from regulatory experts who we work with and are well represented at this

hearing.

Today’s topic, regulatory accounting, is one the Office of Advocacy understands very well, but from a slightly different perspective than what was just mentioned by Dr. Graham. We share the

same concern as other panelists, concerns that will be voiced in the

next panel, that there is an overwhelming regulatory burden on

small businesses; and implementation by Dr. Graham’s office of the

regulatory accounting law forces government agencies to analyze

the economic impact of their actions. This early examination of

costs and benefits should help agencies comply with the analytical

requirements of the Regulatory Flexibility Act, which my office

oversees.

The Office of Advocacy focuses on an early exchange of information with OMB and Federal agencies in order to assist them in reducing unnecessary burdens, while at the same time allowing the

agencies to accomplish their public policy objectives. This is the primary tenet of the Regulatory Flexibility Act.

Frankly, from my perspective, many of the 71 regulations identified in OMB’s regulatory accounting report would not have appeared there as ‘‘high priority,’’ if agencies had consulted with our

office early in the regulatory process, complied with the Regulatory

Flexibility Act, and crafted less burdensome regulatory alternatives.

Early analysis works. In OMB’s 2001 report, Dr. Graham

extolled the value of timely and meaningful consultation for the

Federal regulatory apparatus.

We at Advocacy could not agree more.

Early consultation has led to the development of improved regulations that avoid undue burdens but still accomplish the agency’s

objectives. Early attention to economic consequences helps reduce

the overall cost of regulatory development, and once the analysis

is complete, there is less risk that a rule will be successfully challenged in court.

Early dissemination to the public of regulatory analyses encourages well-informed policy decisions. Those decisions are enhanced

by additional economic perspectives, like the quality work produced

by the regulatory studies program in the Mercatus Center at

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George Mason University. The more analysis and flushing out of a

rule’s consequences, the better off the final product.

We estimate that, during fiscal years 1998 through 2001, modifications to regulatory proposals in response to agencies’ consultation with the Office of Advocacy resulted in cost savings totaling

more than $16.4 billion, or more than $4.1 billion per year on average. Let me put the $4.1 billion in small business terms. That money

saved means that over 1.3 million employees who work in small

businesses might be able to afford employer-sponsored health care.

Small businesses are and have historically been our Nation’s primary source of innovation, job creation, and productivity. They

have led us out of recessions and economic downturns. They have

provided tremendous economic empowerment opportunities for

women and minority entrepreneurs, and small employers spend

more than $1.5 trillion on their payroll.

That is why it is so important for OIRA or OMB to do what it

does well, track, analyze, and report to Congress on the impact of

significant regulations in their annual regulatory accounting report. If agencies aren’t doing their homework and are promulgating

rules without thoroughly considering their economic impact, small

business is going to get hit disproportionately harder than their

larger counterparts.

I see that my time is up, so I’ll sum up, with the permission of

the Chair.

Mr. OSE. Fifteen seconds.

Mr. SULLIVAN. In summary, regulatory accounting and early receipt of agency information continue to be important priorities for

the Office of Advocacy. Government expects small business to follow Federal rules and regulations. I think it is only fair that agencies follow the rule requiring timely and deliberate economic analysis.

Thank you again for inviting me here this afternoon. I’m happy

to answer any questions the subcommittee may have.

[The prepared statement of Mr. Sullivan follows:]

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Mr. OSE. I thank the panelists.

I think I’m going to go ahead and start here. My primary question has to do with—I have any number of issues in my district

that are health and safety issues, they’re transportation issues,

they’re water issues, they’re education issues; and until I can get

adequate feedback in terms of the relative costs and benefits of this

or that regulatory action, I’m sort of flying in the dark in making

decisions on an allocation of resource basis to address each of those

issues.

How do we move toward getting this particular report presented

to Congress in time for me—and my colleagues, for that matter—

to factor this analysis into the decisions that we have to make

here? Because, frankly, if I’ve got $10 and I’ve got demand for $100

worth of resources, I have to prioritize. Without that analysis,

which, frankly, my office is not capable of doing, I’m in a little bit

of a disadvantage. Dr. Graham, how do we deal with this?

Dr. GRAHAM. Mr. Chairman, it’s a very good question.

The first point I would make is, while your office does not have

the staffing and resources, as have you just said, to do all this

analysis, the truth of the matter is that the Office of Information

and Regulatory Affairs at OMB, with several dozen analysts, has

some capability to do analysis, but, frankly, it’s modest compared

to the resources that are available in the many agencies. So I think

the key to making the regulatory accounting reports successful is

to change the culture within the agencies so they appreciate the

importance of analysis and invest the resources and the data and

quality and analytic tools to make that analysis better.

One of the very first steps that we have tried in this administration is to make it clear to agencies that we are going to be returning rules to agencies that are not based upon quality analysis. But

if those analyses are improved, then there’s a basis for clearing

those regulations.

Mr. OSE. So the statute is clear that OIRA or OMB has the authority to require these, to acquire these analyses from the agencies?

Dr. GRAHAM. You’re talking about the regulatory accounting statute?

Mr. OSE. Yes.

Dr. GRAHAM. It places, actually, burdens on my office at the Office of Information and Regulatory Affairs. But, as a practical matter, the only real way that compliance can actually occur is if the

agencies share with us the information and analysis. Otherwise, at

a practical level, it’s not really going to be feasible to do the job the

law calls for.

Mr. OSE. Are you getting resistance from the agencies in providing this information?

Dr. GRAHAM. Well, in a candid answer to that question, Mr.

Chairman, I would say that the responses we get from agencies in

terms of our calls for better analysis are highly variable; and the

agencies and programs within agencies have varying levels of commitment to high-quality analysis. So I don’t think I can be here,

frankly, and tell you that we see across-the-board high-quality

analysis coming from the regulatory agencies.

Mr. OSE. We’re going to come around.

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Mr. Sullivan, I will come back to you in a minute.

This really begs the question, this becomes so clear here. We’ve

had this concept of best practices in terms of the manner in which

the information is supposed to be reported by the agencies; and yet,

if I understand correctly, we have a variety of formats not necessarily consistent with the Best Practices Guidance that has been

put out that is delivered to you. Am I accurately informed on that?

Dr. GRAHAM. The Best Practices guidelines from my office that

I’m aware of are from 1996. They were actually superseded by a

much more general and limited document on guidelines that came

out in the year 2000.

One of the reasons the Council of Economic Advisors and OMB

are jointly engaged to look at those two documents and improve

them and refine them is that we’re not convinced that the existing

guidance for agencies, frankly, has enough teeth behind it.

Mr. OSE. My time is about to expire. I will yield to Mr. Otter for

5 minutes.

Mr. OTTER. Thank you, Mr. Chairman.

Before I begin, Mr. Sullivan, you quoted some figures in your testimony; and I have not been able to find them. It was a pretty important figure as far as I was concerned, that there was enough

money saved in reviewing the regulatory burdens on small business that you could have provided insurance for 1.4 million employees in small businesses. What page does that appear on in here?

Mr. SULLIVAN. Mr. Otter, that does not actually appear in my

written testimony. I do have a statement that I formalized into the

Congressional Record during my confirmation hearing in the Senate. I have it with me; and, with the chairman’s permission, I can

enter it into the record.

[The information referred to follows:]

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Mr. OSE. Without objection.

Mr. SULLIVAN. Basically, what this does is average out per individual or per family the cost of health care. It’s always helpful for

me and our colleagues to put cost savings like $4.1 billion into real

terms; and I think, given the problem of access to health care, it

does paint a very stark picture of what the money that is being

saved thorough analysis of regulations really is about.

Mr. OTTER. OK. Thank you very much.

Dr. Graham, what did you do in your life before this life?

Dr. GRAHAM. Well, I was in the academic world, actually, all the

way since graduate school. I was at the Harvard School of Public

Health as a faculty member, taught the analytic tools of risk analysis and cost-benefit analysis and launched the Harvard Center for

Risk Analysis, which I ran for about a decade.

Mr. OTTER. Would you give me your understanding of regulations? Why do we regulate?

Dr. GRAHAM. Well, I think the reasons for regulation vary enormously, depending upon the underlying law that Congress has

passed and given authority to various agencies. They range from

laws that are engaged to protect the environment, to protect consumers, to protect workers, to protect some businesses. It’s a broad

range of regulatory statutes. But, in the final analysis, we cannot

at all times rely exclusively on the marketplace to achieve the outcomes in society that we seek; and, hence, we need in some cases

regulatory approaches to improve the outcomes that markets cannot generate.

Mr. OTTER. I certainly understand that, and I certainly agree. No

question that we could go through an entire litany of horrors in the

past that, without regulation, certain things happened with the environment, certain things happened in human conditions, etc.

But what I’m after is, each of these regulations that we have,

don’t they carry some sort of an encouragement, generally in the

form of a penalty, either financial or otherwise, for somebody that

doesn’t obey the regulation?

Dr. GRAHAM. Yes, sir. That would be typical.

Mr. OTTER. What happens when a Federal agency doesn’t obey

a regulation?

Let me give you an example—and we have several. The Army

Corps of Engineers, for instance, is dumping 200,000 tons of slop

into an area of an endangered species, the snubnose sturgeon, in

the Potomac River every year since 1994 and without even a license to do so. Yet, you know, if some corporation or some private

property owner or some individual or even a municipality had done

that, there would have been some regulatory relief, there would

have been some financial relief and maybe, in some cases, some

criminal relief to the government to see to it that was done.

What happens when a Federal agent or agency doesn’t obey the

very same laws, as in the instance of the Army Corps of Engineers?

Dr. GRAHAM. I think you’re asking a great question.

To be candid with you, I don’t think I really know the enforcement processes and penalty process that applies to governmental

agents.

Mr. OTTER. These are good laws. And, if these regulations that

are promulgated by agencies in order to carry out a very important

35

public policy mission—shouldn’t the agencies, the other agencies of

government, including the regulatory agency that’s required to do

the enforcement, shouldn’t they withstand the same criminal and

the same financial penalties as the private sector? Lord knows, you

know, we’re going to send a private property owner or a corporate

president or perhaps a mayor or maybe even a Governor to jail if

they don’t enforce the laws or if they don’t obey the laws. Doesn’t

it seem reasonable that if it’s good for the general population than

it would be good also for the agencies and the people who are enforcing those same laws?

Dr. GRAHAM. Well, in candor, Congressman, if we’re going to encourage people to be in public service, I hope we’ll accompany that

with some sort of compensation for the liabilities that they’ll impose.

But I think you’re raising an excellent point. I don’t feel authoritative to speak on it in terms of what would be the appropriate

type of penalty structure for people operating in regulatory agencies.

Mr. OTTER. My time is up, and the chairman has picked up the

gavel. So I’ll come back to you.

Mr. OSE. The gentleman from Tennessee for 5 minutes.

Mr. DUNCAN. We have a staff briefing that estimates that the cost of regulations at approximately $843 billion are 8 percent of

the gross domestic product. You’ve heard in my opening statement

and I’ve heard of other estimates of roughly 10 percent. Can you

tell me, do you think those figures are roughly accurate and will

you tell me who pays those costs?

Dr. GRAHAM. Well, the first point I would make is the $800 billion figure, which you’re going to hear about later today in the testimony by one of the analysts who generated that, Dr. Hopkins, I

think that is the best available estimate that exists at the time. It

does have a lot of uncertainties and limitations, but it’s the best

that we have at the present time. My own personal view on that in terms of framing $800 billion

is less helpful than dividing that by the number of households in

the country, roughly 100 million, roughly $8,000 per household, because it can give you a sense for a family making $30,000 or so,

an $8,000 bill for Federal Government regulation is a pretty substantial part of their overall disposable income. We at OMB view

regulatory review as a form of consumer protection because it protects consumers from the invisible taxes that regulation often involves.

Mr. DUNCAN. Well, certainly, as I mentioned, when you think

about the regulatory costs being in addition to the tax burden of

almost 40 percent on most people and $8,000 per family, it becomes

very, very significant.

Mr. Sullivan, you have in your testimony that small businesses

are and have historically been our Nation’s primary source of innovation, job creation, and productivity. They provide tremendous

economic empowerment opportunities for women and minority entrepreneurs, so forth and so on. You say that in order for small

businesses to continue to be such a valuable asset to our Nation’s

economy they must have a level playing field. The regulatory playing field is a vital one for small business.

36

You know from my opening statement that was one of my main

concerns, and I heard you say right at the tail end of your testimony that these regulations hit harder on small businesses than

on very large ones. Is that correct?

Mr. SULLIVAN. That is correct, Congressman.

Mr. DUNCAN. Do you think that we have a level playing field

now?

Mr. SULLIVAN. No, I don’t. I don’t believe that we have a level

playing field right now.

Later on this afternoon you will hear from Dr. Hopkins, who is

a coauthor of the Crain/Hopkins Report. That’s where the Office of

Advocacy obtained a lot of this statistical information that I cite in

my testimony and in other statements that I make.

We have an opportunity within the confines of this hearing and

the regulatory accounting report. In order to get to a level playing

field for small business, agencies have to do the analysis up front.

When agencies start realizing the incredible burden that they place

on the backs of small businesses, then they’ll begin to realize that

maybe there are less burdensome alternatives that still meet the

objective of protecting the environment, still meet the objective of

protecting the workplace safety or encouraging workplace safety,

but don’t impose such an overwhelming burden as to devastate entire sectors of small businesses.

Mr. DUNCAN. You know, I chaired the Aviation Subcommittee for

6 years; and we had hearings in that subcommittee about the fact

that a lot of the environmental rules and regulations and red tape

caused major airport projects to cost at least three times what they

should have cost. The main runway in Atlanta was 14 years from

conception to completion, but it took only 33 days of actual construction. Now, those were 24-hour days, so maybe you could say

99 days of actual construction. But, when you drive those costs up,

it means that the cost of airline tickets go up a lot more than they

should be. As I said in my opening statement, who this impacts

and hits the hardest are the poor, are the lower income people, the

working people of this country.

I now chair a subcommittee called Water, Resources and the Environment. We had a hearing a few months ago in which they estimated some published EPA regulations were going to cause 40,000

small farms to go out of existence. We had people crying at that

hearing about the potential impact. And, all these people who believe in big government always say they’re for the little guy. But

it’s the little guy who ends up getting hurt, and it’s the consumer

who ends up paying the cost. We run the small farmers and the

small businesses out, and then these people who believe in all this

regulation and stuff, as I said in my opening statement, they end

up becoming the best friends extremely big business has.

I’ll yield. I don’t have any time left.

Mr. SULLIVAN. Could the chairman at least let the record reflect

that throughout the Congressman’s statement I was nodding in

agreement?

Mr. OSE. We will note your verbal statement for the record, as

well as your physical.

Thank you, Mr. Duncan.

37

Let me—Dr. Graham, here’s one of the things that I struggle

with. The Federal Government collects taxes, and we can account

for how much people pay in taxes on an annual basis. We distribute student loans, and we can account for how much was loaned

and whether or not the borrower paid it back. We can account for

Agriculture Department programs, whether they be on the foreign

food service deliveries, or commodity support programs, or environmental quality improvement programs or what have you. Yet,

when you look at the estimated costs of regulation, which in your

testimony, if I understand correctly, are close to the discretionary

expenditures of the Federal Government, we can’t seem to account

for the regulatory costs in a manner that allows us to factor that

into our decisionmaking. I’m coming back to my question: Where’s

my report?

The issue for me becomes not letting the perfect be the enemy

of the good. Because at some point or another I’ve got to have this

information, as do my colleagues. How do we move this thing forward? Do we pass—instead of have it be a regulatorily based requirement, do we pass a statute that says the agencies will provide

to OMB or OIRA this information by such and such a date? How

do we get this thing moving forward in a positive—how can I help

you do your job so you can help me do mine?

Dr. GRAHAM. Mr. Chairman, that’s a good question. My initial instinct, after 6 or 7 months of working in this role and working with

the agencies, is that we will be able to make some progress without

any statutory change. We will be able to move this process to the

point where we can give you with the budget the draft regulatory

accounting report before peer review and before public comment.

I don’t really see, frankly, in the way it’s designed, how we’re

going to get from here to getting you the final report in February

of each year, given that all the information that we are looking at

doesn’t come to a conclusion until October 1st of the previous year.

And Congress has required by statute that we have a public comment period, we have peer review, and I think we should have

those processes with this report.

So I do think there’s a little reality check, frankly, in the designing of this regulatory accounting law that we need to talk about

and see whether or not there’s some way—that I don’t see—that we

can get this to the point where you ideally want it, which is that

final report with the budget in February.

Mr. OSE. Even if you were able to provide us with a draft copy

of the report, even after 3 short years, I understand that draft copy

will somehow or another become available to the interested parties

and the peer review itself would take place just naturally. You

would get feedback. I’d get feedback. Mr. Otter and Mr. Duncan,

they would get feedback. My good friend from California, Mr. Waxman, Mr. Tierney, they’d get feedback. It would at least allow us

to factor in the relative costs and relative benefits of any regulatory

action as we approach the final date of the legislative session.

I mean, the thing that’s so crazy here is that when you look at

the tax revenue we get, we account for that very carefully; you look

at the discretionary expenditures that we make, we account for

that very carefully; and yet we have to have, frankly, an equally

quantified cost of the regulatory burden on an annual basis. And,

38

it complicates my life, not to mention the lives of the other Members up here.

So I really want to encourage you and your colleagues at OIRA

and OMB to make the best of what you have at any available time.

If it improves with peer review, great. I mean, I’m fine with it. But

I’ve got to have something. I’ve got to have something to start with,

and I’m trying to figure out how it is we make that possible. Even

if it’s, you know, 3 days later or 6 days later or a week late, I don’t

care on that kind of a timeframe. But I have to have that information just to make my job more effective. So how do I make that

happen?

Dr. GRAHAM. You’re making yourself very clear, Mr. Chairman.

We will work very hard to get the report to you with the budget.

And if it can’t be the final report, then we will definitely try to

make sure that you have the draft report with the budget next

year. Our estimate is we’re going to miss by about 6 weeks this

year, but our trend line is in the right direction. We’ve gone from

10 months late to 6 weeks late, so we’re moving in the right direction.

Mr. OSE. I appreciate that.

My time is up. Mr. Otter.

Mr. OTTER. Thank you, Mr. Chairman.

Dr. Graham, I received a questionnaire from the U.S. Department of Agriculture recently, wanting to know about how my farm

and my ranch were doing and what I produced. I noticed on the

document that I was required to fill out that, under penalty of law

and under a certain financial penalty as well as perhaps criminal

penalty. If I didn’t fill it out and send it back that they could enforce those penalties. Do you have any such requirement—inducement when you ask these agencies for information relative to their

regulatory practices?

Dr. GRAHAM. I was afraid you were going to ask me whether

there are any penalties you can hold against me for not submitting

the regulatory accounting report on schedule.

Mr. OTTER. That’s my next question.

Dr. GRAHAM. No, I don’t know the specifics of the example, Congressman, no.

Mr. OTTER. If you had that sort of enforcement encouragement

that if an agency, wherever it was, whatever agency it was, refused

to respond in full and complete according to your request, do you

think then that you would probably get responses that were actually more factual and more evidentiary of what was actually going

on with that regulatory agency?

Dr. GRAHAM. I think that’s certainly worth consideration.

Mr. OTTER. Would the administration support that kind of legislation, if I wrote it and advanced it?

Dr. GRAHAM. I think it’s definitely worth some discussion.

Mr. OTTER. The problem that we have with that is that we asked

283 million Americans that sometimes collect together in communities and sometimes collect together in companies and sometimes

start their own companies, we put all these rules and regulations

that cost them $843 billion a year. I think we pretty well accepted

that figure and said that if you don’t obey these rules and regulations, it’s important for us to know this stuff. It’s important for you

39

to comply with these rules and regulations, and it’s important

enough that we’re going to have to take some sort of action against

you for this necessary enforcement.

If it’s important for these 283 million Americans, why isn’t it important for the very Government that serves them to do the same

thing?

Dr. GRAHAM. Fair point.

Mr. OTTER. Thank you, Mr. Chairman. That’s all I have. I yield

back the balance of my time.

Mr. OSE. Thank the gentleman.

Mr. TIERNEY. What I would like to do is ask unanimous consent

to place relevant materials in the record and to ask questions of

the witnesses for the record in writing.

Mr. OSE. Oh, without objection. We extend that courtesy to all

Members of Congress.

Mr. TIERNEY. Just putting it on the record.

Mr. OSE. Mr. Sullivan, Ms. Dudley recommends that OMB

should identify in a common but comprehensive manner variables

in the methodologies to estimate the benefits and costs of regulations. It’s in her testimony and talks about a report card for each

agency. Congressman Horn has done that very effectively over in

the Management Subcommittee of this full committee. What is

your view of Ms. Dudley’s recommendations about using a report

card for agency analyses?

Mr. SULLIVAN. Mr. Chairman, this actually is a perfect opportunity to talk about a response to a number of questions that have

come up and been properly directed to Dr. Graham; and that is the

requirement for agencies to follow the law on which Congressman

Otter just elaborated. The expectation is that those who we regulate should follow the law. Why aren’t government agencies also

following laws?

There is a law entitled the Regulatory Flexibility Act, that I

mentioned in more detail in my written statement, that does require agencies to consider economic impact before they promulgate

rules. To the extent that a ‘‘report card’’ would be helpful to this

committee, to Dr. Graham and others, that report card will be finished by the end of this month; and it’s entitled the Annual Report

of the Chief Counsel for Advocacy on Implementation of the Regulatory Flexibility Act. That report talks about whether or not agencies are doing the analysis that they’re required to do and consider

their impact on small business prior to finalizing regulations.

Mr. OSE. The end of March of this year?

Mr. SULLIVAN. Yes, Mr. Chairman.

Mr. OSE. And, where will we be able to obtain copies of that report?

Mr. SULLIVAN. It will be hand-delivered to your counsel, Mr.

Chairman, and the entire committee. Advocacy does have a fantastic Web site containing all of our publicity available documents, but

the actual copies and executive summaries will be hand-delivered

to this committee.

Mr. OSE. So this is a report by your office on compliance with

SBREFA, if I understand correctly?

Mr. SULLIVAN. You understand it correctly, Mr. Chairman.

Mr. OSE. All right.

40

If I may go on, Mr. Sullivan. What is your view of the value of

the agency-by-agency data on the impact of each agency’s rules on

small businesses? Clearly you think there is value.

Mr. SULLIVAN. I think there is tremendous value. And that value

is reflected in how an agency itself considers that analysis, how

this committee considers it, how Dr. Graham’s office and how other

stakeholders in the regulatory process consider the analysis.

But, the first step in that process is making sure that the agencies adequately prepare their analyses. I know that Dr. Graham is

vigilant in his insistence that agencies do that analysis. Our office

is vigilant in our efforts. To the extent that we have the help of

this committee, that certainly helps things.

Mr. OSE. But your office is narrowly—your focus is narrowly

crafted on small business or issues in the small business regulatory

world.

Mr. SULLIVAN. That is correct.

Mr. OSE. Dr. Graham has got a much larger responsibility.

Mr. SULLIVAN. We are a smaller piece of the larger regulatory pie

that Dr. Graham has responsibility for, yes.

Dr. GRAHAM. But, Mr. Chairman, an important piece they have.

Because two of the most important regulatory agencies, EPA and

the Occupational Safety and Health Administration, it is in those

particular settings where the two offices at this table can work together on panels with agencies before regulations are being developed.

By the way, am I right about that? Is it EPA and OSHA together?

Mr. SULLIVAN. That is correct.

Dr. GRAHAM. That model, our staff feels, has been very helpful

in getting agencies to think through the small business issues early

in the process before they get too committed to a particular line of

regulatory thinking.

So I think that is an area where we ought to look to in terms

of collaboration that can continue between our offices and a model

for early involvement that we might want to consider in other contexts.

Mr. OSE. Thank you. The gentleman from Massachusetts for 5

minutes.

Mr. TIERNEY. Thank you for your indulgence. Thank you, Dr.

Graham, Mr. Sullivan, for your testimony here, for being here

today.

Dr. Graham, let me start with just a question about the New

Source Review under the Clean Air Act. You have emphasized that

the administration strongly supports using what you say are sound

analysis and economic tools to make policy decisions. One of the

tools that you have argued for is cost-benefit analysis.

There are serious concerns with this approach because, among

other things, it is difficult to express many of the values in monetary terms.

So my question to you is, you advocate this approach. Has your

office reviewed the benefits and costs to changes to the New Source

Review regulations that are under consideration by the administration?

41

Dr. GRAHAM. No, we haven’t received any proposals from the

agency as of yet, though we expect that very well may happen

down the road.

Mr. TIERNEY. But, that is on your list, is it not?

Dr. GRAHAM. It is on the list for what we believe the agencies

should do. In this case, EPA.

Mr. TIERNEY. Have you looked at any of the potential health effects of those changes at all?

Dr. GRAHAM. We haven’t done any analysis yet on the NSR reform proposal.

Mr. TIERNEY. Well, what gives OIRA the ability or the authority

to make a target list of 23?

Dr. GRAHAM. What gives us our legal authority?

Mr. TIERNEY. Yeah.

Dr. GRAHAM. Actually, the proposals that we have asked for public suggestions on were actually done pursuant to the regulatory

accounting law that is the subject of this hearing.

Mr. TIERNEY. That requires that you make a target list?

Dr. GRAHAM. No, it actually doesn’t require us to do it. But we

interpret it as authorizing us to do so. We think it is consistent

with the authorization in the statute.

Mr. TIERNEY. So you took the liberty to do it?

Dr. GRAHAM. Correct.

Mr. TIERNEY. Now you have 23 targeted regulations that you target for high priority. Fourteen of them are nominated apparently

by the Mercatus Center. Tell me a little bit about that, that center,

and how it was that they got to play such a prominent role in your

proceedings.

Dr. GRAHAM. Well, let me first start by noting that the public

comment process that led to these nominations was a standard

Federal Register announcement. Anyone was allowed to suggest

nominations. And, frankly, we were very pleased that the Mercatus

Center did the diligence to actually make the large number of

nominations that they did. When we evaluated their nominations,

quite frankly, we did not evaluate a majority of them as high priority. It is only a minority of them that we felt were in that class

of 23 that you described.

Mr. TIERNEY. Fourteen.

Dr. GRAHAM. Out of 40, I believe.

Mr. TIERNEY. But 14 out of the 23 that you chose.

Dr. GRAHAM. They accounted for 14 out of the 23 that we chose,

yes.

Mr. TIERNEY. Were you at all concerned about the funding

sources for Mercatus Center, that they might have a bias?

Dr. GRAHAM. No. We actually look at the quality of the arguments and analysis of each of the commenters regardless of where

they happen to get their funding sources from.

Mr. TIERNEY. Did you ever serve on the Mercatus Centers Board

of Advisors?

Dr. GRAHAM. I think I may have actually served for a year or two

toward the end of my tenure at the Harvard Center for Risk Analysis.

Mr. TIERNEY. Now my understanding is that the American

Chemical Council nominated the Mixture and Drive-From Rule,

42

and the American Petroleum Institute nominated the Notice of

Substantial Risk Rule. They are both on your high priority list. You

testified that you were the director of the Harvard Center for Risk

Analysis. Did the American Chemical Council and the American

Petroleum Institute donate funds to the Harvard Center in undisclosed amounts?

Dr. GRAHAM. Yes. American Chemistry Council and American

Petroleum Institute, yes.

Mr. TIERNEY. And those amounts that they contributed were not

disclosed?

Dr. GRAHAM. I don’t believe that the Harvard Center for Risk

Analysis discloses the actual amounts, but they do disclose who the

contributors are.

Mr. TIERNEY. Is there a limit on the amount that they could contribute to that center?

Dr. GRAHAM. Not that I am aware of.

Mr. TIERNEY. How do you decide the number of staff that are

going to be devoted to each of your agencies’ regulations that you

are reviewing? For instance, in October I think you only had one

OIRA desk officer assigned to the IRS, but the IRS, I am told, generates 82 percent of the paperwork burden imposed by the Federal

Government. At the same time the EPA, which generates only 1.7

percent of the total paperwork burden imposed by government, has

18 percent of your desk officers assigned to it. So how do you make

those determinations?

Dr. GRAHAM. Through intense scientific analysis, sir. No, it is a

fair question. The first point I would like to make is a distinction

between the regulatory review side of our operation and the paperwork reduction side. As I understand your question, you are focusing on how we allocate our staff resources with regard to paperwork review.

Mr. TIERNEY. Right.

Dr. GRAHAM. I think there, one of the key things that we look

at is not simply what the aggregate amount of paperwork burden

is by various agencies, but what the actual paperwork reduction

opportunity is in these various agencies. And I did, in the process

of my confirmation, look at prior hearings of this committee. And

while I thought it was pretty clearly argued that there were substantial paperwork burdens from the IRS, a lot of those burdens

are rooted in statute, and in interpretative rules that are outside

of the authority of our office.

So it may look at first blush like IRS is a great opportunity. But

I think it is a lot more complicated than that when you look more

closely at it.

Mr. OSE. The gentleman’s time has expired. The gentleman from

Idaho for 5 minutes.

Mr. OTTER. I would like to pursue that just in general with the

agencies. Regulatory agencies that have their mission, that have

their laws pretty well rooted in statute, like the IRS, as opposed

to a more subjective enforcement opportunity, say like the Environmental Protection Agency or OSHA, where a person on the spot

doesn’t necessarily have a statute to look at and says, ‘‘this is the

depreciation schedule and you will follow the depreciation schedule

for a 30-year life on a building,’’ whereas opposed to making a more

43

personal judgment within the knowledge that one would have of a

constructionsite, and/or of a potential hazardous material. Doesn’t

it seem possible to you that in the one case there is an awful lot

more room for human error in the judgment case as opposed to the

statutory laws that are available in statute, for instance for the

IRS, and shouldn’t we be more concerned about human error in

trying to serve the public than otherwise?

Dr. GRAHAM. I think you are right that there is more discretion

in certain agencies for how they frame regulations, how they design

them, what their ultimate costs are likely to be. The example that

you gave, however, the Environmental Protection Agency, my experience so far in the first several months, is that a lot of the

rulemakings that they do are under specific statutory requirement,

in some cases not only a statutory deadline, but in some cases a

court order. We don’t necessarily let those things cause us to not

look carefully at regulations, but they do cause us to have a need

for a much more expedited look at these regulatory proposals in

light of the statutory and judicial context they are framed in.

Mr. OTTER. Were you—are you familiar with the Canadian Lynx

study that was falsified by four Federal agencies in the Wenatchee

National Forest?

Dr. GRAHAM. No, sir.

Mr. OTTER. Thank you. Thank you, Mr. Chairman. I yield back.

Mr. OSE. I thank the gentleman.

The gentleman from Massachusetts for 5 minutes.

Mr. TIERNEY. That was a quick round. Dr. Graham, continuing

on a little bit on that. In your report you say that you support, or

strongly support, using sound analysis and economic tools to make

your policy decisions. One of the tools that you have argued for is

the cost-benefit analysis, and you say there are concerns with the

approach because it is difficult to express many of your values in

monetary terms.

Tell me, if you would, how you would evaluate the potential

health effects in monetary terms, something like the Clean Air, or

something like the—you know, any one of those environmental regulations.

Dr. GRAHAM. Right. That is an interesting question. It is an area

in which, as a faculty member of the Harvard School of Public

Health, I did a lot of teaching and writing. When I actually came

to Washington and looked at the guidance documents in this area,

what I found is that our office does not in fact require agencies to

put dollar values on life-saving effects or other types of health effects.

Agencies are certainly authorized to do so if they feel there is a

useful analytic approach for doing that. But one of the interesting

things I think about this is as you look across the Federal agencies,

some of them are doing that exercise, and some of them, such as

the National Highway Traffic Safety Administration and the Occupational Safety and Health Administration, are not doing that.

So one of the things we are going to be looking at with the Council on Economic Advisors is whether there really is an adequate

analytic foundation to be insisting upon some general approach to

that very difficult question.

44

Mr. TIERNEY. Well, if you don’t factor in the health benefit on

that, your study is not worth anything, is it? If you are leaving out

one very major component?

Dr. GRAHAM. No, I think there would still be tremendous value

in quantifying how many citizens each year suffer from aggravation

of asthma, or how many citizens who have cardiopulmonary disease have hospital admissions as a result. But I thought your question was should we put a dollar value on that.

Mr. TIERNEY. Well, you are going to do a cost-benefit analysis.

So what is the benefit in terms of—what does that mean?

Dr. GRAHAM. Interestingly enough, I believe the Environmental

Protection Agency does currently try to put dollar values on each

of those effects, but other Federal agencies don’t. So I don’t think

we are in a particularly orderly situation at the present time.

Mr. TIERNEY. And, we get to my next question, which is assumptions. Everybody is using assumptions. I think you state in the report that it is only as strong as their assumptions made are. If the

assumptions aren’t strong or aren’t correct, then we don’t have

much to go on.

But then you just sort of seem to be dictating the assumptions

that are used by the agencies. Do you think that your office has

more expertise in this area than some of the agencies? I mean, you

go into a particular agency that has all of that expertise, they come

up with a recommendation and tell you what their assumptions

are, and your group just kicks it back and says we don’t agree with

your underlying assumptions. They might ask, who the heck are

you?

Dr. GRAHAM. Well, I am still early in my learning on where the

sources of authority are in our office and this sort of thing. But,

I believe the regulatory accounting law itself requires us, as an office, to develop the guidance that agencies use. So I don’t think this

is our office just sort of volunteering to be the analytic force within

the Federal Government. I think actually there is statutory requirement for our role in analytic——

Mr. TIERNEY. That is sort of setting parameters up here. But you

are going right into their report and saying, ‘‘Hey, I don’t like the

assumptions that you made.’’ Who gives you the authority to do

that? Where does it come in and say that you have more expertise

than the Department of Transportation, the Environmental Protection Agency, or anybody?

Dr. GRAHAM. Well, on the authority side, clearly the executive

order provides us that authority.

Mr. TIERNEY. Then you might as well write the things yourself

and not even include them in the process.

Dr. GRAHAM. We certainly look very hard—as I can tell by the

line of your questioning, we do in fact look very hard at the analytic assumptions and the bases that agencies try. And, if we see

that we don’t feel an adequate rationale, we will return it to the

agency and ask them to work on it some more.

Mr. TIERNEY. So, I guess what you are telling me is you think

that your staff has better expertise than the departments that are

sending you these analyses?

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Dr. GRAHAM. I wouldn’t generalize on that. But in certain cases,

I think we can make a contribution to inducing agencies to do better analysis.

Mr. TIERNEY. You are doing it at a world record pace, aren’t you,

with all of your letters back, and rejections?

Dr. GRAHAM. Well, I will let others judge the rate of that pace.

Mr. TIERNEY. There we go to the numbers, right. You have sent

back more than the entire two terms of the past administration

and you have been here a couple of months.

I have to tell you that it raises a lot of concern, that this is just

another way to go about some things that certain people may not

like, and instead of just dealing with them in a legislative end of

it, trying to go through the back door on the regulatory process and

kick them out. The track record I have seen so far is very, very

troubling.

Dr. GRAHAM. Well, I think, Mr. Chairman, if you look actually

at the overall record——

Mr. TIERNEY. Wait until November, maybe.

Mr. OSE. This is the ranking member.

Dr. GRAHAM. I am sorry. Not until November, right? We discussed that earlier. But I hope you look at the overall record of the

office. Because there are a number of other areas in which our office has been suggesting and encouraging agencies to adopt regulations in the health, safety and environmental arena. At FDA for

the labeling of trans-fatty acids for foods, at OSHA in terms of

making available automatic defibrillators that save lives from sudden cardiac arrest.

Mr. TIERNEY. Well, the trans-fatty acids made your list at first

and then somehow got kicked off, right?

Dr. GRAHAM. Pardon?

Mr. TIERNEY. The regulation concerning trans-fatty acids made

your list of concerns at first and then you decided to go with the

regulation; am I right?

Dr. GRAHAM. I am sorry. I didn’t hear the last part.

Mr. TIERNEY. At one point wasn’t the trans-fatty acids regulation

on your list, your identified list of regulations that you wanted to

look at?

Dr. GRAHAM. You are saying one of the public commenters raised

it as one to look at?

Mr. TIERNEY. Well, it made your list of 23. So, not only did the

public comment on it, you put it up on your hit list here, about six

down, food labeling, trans-fatty acids and nutrition labeling, nutrient content and health claims. You have since pulled back from

that, right?

Dr. GRAHAM. Congressman——

Mr. TIERNEY. My understanding is that you have since pulled

back.

Dr. GRAHAM. We consider that a review list rather than a hit list.

Mr. TIERNEY. It depends on your perspective, I guess.

Dr. GRAHAM. Some of these reviews may surprise you in terms

of what type of results are actually generated. I hope you will look

explicitly at what our office has suggested in the trans-fatty acid

area, because I am not sure we are in total sync on what actually

our office has done in that area.

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Mr. TIERNEY. I hope with respect to all of the others you surprise

the heck out of me.

Mr. OSE. Yes. The gentleman’s time has expired.

The gentleman from Massachusetts for a final question.

Mr. TIERNEY. I was going to ask you about each of your 23, go

down the list. We can do that in writing, I suppose.

I would really like to know what your specific reason for putting

each of these 23 on your high priority list is, and why they made

a high priority list as opposed to a medium priority, as opposed to

low priority, or no priority. What distinguished them? One of the

things that really draws it to my attention is the arsenic in drinking water regulation that made the list put out by the Environmental Protection Agency, the authority is the Safe Drinking

Water Act. Description of your problem was that Mercatus states

that, based on EPA’s own analysis, benefits do not justify cost in

standards of either 5 or 10 ppb. Based on the more robust analysis,

these levels are even less attractive. Then your proposed solution

says, Mercatus believes that the EPA should set a standard. Then

your estimate of economic impact says that Mercatus asserts. So,

I think maybe you can see my concern that it wasn’t your agency

so much that was looking at these things and making the analysis,

as that Mercatus was sort of writing out a formula here and dropping it on OIRA’s desk and I think the end of this is, of course, that

eventually the administration accepted the arsenic in drinking

water standards as they were.

Dr. GRAHAM. The Mercatus Center was not the only player in

that discussion. There was the National Academy of Sciences.

There was the EPA Science Advisory Board. And, ultimately we

looked at all of that information and came—and supported Administrator Whitman’s decision on arsenic in drinking water.

Mr. TIERNEY. But you based your proposed solution and your estimate of economic impact on Mercatus. You don’t cite the other

people. You cite Mercatus.

Dr. GRAHAM. Because, at that time, the review of the arsenic review was not ultimately completed when we made the rating that

you are referring to in your statement.

Mr. TIERNEY. We will put the others in writing. Thank you.

Dr. GRAHAM. I would be happy to answer your questions in writing, sir.

Mr. OSE. I thank the gentleman for yielding back. I want to

thank Dr. Graham and Mr. Sullivan for joining us today. Mr. Sullivan, I am sorry you didn’t get much attention in the latter part of

the hearing, but maybe next time. We do have additional questions

which the Members may well submit in writing.

We will be leaving this open. We appreciate your cooperation in

coming today. I apologize for keeping you a little bit long. Thank

you both.

If we can have the second panel step forward. That would be Dr.

Miller, Dr. Hopkins, Ms. Dudley, Ms. Claybrook, and Ms.

Heinzerling. OK. I want to thank you for coming. In this committee

and this subcommittee we routinely swear in our witnesses. So, if

you all would stand and raise your right hand.

[Witnesses sworn.]

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

the affirmative. As you have seen in our prior panel, we are going

to give each of you 5 minutes to summarize your written testimony

which we have received. We appreciate you coming.

Dr. Miller, you are first. Joining us, our first witness is Dr.

James C. Miller, III, the former Director of the Office of Management and Budget and the counselor to Citizens for a Sound Economy. Dr. Miller, 5 minutes.

STATEMENTS OF JAMES C. MILLER III, FORMER DIRECTOR,

OFFICE OF MANAGEMENT AND BUDGET, COUNSELOR TO

CITIZENS FOR A SOUND ECONOMY; THOMAS D. HOPKINS,

FORMER DEPUTY ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT

AND BUDGET, DEAN, COLLEGE OF BUSINESS, ROCHESTER

INSTITUTE OF TECHNOLOGY; SUSAN DUDLEY, DEPUTY DIRECTOR, REGULATORY STUDIES PROGRAM, MERCATUS

CENTER, GEORGE MASON UNIVERSITY; JOAN CLAYBROOK,

PRESIDENT, PUBLIC CITIZEN; AND LISA HEINZERLING, PROFESSOR OF LAW, GEORGETOWN UNIVERSITY LAW CENTER

Dr. MILLER. Mr. Chairman, thank you. Thank you, Mr. Ranking

Member. I appreciate an opportunity to be here with you today. My

statement can be summarized in nine points. I will try to be brief.

One. Regulation is just one of the two major ways the Federal

Government uses to acquire command over resources, or to make

those resources go to uses other than they would have gone otherwise.

The other, of course, is by spending, taxing, borrowing—also

printing money, we don’t do much of that—spending and buying

the resources on the private market.

Two. You have an elaborate budget process or spending process.

An elaborate process for making decisions about spending. You

don’t have an analogous process for making decisions about the

way government goes about regulating.

Three. The regulatory resource burden or the amount of resources in value terms obtained by the Federal Government

through regulation is significant. It is about half the total spending

of the Federal Government. In fact, it exceeds all appropriations.

Let me say that again. The regulatory resources directed by the

Federal Government exceed, in value terms, all appropriations for

the Department of Transportation, the EPA, all of these departments, all of those appropriated accounts.

Four. Although I have spent a lot of time in my career studying

the efficiency of collective decisionmaking, and I wouldn’t say that

all collective decisionmaking by this Congress is perfect, I think

you would be a lot better off in your decisionmaking, you would

make a lot more efficient decisions, if you had adequate information and if these issues were transparent to you.

Five. I think you ought to develop a regulatory process very

much like your spending process. You ought to appropriate regulatory resources just like you appropriate spending resources.

Six. It is not anti-government to say that you ought to estimate

the cost of regulation any more than it is anti-government to

produce a budget, a spending budget, for the U.S. Government.

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When you make decisions about some program and fund the program, you have to make some evaluation of the benefits of that

program. In fact, the very fact that you approve it is revealing that

in your mind the benefits exceed the costs.

There is nothing any more biased about looking at regulatory

costs than there is a bias in looking at the costs of programs. Some

argue you ought to just do what is right instead of looking at cost—

you shouldn’t look at costs at all. The analogy there would be, you

ought to just tell agencies go do this, that, or the other without any

notion of what it will cost, any budget, any spending limit at all.

Eight. A start would be to have better regulatory accounting.

Now I know there has been some problems about getting this regulatory accounting budget to you. And, that brings me to my ninth

and final point.

It is easy to blame OMB. Maybe I am expressing a parochial

view since I was the first Administrator of OIRA, I was the first

OIRAnian, Mr. Chairman. Along with Dr. Hopkins here, I was

present at the creation. Let me also mention that accompanying me

today is Dr. Wayne Brough, who was also a member of the OIRA

staff.

It is easy to blame OMB. But the agencies don’t necessarily respond to OMB, to OIRA. When OIRA asks for information, they

don’t always get it. The raison d’etre of agencies is to promulgate

regulations or spend money or whatever. When OMB says we are

not going to give you any money unless you respond, they tend to

respond.

To the degree that OIRA can say, well, we are not going to approve your regulations unless you respond, that raises all sorts of

problems, creates controversy, etc.

But to the degree to which you can support OIRA and impress

your colleagues on the authorizing committees for the agencies that

it is important that they cooperate with OIRA in producing these

estimates of costs and benefits, this will improve your chances of

getting this information. I am not against estimating benefits. I

think it is very important, I think we would be better off if we had

them.

But you have got to give OIRA a bigger stick. Part of the problem

is that you have the diffusion of power and authority in OMB with

the management deputy and all of these recent reforms. But I

think if you give OIRA a bigger stick and you give this new Administrator of OIRA, Dr. Graham, some support and encouragement,

I think you will get your reports in a more timely fashion.

Thank you, Mr. Chairman.

[The prepared statement of Dr. Miller follows:]

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Mr. OSE. Thank you, Dr. Miller. Our second witness, who has

been briefly introduced by Dr. Miller, is Dr. Thomas Hopkins, who

is the former deputy administrator, the Office of Information and

Regulatory Affairs at OMB. He is also the Dean of the College of

Business at the Rochester Institute of Technology.

Dr. Hopkins, welcome. We have your written statement. If you

could summarize in 5 minutes, that would be great.

Dr. HOPKINS. Mr. Chairman and members of the committee, I am

pleased to have this opportunity to present my views on the regulatory accounting issues now before you.

Government regulation, however well intentioned and effectively

designed, necessarily impose burdens on those who are regulated.

When a burden is imposed without an accounting of its consequences, government operates without accountability and without transparency. Most of the costs associated with regulatory compliance are hidden from public view.

A recent report that Dr. Mark Crain and I prepared for the U.S.

Small Business Administration found this hidden additional spending on regulatory compliance exceeding $800 billion annually, more

than half of the size of the Federal Government’s entire tax take

each year. Indeed, if the Internal Revenue Service mailed ‘‘informational invoices’’ showing each family’s share of spending on regulatory compliance, the average family would ‘‘owe’’ some $8,000 annually over and above their taxes.

Regulations’ coerced shift of resources results in a less productive

economy to the extent that regulations fail a benefit-cost test. And,

unfortunately, much regulation does not pass such a test.

Robert Hahn and Cass Sunstein conclude that adding some regulations while removing or improving others could save tens of thousands of lives and millions of dollars annually, thus giving simultaneous boosts to health, safety, and economic growth.

Restrictions on free trade, such as the recently announced quotas

on steel imports, also fail a benefit-cost test. They are particularly

burdensome on the many small businesses that now will be facing

higher prices for the steel they purchase.

Our government routinely mandates inefficient uses of resources.

This would be of limited significance if regulatory compliance costs

in the aggregate were small. But they are not. Moreover, small

firms face 60 percent higher regulatory compliance costs per employee than do large firms. Spending on tax compliance and environmental protection is especially burdensome for small firms.

The work that Dr. Crain and I have completed shows regulatory

costs can be measured, and they are sizable in both absolute terms

and relative to government spending.

Thus, any initiative aimed at improving government should ensure that spending programs and regulatory programs receive parallel and balanced attention. In the early 1990’s, the Office of Management and Budget began moving in this direction, linking regulatory spending with fiscal spending in its Unified Budget documents. This early effort did not continued past 1993, however.

Timely annual regulatory accounting reports are needed, and

they would benefit from more complete standardization of the data

that agencies should be required to provide OMB. Regrettably,

agencies routinely have ignored such requirements.

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Another all too common problem is agency estimates that lack

comparability in fundamentally important respects. OMB guidance

to agencies, while generally sound, has not insisted upon common

data formats and methods. Since agencies are not given discretion

to utilize varying accounting practices in reporting their fiscal outlays, neither should they in reporting regulatory effects.

Our paramount need is for sound estimates of incremental effects

of every major new regulation, and of each’s most prominent components relative to alternatives. Armed with such information, it

would be far easier to avoid inefficient regulatory action.

But, there also is merit in deriving aggregate measures which

help citizens gauge the overall extent of government mandates relative to taxation. It makes little sense, for example, to advocate tax

reduction if, as sometimes happens, we then get what amounts to

an offsetting increase in regulatory requirements.

If budget constraints cause the government to step back from

spending tax revenues on some new initiative, it now is all too easy

for the same initiative to be accomplished through government regulation that forces business or State-local government to pick up

the tab.

There are no aggregate constraints on, or even consistent measures of, overall regulatory spending. This committee’s endeavor to

improve regulatory accounting is most promising. It will require

perseverance and common sense. I hope that my comments are

helpful and constructive, and I thank you for the opportunity to

participate in this hearing.

[The prepared statement of Dr. Hopkins follows:]

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Mr. OSE. Thank you, Dr. Hopkins. Our third witness on the second panel is Ms. Susan Dudley, who is the deputy director of the

regulatory studies program at the Mercatus Center, George Mason

University. Ms. Dudley, thank you for coming. We do have a copy

of your testimony. As with the others, we would appreciate your

summary within 5 minutes.

Ms. DUDLEY. Thank you. Mr. Chairman, and members of the

subcommittee, thank you for inviting me to speak today on regulatory accounting. My name is Susan Dudley. As you said, I am a

senior research fellow and deputy director of the Regulatory Studies Program at the Mercatus Center at George Mason University.

Please note that the testimony today reflects my own views and not

an official position of either Mercatus or George Mason.

Our program is dedicated to advancing knowledge of regulations

and their social consequences. Through our public interest comment project, we have submitted comments to OMB on its 1998,

2000, and 2001 reports to Congress on the costs and benefits of regulation. We also have several regulatory accounting projects of our

own underway.

Dr. Miller had nine points to make. I would like to make two.

The first is on the importance of the analysis and information requested by Congress in these annual regulatory account reports.

The second is on the timing of the submission of the reports. In my

written testimony I also offer specific ways to improve the quality

and value of the reports.

As Dr. Miller said, the Federal Government has two principal

mechanisms by which it diverts resources from private sector use

to meeting government-mandated goals. Those are taxation and

regulation.

While tax revenues and the associated spending are measured

precisely, tracked through the Federal budget, and subject to congressional oversight and public scrutiny, there is no corresponding

mechanism for keeping track of the total cost of regulation.

To get a sense of the size of this hidden tax, we have had to resort to such proxies as the number of pages in the Federal Register

or the size of the budgets of regulatory agencies. These statistics

confirm that the number and scope of regulations has grown dramatically over the last three decades, but they cannot inform policymakers and the public about the costs or the benefits attributable to these regulations.

The Small Business Administration reports, as Mr. Sullivan and

Professor Hopkins have discussed, offer the most reliable estimates

of regulatory costs available. But those periodic snapshots do not

fulfill the need identified by Congress for an annual accounting of

both the regulatory costs and benefits by agencies.

Thus, I strongly support the regulatory accounting reports. These

annual reports can begin to shed some light, not only on the magnitude and impact of this hidden tax, but also the benefits Americans are expected to derive from it as well. Submitting reports concurrently to Congress with the Federal budget will improve their

effectiveness. Because regulations require off-budget expenditures

to achieve government goals, integrating these reports with the

Federal budget will provide valuable information about the full impact of government activities on American citizens.

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Rigorous analysis of regulatory costs and benefits can significantly improve the allocation of the Nation’s limited resources and

can improve the effectiveness of our regulatory efforts. Like triage

practices that are common in the public health field, directing resources to where they can do the most good depends on reliable information.

Having a better understanding of regulatory performance and results at the agency and program levels during the budget process

will help appropriators allocate budgets toward regulatory programs that produce the greatest net benefits.

Thus, I strongly recommend that the annual regulatory accounting report be submitted to Congress simultaneously with the Federal budget. Though I recognize it will take considerable effort, at

least initially, to get the reports on track for annual submission

each February, the information would be valuable to Congress and

other policymakers as they allocate available resources to various

government programs.

Let me wrap up by pointing out that, for over 30 years, the

White House has maintained in one form or another a centralized

mechanism for executive branch oversight of regulations issued by

Federal agencies. President Clinton’s Executive Order 12866 continued this tradition, reinforcing the philosophy that regulations

should be based on an analysis of the cost and benefits of all available alternatives and that agencies should select the regulatory approach that maximizes net benefits to society consistent with the

law.

Over the last year, OMB has applied and enforced the principles

of Executive Order 12866, and made its own analysis and decisions

regarding agency regulations more transparent to the public. It

should continue to hold agencies accountable for ensuring proposed

regulations do more good than harm.

The annual regulatory accounting report to Congress can aid in

this effort by providing rigorous and defensible estimates of the

costs and benefits of regulations issued over time by agency. It can

increase transparency, accountability and regulatory effectiveness.

Thank you.

[The prepared statement of Ms. Dudley follows:]

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Mr. OSE. Thank you, Ms. Dudley.

Our fourth witness joining us today is Joan Claybrook, who is

the president of Public Citizen. We have your testimony also, which

we appreciate you submitting. If you could summarize within 5

minutes, that would be great.

Ms. CLAYBROOK. Thank you so much, Mr. Chairman. I appreciate

this opportunity to testify. We have heard a lot about costs today.

I would like to talk about three points.

One is the issue of the regulatory accounting system and the report, and the use of cost-benefit analysis.

Second is, why this report is so fundamentally flawed, because

it is based on very inadequate information.

And third, the use of return letters by OMB most recently.

First of all, we have heard a lot about cost this morning, and it

is interesting we haven’t heard a lot about benefits. But, if you look

at the—despite all of the deficiencies in the numbers, if you look

at the reports put out by OMB in the last several years, you find

that the range of net benefits in 1999 was $25 billion to $1.6 trillion for regulation, and in 1998, it was $30 billion to $3.3 trillion.

I would say that is one of the best deals going in the United

States of America. I doubt that any business could boast those returns. We have serious objections to the regulatory accounting system, as does, we believe, just about every other public interest, consumer, environmental, public health, labor organization.

Doubts regarding the overall cost-benefits were noted by OIRA

itself in its report. I shall expand on that. First, however, the problem with regulatory accounting is that it implies that the overall

numbers are reliable, which they are not, and I will explain that

in more detail.

Second, the number for prior years, if you include prior years and

not just the most recent current year, those numbers are grossly

out-of-date because the regulatory agencies do their analysis when

they issue a rule. They don’t go back every year and recalculate

those numbers. So, if you include, let’s say, 1981 to the year 2001,

everything but the last year or two could be completely and grossly

out-of-date. So I don’t know that those numbers would provide you

any value at all. Surely you wouldn’t have them go back and recalculate all of those numbers. I am sure a business wouldn’t want

to have to answer the myriad of questions the agencies would ask

in order to get those updated.

Third, it is biased toward cutting regulations opposed by industry

because the government agencies do not have the funds to adequately gather the benefits data. The agency I used to head, the

National Highway Traffic Safety Administration, has a data collection operation, but it has got one-third of the funding it did when

I left there in 1981 because it hasn’t been increased, and inflation

has taken it away.

Fourth. The conclusions are highly manipulable because they are

based on a raft of assumptions, a change in any one of which could

affect the outcome.

Fifth. By relying on discounting, regulatory accounting subverts

the importance of longer-term goals and protections.

Sixth. It ignores the critical side benefits of regulation that help

industry, for example, by limiting the risk of developing new prodVerDate 11-MAY-2000 09:51 Mar 17, 2003 Jkt 000000 PO 00000 Frm 00095 Fmt 6633 Sfmt 6633 D:\DOCS\84600.TXT HGOVREF1 PsN: HGOVREF1
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ucts, such as environmental or consumer products. Or forcing industries to update and upgrade their manufacturing processes as

in the case of textiles, which essentially saved that industry so that

it could compete with imports, and made them more competitive

with imports as well, and improved products to help ride out market disruptions.

For example, fuel economy in cars. Our industry did not want to

improve the fuel economy. Standards helped to save this industry.

Seventh. It does not reflect the public values and advances of the

quality of life, the standards of living that are fostered by regulation. We see that difference when we go to foreign countries and

yet we accept it as the normal way of living here. That is why the

public so deeply appreciates regulation.

Eighth. It is impossible to present meaningful conclusions in an

accounting format, because so many of the values are nonquantifiable.

Ninth. The underlying purpose to set a regulatory budget would

impose false limits on safeguards across the Federal regulatory system, undermining public health and safety.

Ten. It is a waste of public resources, I believe, in the long run,

because of all of those facts.

Now, as to the cost-benefit issues. Abstract cost-benefit studies

suffer fatal flaws. They are not neutral. They are highly discretionary. They are subject to manipulation. They are biased in terms

of trying to improve our quality of life.

When you put garbage in, you get garbage out. A number of

these numbers are inherently unreliable. The agency estimates of

costs are badly inflated due to poor and inadequate information

from the regulated industry, which hypes numbers them when they

submit them, and there are some studies that I could submit for

the record on that, because industry has strong financial incentives

to skew the data.

And, the agencies themselves have very little resources to develop the benefits data. Agencies base their estimates on conservative or inappropriate assumptions often because they are forced to

do so. And, agencies only apply a static market analysis, failing to

consider new and innovative ways that the industry can and, when

the rule is issued often do, innovate to save cost.

The benefits can’t be calculated because some of them are incalculable. Often the numbers are hard to get, and there are not the

resources to do it. There are also many subtle quality-of-life issues,

such as asthma sufferers being able to breathe because of clean air

standards, that aren’t taken into account.

Third. Discounting distorts priorities and devalues human suffering. The entire regulatory regime at OMB requires a 7-percent discount rate. It should be 3 percent at most, if at all. That makes

a huge difference in dollar terms.

Fourth. Rigid cost-benefit calculations undermine democracy and

the legitimacy of regulation because only so-called experts can play

the game. The public is completely left out of this obscure, complex,

and often secret process. Companies often submit data and refuse

to provide the basis for it.

And my last point, Mr. Chairman, if I can just have 1 or 2 more

minutes. Is that possible?

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Mr. OSE. We are going to have to cover it in questions.

Ms. CLAYBROOK. Well, I would like to, in the question and answer period, talk about the tire monitoring return letter, because

I do believe that it is a great example of this process. Thank you

very much for letting me testify.

[The prepared statement of Joan Claybrook follows:]

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Mr. OSE. Thank you. Our final witness on the second panel is

Professor Lisa Heinzerling. She is a professor of law at Georgetown

University Law Center. Thank you for coming. We do have your

prepared testimony, which we appreciate receiving. If you can summarize in 5 minutes, that would be great.

Ms. HEINZERLING. Thank you. OIRA has been reviewing major

Federal regulations for over 20 years. Nevertheless, with this administration, OIRA has set a new direction and tone in undertaking this review. Simply put, the direction is away from regulation,

particularly health and environmental regulation, and the tone is

one of skepticism and second guessing.

These are unfortunate and perhaps even unlawful developments.

I will describe three ways in which OIRA has changed course with

the new administration. All of the subjects I am about to describe

are discussed in the 2001 OMB report which is the subject of this

hearing.

First, for the first time this year, OIRA used this report as a vehicle for allowing regulated entities and groups funded by regulated entities to try to rid themselves of regulations they do not

like.

OIRA invited interested groups to tell OIRA about rules that

should be reformed or undone. Regulated entities and groups funded by regulated entities happily obliged. They presented OIRA with

a wish list of 71 regulations they would like to see reformed or

even erased. OIRA chose 23 of these rules as high priority, and it

signaled its intent to revisit these rules and perhaps even to direct

the relevant agencies to reconsider these rules.

In this way, regulated industries’ wishlist became a kind of hit

list in OIRA’s hands. No principled basis for determining priorities

emerges from OIRA’s decisions on priorities. Indeed, for all of

OIRA’s emphasis on peer review and quality analysis by administrative agencies, I have been unable to discover one word in OIRA’s

lengthy report that explains how it arrived at the priorities it

chose.

For example, OIRA labeled EPA’s rule on arsenic in drinking

water, which we have just heard about, high priority, even though

the rule had been issued 2 months before, after months of in-depth

inquiry, by three different expert panels.

The unmistakable impression, encouraged by reports of contemporaneous meetings with industry groups whose least favorite rules

magically appeared on OIRA’s hit list, is that in this setting bad

politics dominated good science.

A second way in which OIRA’s direction and tone have changed

in this administration is that OIRA has announced that it tends to

make aggressive use of the so-called return letter, under which

rules may be returned to agencies when the agencies have not analyzed the relevant problem in the way OIRA thinks it should be

analyzed.

Indeed, OIRA, as we have heard this afternoon, has already

issued 20 return letters. OIRA’s assertion of authority essentially

to veto rules it does not like threatens to undermine a basic

premise of the law governing administrative agencies, which is that

their expertise in the subjects over which they have authority entitles their decisions to a good deal of deference.

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At this time, OIRA appears not to have the kind of humility that

its lack of expertise would make appropriate. In fact, OIRA appears

to have no humility at all in this regard and appears more than

willing to second-guess expert agency judgments.

Thus, we are witnessing a spectacle in which OIRA’s staff, made

up predominantly of economists, are presuming, for example, to tell

EPA scientists how to conduct research into the health effects of

air pollution.

OIRA’s plan to intervene in expert agency decisionmaking is perhaps made most obvious by its recent announcement that it intends to hire physical scientists for the first time.

Now I suppose that, if OIRA intends to second-guess the scientific basis for agency decisions, one might say that at least the

office should have scientists on its staff.

But, suppose the office decides to hire only scientists who take

a skeptical view of, say, the hazardousness of toxic chemicals. In

that event, an OIRA decision second-guessing an agency rule regulating such chemicals will be based not on good science, as OIRA

would have it, but on the idiosyncratic scientific and perhaps political viewpoints of the scientists OIRA chooses to hire. This is a recipe for political second-guessing disguised as good science.

Finally, the tone of OIRA’s 2001 report must be regarded as hostile, even if subtly so, to health and environmental regulation. I

offer one example, in the interest of time. OIRA unreasonably gives

credence to the possibility that, as of the year 2000, environmental

regulation had on the whole done more harm than good in this

country, that is, that its costs outweighed its benefits.

OIRA bases this calculation on studies that are not only over 20

years old, but that contain assumptions that tend to disfavor environmental regulation. Crediting these studies and, therefore, suggesting that environmental laws may have done more harm than

good in the last 30 years is a signal that OIRA takes the benefits

of environmental protection less seriously than it should.

To me, it is hard to read the 2001 report without coming away

nervous about what OIRA’s discussion presages for environmental

protection in this country. Perhaps I am too much influenced by

the fact that OIRA’s current head, Dr. Graham, was quite overtly

hostile to environmental protection in his many years as an academic. But, nothing in this report, or in OIRA’s recent activities,

convinces me that my fears are unwarranted. Thank you.

[The prepared statement of Lisa Heinzerling follows:]

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Mr. OSE. Thank you for joining us today. We will now go to questions for our second panel, and we will just alternate back and

forth for 5 minutes.

Dr. Miller, one of the things in your written statement as well

as your verbal, is that the regulatory agencies have a disincentive

or strong incentive to avoid OIRA’s demands for information. As

you heard me asking Dr. Graham and Mr. Sullivan, I am trying

to figure out how to basically give them the tools so that we can

get this information up where we have to make decisions.

How would you recommend going about facilitating that transfer

of information from the agencies to OIRA so that they can forward

it to us?

Dr. MILLER. Well, Mr. Chairman, I think you ought to put a lot

of pressure on the agencies and support OMB in soliciting the information and processing it in the right way. If they don’t give the

right guidance, you should chastise OMB for that. But I think you

should encourage the agencies and encourage your colleagues on

the authorizing committees and the appropriation committees to

hold the feet to the fire of the heads of these agencies to make sure

that they respond with this information.

In the end, I think you ought to be making the decisions. I mean,

I think on this you ought to have a regulatory appropriation process that parallels the spending appropriation process.

I have heard the comments at the other end of the table that

somehow that there are biases here, as if the agencies don’t have

their own biases. They do. Anyone who has reviewed the regulatory

process knows the agencies have their own biases. I mean, they

want to do their own thing. They don’t want to be bothered by any

outside influence. That is one reason they don’t give up the right

information very readily.

But, I think, if you made the decisions, and you required them

to give you the information in a consolidated way, I think that

would solve the problem.

Is it easy to get some of this information? No. But I don’t think

there is any more bias against regulation because you come up

with cost data than there is bias against spending programs because you don’t have benefit data. I can say this fairly authoritatively because I put together budgets. Where in the budget, the

spending program, are all of these analyses of benefits? They aren’t

there. Agencies come in and talk about what they do. Members of

Congress talk about them; experts come in and talk about them.

But there is no quantifications of benefits in the same way that

some people say, well, you have got to have the quantification of

benefit in regulation before you can even talk about the issues.

Mr. OSE. Well, let me explore that for a minute, because this is

one of the areas that I have some difficulty with, and Ms.

Heinzerling mentioned it. That is, how do you establish a template

where you know that the assumptions you use in one agency are

the same assumptions you use in the next and the third? How do

you go about doing that?

Dr. MILLER. Well, Mr. Chairman, it is a messy process. You

would never get it perfect. You just try and you work on it. I remember when I was a colleague of Dr. Hopkins how he used to sit

down and write the instructions to the agencies about how they

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would put the data together, and what kind of assumptions they

would use, etc.

It is never a perfect process any more than the budget process

is a perfect process or the spending part of the budget is a perfect

process. But, again, right now what you do as Members of Congress—and I don’t want to oversimplify it, but you know the truth

of what I am about to say—you essentially tell the agencies to go

do their thing. You give them a financial budget that they can

spend, but in terms of the regulation, you give at the most just

general guidance, you leave it up to them to carry out these broad

mandates. You don’t have that kind of special oversight of the

agencies and what they are doing and the costs that they are imposing, that you have in the spending side of the budget when you

decide on appropriations.

And, if you, Congress, had to appropriate regulatory resources—

that is, the costs imposed by the agencies in the same way it does

the spending resources—I think you would get a lot better, a lot

more efficient, effective decisionmaking on the regulatory side.

Mr. OSE. I want to examine this, because this is an idea that has

been rolled around by the staff in front of me. When you talk about

appropriating regulatory resources, you are saying to any given

agency, you may impose on the American people X, cost of X in

total for the year for any regulatory action or all regulatory actions,

period?

Dr. MILLER. Yes.

Mr. OSE. And they have to set a priority in terms of what they

want to use that for?

Dr. MILLER. Well, Mr. Chairman, there is a tradeoff. I don’t

think you would any more than say tell the Department of Defense,

go spend $100 billion on the war, or defending this or that or whatever. You would be very specific. Do you want to have this plan,

or this weapons system? You are going to have this kind of mobility, and you tell them. You don’t go down to the detail of telling

the individual decisionmaker down in the field exactly what to do.

The same way on the regulatory side. You wouldn’t just say to

EPA, you have $110 billion in costs you may impose, you would

talk about the different programs they have, and have them justify

spending this much in this area and that much in another area.

By the way, there is a technical——

Mr. OSE. We are going to have to come back. My time has expired here. So Mr. Tierney for 5 minutes.

Mr. TIERNEY. Interesting that you called the Department of Defense in for an example, because they haven’t balanced their books

for years. They are about $1.3 trillion of unaccounted-for resources

out there, so, unfortunately, Congress does often give them the

money and tell them to go spend it.

I am concerned, from some of my earlier comments, you might

be able to tell, about the process here and who has been involved

in it.

Let me ask you, Ms. Dudley, some questions about your organization. Isn’t the director of the Mercatus Center’s Regulatory Studies Program Wendy Gramm?

Ms. DUDLEY. Yes, she is.

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Mr. TIERNEY. This is the same Wendy Gramm that, when she

was at the Commodity Futures Trading Commission back in January 1993, championed what some would call an Enron-friendly

process of exempting some energy derivatives from regulation,

right?

Ms. DUDLEY. I actually worked at the CFTC, but not at that

time. As I understand, she was involved when it was proposed. But

the person who came after her was the one who actually issued

that.

Mr. TIERNEY. Well, that was only a matter of timing. She was

the one that generated it and got it going and had it all but out

the door, right?

Ms. DUDLEY. It was not done at her time at the CFTC. It was

begun.

Mr. TIERNEY. So it has nothing to do with the person that came

behind, except it just happened to be done technically when that

person came along.

Ms. DUDLEY. No, I don’t think so. I think the final rule was

issued, not by Wendy but by her successor.

Mr. OSE. Will the gentleman yield for a moment? We will stop

the clock here. I need to ask the relevance of a regulatory decision

to the issue of regulatory accounting? I am willing to proceed,

but——

Mr. TIERNEY. Well, we are going to proceed. And obviously I am

going to ask the questions I want to ask. But my line of questioning here is I want to show what I think is very clear bias by some

of the people that contributed greatly to the report that was done

by OIRA, and it is a legitimate line of reasoning.

Mr. OSE. In terms of the 23 items?

Mr. TIERNEY. In terms of the 23 items, 14 of which are from this

group, Mercatus Center, who I will put information on the record,

I think, have a very clear and to me disturbing bias.

Mr. OSE. All right. I am willing to proceed.

Mr. TIERNEY. I would expect so.

Did the Mercatus Center receive $50,000 in donations from

Enron over the past 6 years?

Ms. DUDLEY. I read the city paper article, and that is what it

said. But let me—may I say something?

Mr. TIERNEY. Did you also get $10,0000 from Chief Executive

Kenneth Lay and his wife?

Ms. DUDLEY. I am not the right person to ask about funding, because we have——

Mr. TIERNEY. If you don’t know, you only need to say you don’t

know.

Ms. DUDLEY. Well, I read the city paper.

Mr. OSE. Ms. Dudley, if I may. You are under oath. If you don’t

know, you just need to say, ‘‘I don’t know.’’

Ms. DUDLEY. Thank you. I don’t know.

Mr. TIERNEY. You don’t know. All right. The Koch Foundation,

which is backed by money from the oil conglomerate Koch Industries, has provided $16 million in grants to Mercatus, hasn’t it?

Ms. DUDLEY. I don’t know.

Mr. TIERNEY. And, would $16 million in grants make up over a

third of your, Mercatus, budget?

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Ms. DUDLEY. I am sorry, sir. I don’t know.

Mr. TIERNEY. You don’t know what the budget is for Mercatus?

Ms. DUDLEY. No. If I can just explain why I don’t know, it might

help with this line of questioning. We have a separate group that

does the fundraising, and the research team, which I head, is kept

separate from that so that we can be objective.

Mr. TIERNEY. So you don’t know what the budget is?

Ms. DUDLEY. No, I don’t.

Mr. TIERNEY. And—well, let me do you the favor. Why don’t we

ask you if you can submit those questions to somebody within

Mercatus and have them respond to them for us on that basis, if

you would.

Ms. DUDLEY. Certainly.

Dr. MILLER. Mr. Tierney, can I just make a comment? I am a

member of the Board of Visitors of George Mason University, of

which Mercatus is a part. We are very proud of that institution. It

is an excellent institution. It does cutting-edge research in the

areas of regulation and ancillary programs. It has first rate people

attached to it. And let me just go back to this——

Mr. TIERNEY. You are taking my time. I am not going to let you

take up my time. I will submit for the record an article and ask

that be put in the record. It tells us a little bit more about

Mercatus Institute and that—and you can put all of the things in

writing.

Dr. MILLER. I would like to contribute to the record my response

to that very article.

Mr. TIERNEY. You may.

Mr. OSE. We will accept the article for the record. And the time

is Mr. Tierney’s.

Ms. Heinzerling, you didn’t get a chance to really flush out a lot

of your written testimony, but in that you outlined a number of

issues that you were going to discuss. One example—give me some

examples of how the OIRA report reveals OIRA’s intention to intrude upon the decisionmaking prerogatives of the administration’s

agencies in such a way as to promote the unwarranted delay of

meddling with the agencies’ work, as you wrote in your report.

Ms. HEINZERLING. Yes. The OIRA’s revitalization, I should say,

or vitalization of the return letter suggests that OIRA intends to

send back to the agencies any rules that it finds objectionable on

a number of very broad grounds, including inconsistency with the

President’s policies and priorities, inconsistency with the cost-benefit analysis that OIRA thinks is appropriate, inconsistency with the

statutes and executive orders under which the agencies operate.

With all of those very broad authorities that OIRA has asserted,

it is almost inconceivable that a rule that OIRA doesn’t like

couldn’t be fit into one of those authorities.

And, as we have suggested this afternoon, 20 rules have already

been sent back, which is more than in the entire 8 years of the previous administration. Not only that, but in addition to the return

letters, OIRA has been issuing prompt letters which aren’t always

rules that prompt regulation, but that are letters that nudge the

agency in one direction or another.

So, for example, one of the letters I mentioned suggested to EPA

that it should view—consider the health effects of air pollution and

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then look at the study showing the effects from air pollution in

such a way as to facilitate economic analysis of national air quality

standards. That suggests to me just a role for OIRA that is well

beyond its expertise and authority.

Mr. OSE. I am curious, but before I ask my question, Dr. Miller,

you will be provided an opportunity to respond.

Dr. MILLER. Thank you.

Mr. OSE. We may well do it in writing, but you will be given an

opportunity.

Ms. Heinzerling, I am a little bit confused. The standard you set

for Dr. Graham’s efforts on the previous 8 years, under the previous administration in which no rules were returned, there were

no prompt letters and the like, I am kind of curious, what is your

vision of OIRA’s role?

Ms. HEINZERLING. I think OIRA can play an important role. As

I understand it, this was the role that was envisioned originally for

OIRA, an important role in coordination. It may be that you have

two or three agencies that are attacking a similar problem. And it

is helpful for them to know what each other is doing and helpful

to have a centralized authority that is able to say, you know what,

the FDA is regulating this, and the EPA is trying to regulate this,

and let’s have them talk to each other.

That to me seems sensible. What I don’t think is sensible is a

small cadre of civil servants located in the White House, comprised

mostly of economists, who are empowered to send rules back to

agencies on the grounds that those economists don’t agree with the

analysis done by the agency, when an agency like EPA is not predominately charged with economic analysis. So coordination, yes;

second guessing, no.

Mr. OSE. One of the things that I find interesting is, you know,

someone sitting over at OIRA—I almost said an OIRA-anian, as

Dr. Miller said—might find in your example FDA and EPA’s analyses to be mutually exclusive and send one back. The standard that

you’re using to evaluate the return would suggest that action is

somehow invalidated.

Now, Dr. Miller, you wrote the Executive order that set up OIRA.

What was the purpose for doing so?

Dr. MILLER. Well, Mr. Chairman, Boyden Gray and I share some

co-authorship in that Executive order. But the basic thrust out of

the box was to get the attention of the agencies who were running

roughshod over the review process set up in the previous administration and to say: you must do the analysis, you must provide a

factual analytical basis for making your decisions within the discretion afforded by law. If the law does not give you any discretion,

we don’t touch it. But if you have discretion, or within the discretion you have, you must do this analysis and make decisions based

on the analysis.

Ms. Heinzerling surprises me that she does not know, for example, that during the very first year of OIRA, during the first program, then-Vice President George Bush invited comments from

outsiders about regulations that should be reviewed and addressed

by OIRA. And, we had a number of press conferences to talk about

them. And it might surprise some to find out that the list had comVerDate 11-MAY-2000 09:51 Mar 17, 2003 Jkt 000000 PO 00000 Frm 00152 Fmt 6633 Sfmt 6633 D:\DOCS\84600.TXT HGOVREF1 PsN: HGOVREF1
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monality. The lists from academics, the lists from business, the

lists from others, had very much——

Mr. OSE. What do you mean, commonality?

Dr. MILLER. You had the same regulations on the lists. So that’s

one reason I’m surprised that someone takes a list and says, well,

this organization listed 10 of the 23 or whatever, and therefore

those 10 must have been on there just because this organization

suggested them. We found that everyone knew what the problem

regulations were and they listed those regulations.

So the Vice President of the United States made a determination

of which ones that we would address because he was head of the

Task Force on Regulatory Relief under President Reagan. But they

were regulations that many, many different organizations indicated

needed to be reviewed. I suspect that the same thing is true of the

list that OIRA has now.

Mr. OSE. When the Executive order went out, did you publish a

comment period so you got input? I’m trying to figure out the due

process.

Dr. MILLER. No. No. The President issued the Executive order.

There were some followup guidance to the agencies that were the

subject of some comment. We had an enormous flood of information

and comment on all the things that we were doing. We kept the

big docket room in the new Executive Office Building. There was

just a flood of information that could be accessed by anyone and everyone.

Ms. CLAYBROOK. Mr. Chairman, could I comment on that?

Mr. OSE. I would be encroaching on his time. We’ll come back to

it. Mr. Tierney for 5 minutes.

Mr. TIERNEY. You may comment on that.

Ms. CLAYBROOK. First of all, in April 1981, the first review of

regulations, a report was put out called ‘‘Actions to Help Detroit.’’

That was the name of it. It was a list of environmental and safety

regulations that the Reagan administration wanted to revoke to

help Detroit because it was in financial trouble. Yet, neither the

safety statute nor the clean air or other fuel economy statutes in

any way suggested that was a criteria for revocation of regulations.

Second, the people who did submit requests to the White House

at that time were primarily the auto industry for that report. The

consumer groups were never asked to even meet or come or have

anything to do with it. So I think that what Dr. Miller said is not

accurate.

Third, there were hearings all during the 1980’s, which I could

reference and submit for the record if you wish, about how secretive OMB-OIRA was and how it was acting outside of its statutory

authority. The only statutory authority it had until the 1990’s was

the Paperwork Act, and yet it used it to—its muscle, if you would,

with the budget authority—to quash opposition to the Reagan administration’s revocation of health and safety environmental standards.

Mr. OSE. Mr. Tierney for 5 minutes.

Mr. TIERNEY. I would like you to submit that information for the

record if you would.

Mr. OSE. Without objection.

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Mr. TIERNEY. Can you tell me, Ms. Claybrook, how it was that

somebody would go about calculating the consequences or the benefit of improved safety or improved health or saved lives, so that

when you’re doing that analysis you have some numbers that are

reliable to work with?

Ms. CLAYBROOK. At the National Highway Traffic Administration, there are two major data sources. One is the fatal accident reporting system, which is all fatal crashes in the United States; and

the other is the national accident sampling system, which is a sampling of fatal and other types of crashes, nonfatal crashes. That

system is grossly underfunded, as I mention in my testimony. It’s

one-third the size it was when I was there. That’s it. That’s the

money that the agency has. It’s not a small amount of money in

citizen terms, but in agency terms it’s a footnote.

And, these data are not sufficient to get the kind of information

that you need, plus the fact you need discretionary money so that,

if an issue arises such as children being killed by air bags, the

agency has the capacity to go out and do special studies to evaluate—or rollover with the Ford/Firestone case. So you do need to

have more resources to do that.

The cost data come from industry. In the 1970’s, when we were

regulating fuel economy, the agency had $10 million and we knew

about every transmission plant, every engine plant. We were able

to rebut or analyze or question the cost data that came in. Today,

the agency doesn’t have any money to do that, so the cost data just

come in and they’re accepted and they’re presumed to be accurate,

which they absolutely are not.

I would like to submit for the record some information about

some studies that have been done that shows the gross overestimation by industry when a regulatory process is going on that later

shows that it’s inaccurate.

That’s one of the problems with the regulatory accounting system, because it just uses whatever information is in the record

from, let’s say, 1988 or 1992 that the industry submitted. There’s

no re-analysis of it now. So the numbers are completely wrong and

completely out-of-date. Because one of the things I will say as well

about the industries that are regulated is that they find very innovative and creative ways to meet a regulation when they have to,

and they can cut costs like mad.

Mr. TIERNEY. I recall some early hearings we had last year, or

actually the year before, with the Administrator of the EPA indicating that the Clean Air Act—the industry had six times more of

an estimate of what it was going to cost to implement some regulations. In the final analysis, it was one-sixth of what their figures

were on that.

You indicated, Ms. Claybrook, during your testimony that you

would really want to talk a little bit about a tire monitoring return

letter.

Ms. CLAYBROOK. Yes, I would, if you don’t mind, Mr. Chairman,

I would appreciate very much the opportunity to do so. The law

that came out of the Firestone/Ford Explorer problem, the TREAD

Act, required NHTSA to issue a tire monitoring system, which is

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portant for safety and fuel economy and there are big benefits to

such a system.

The agency did an enormous amount of work. This is an issue

that’s been around since the 1970’s, when, actually, the agency first

proposed it, and then it was eliminated by the Reagan administration and the ‘‘Actions to Help Detroit’’ report. And so, it’s now required by Congress in the year 2000. The agency set about doing

it. They did a lot of tests. They did a lot of research. They had 20

different meetings with all different industries concerned about it.

The tire industry supported it; the auto industry didn’t.

They came out with a recommendation, after a rulemaking proceeding and the proposal, the final rule, to have a direct monitoring

system so all four tires could be measured. The OMB-OIRA just recently sent it back to the agency and is going to insist that, instead, the agency publish a rule that only monitors one tire. Now,

most cars have four tires. The consumer, I am concerned, is going

to say, ‘‘This is stupid government regulation all over again, blame

the National Highway Traffic Administration, the Department of

Transportation,’’ when in fact it comes out of the brain child of

some economists at OIRA.

Their basis for this is support for an indirect system, which, by

the way, doesn’t monitor if you’re on a long road, and/or flat surface, which I suppose some of the members of this committee who

live in Western States would be concerned about; it doesn’t monitor

when the car is not moving, so when you’re at the gas station you

can’t figure out how much air to put into your tires. And, it only

registers one tire. And, in fact, John Graham calls it the one-tire

standard. And, it costs less, but on a net basis—the direct system

is $15 more on a net basis; that is, after saving fuel efficiency and

so on.

What Graham wants is for the agency to issue a rule that allows

the indirect system, which only works with anti-lock brakes, but

less than two-thirds of the cars in the United States have anti-lock

brakes. So when you add the anti-lock brakes in to use with the

indirect system, then it is much more costly, and plus the fact all

the studies show that anti-lock brakes on cars aren’t that valuable.

They don’t really produce much. Graham misleadingly says that

they do. It’s not good statistical information. He misuses it. So this

is an example to me of complete second-guessing by Graham.

If you look at the entire record, you’ll see that OMB is completely

wrong. Public Citizen will sue the minute that rule comes out. I believe we will win. I believe that it will be a great example of the

courts putting a limitation on OIRA in the future. That’s what we

will seek. I would much rather have the four-tire rule than a onetire rule.

Mr. TIERNEY. Thank you.

Mr. OSE. I am curious. If I understand correctly, this is the document referenced with the 71 items that was reduced to 23 testimony items? I see the witnesses shaking their heads so I assume—

I want to make sure I’m correct on my source.

Now, as I look through this, there is a page per regulation, and

then in the back there’s a summary of the people who offered comments to this particular document. There are a total of 33, includVerDate 11-MAY-2000 09:51 Mar 17, 2003 Jkt 000000 PO 00000 Frm 00155 Fmt 6633 Sfmt 6633 D:\DOCS\84600.TXT HGOVREF1 PsN: HGOVREF1
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ing yours truly, and Mr. Waxman who offered comments. I don’t

quite understand. Were you aware of this document?

Dr. MILLER. I haven’t seen the document, no, sir.

Mr. OSE. Dr. Hopkins, were you aware of this document entitled

‘‘Making Sense of Regulations: 2001 Report to Congress on the Cost

and Benefits of Regulations and Unfunded Mandates on State,

Local, and Tribal Entities’’?

Dr. HOPKINS. Yes, I have seen that document.

Mr. OSE. Ms. Dudley.

Ms. DUDLEY. Yes, I have.

Mr. OSE. Ms. Claybrook.

Ms. CLAYBROOK. Yes, we were. But I would like to have the opportunity to explain, if I could, why we didn’t make any suggestions.

Mr. OSE. Were you aware of this document?

Ms. HEINZERLING. Yes.

Mr. OSE. This was put out for public comment last spring, if I’m

correct. Dr. Miller, did you offer—you didn’t know about it.

Dr. MILLER. I didn’t know about it.

Mr. OSE. Dr. Hopkins.

Dr. HOPKINS. I did not offer comments, though I knew I had the

opportunity.

Mr. OSE. Ms. Dudley.

Ms. DUDLEY. Yes, Mercatus did.

Mr. OSE. You did send it in, obviously. Good point.

Ms. Claybrook.

Ms. CLAYBROOK. We submitted comments in May on the basis for

the analysis. We did not submit suggestions for regulations to be

revoked. That’s what that list of 21 or 23 or 71 is.

Mr. OSE. Ms. Heinzerling, did you offer any comments on this?

Ms. HEINZERLING. I was a peer reviewer for that document.

Mr. OSE. So you were aware of it.

Ms. HEINZERLING. Yes.

Mr. OSE. I just can’t—I’m trying to figure out why—it would

seem to me if you’re affected by these rules, you would offer a comment. Obviously as a peer reviewer, you can’t. So you kind of have

to excuse yourself, it would seem to me, as a peer reviewer of the

document itself. Is that accurate?

Ms. HEINZERLING. May I comment on your question?

Mr. OSE. Certainly.

Ms. HEINZERLING. I am not sure about whether there were business interests that were encouraged more heartily than other interests to comment on that report. I don’t know. There were news accounts to that effect. I can’t—I can’t comment on whether those are

reliable, but there were news accounts to that effect.

The second point, OIRA has a very long history of being, especially in Republican administrations, with due respect, it has a history of being anti-regulatory. One can imagine when OIRA asks are

there any regulations out there that you’d like reformed—for one

thing, the public interest community often is in favor of regulations, so they don’t want them to be erased.

The second point is I can imagine the public interest community

being skeptical about the effects of its comments on an agency that

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historically has not treated the public interest community with a

great deal of solicitude.

Mr. OSE. If I might just interject one thing, in September 1997,

again in 1999, and again in 2000, there were requests put out for

recommendations to reform or eliminate certain regulations. Now,

I am new to this job but I don’t remember those being—I mean,

your words, Republican administrations. So I’m a little bit confused. It would seem to me that OIRA under the Executive order,

that was written by Dr. Miller and Boyden Gray, if I recall.

Dr. MILLER. Right. I did the economics, he did the law. It was

a division of labor.

Mr. OSE. It would seem to me that the regulatory accounting

process requires a periodic review of things for recommendations of

reform or elimination. Is my logic wrong?

Ms. CLAYBROOK. Could I answer that question? First of all, Vice

President Gore had, before this law was passed, an ongoing program, agency by agency, asking whether there are any rules that

are in need of being eliminated or updated or any other——

Mr. OSE. Did he find any?

Ms. CLAYBROOK. They did. There were pictures of him with all

these rules that they named. Most of the time what happened, was

that it was a bottom-up process; that is, it went agency by agency.

So organizations generally tend to be focused on particular areas

of expertise. I have expertise in auto safety; David Flack in our office has expertise in OSHA. So, for example, those are the agencies

that we tend to connect with. So when the agency asks, are there

any rules that you would suggest go one direction or another, that’s

when we respond. When OIRA comes out with something much

more generic, it tends not to filter down.

Mr. OSE. My time has expired. I’ll come back. Mr. Tierney for 5

minutes.

Is it your position that OIRA is not empowered to suggest reforms or regulations for reform or elimination?

Ms. CLAYBROOK. I think that a government agency has very

broad authority including OIRA. The question is can it impose it.

That’s a very critical question here, Mr. Chairman. For example,

can OIRA command that a regulatory agency change a rule because the economists at OIRA want them to? I don’t think so. I

think that the statutes that are written that I know of—if I could

just finish that, Mr. Chairman—the statutes are written delegating

authority to the Secretary of Transportation, to the Secretary of

HHS. They don’t delegate it to OIRA. OIRA’s authority is very specific. It’s the Paperwork Act, it’s overseeing SBRFA, it’s your Accounting Act. They’re very, very specific but they’re not ones that

give them, in my view, the authority to command an agency to

eliminate or change a rule.

Mr. OSE. Does the Executive order that you and Mr. Gray wrote

provide OIRA with the authority needed, under Ms. Claybrook’s

scenario, to send those back?

Dr. MILLER. No. We can send them back and ask the agency to

reevaluate them, but technically Ms. Claybrook is right in the

sense that the agency head has the discretion to make the determination. But the agency head works for the President of the

United States.

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Mr. OSE. So whether it’s Vice President Gore’s review or Vice

President Cheney’s review or Vice President whoever’s review or

the President’s review—well, although in the President it might be

a different case—the agency heads have the ability to put these

things in the Federal Register?

Dr. MILLER. They can put them in the Federal Register and they

can make the final determination subject to the ordinary kinds of

questions that someone might raise, and the courts might say that

you didn’t have a sufficient evidentiary basis and all of that, but

they do have the authority to do that. But they work for the President of the United States, and the President can remove them at

will.

Mr. OSE. We’re going to recognize Mr. Tierney for 71⁄2 minutes.

Mr. TIERNEY. I don’t think anybody has a problem with people

asking, you know, for people to comment on regulations. I think

that would be beyond the pale if we had a problem with that. The

issue, I think, arises when we have secret meetings with select

groups of industries that are regulated and have a serious interest

in it, and nobody else is invited. They come in and all of a sudden,

presto, we got a hit list out there. Then Dr. Graham is reported to

be involved in it, and then all of a sudden the committee staff is

still involved in it only.

But the long and the short of it is the committee staff comes up

with a list, Graham comes up with a list, and surprisingly enough,

there’s a lot of overlap despite a lot of denial. That’s the problem.

I think that together, with 14 out of 23 of them coming from an

organization that is heavily funded by a lot of people who are regulated, it just happens to be they’ve got questions with the things

that are regulating them. So I guess I look at this thing as OMB

has the authority to send a letter—return letter. And, I suppose

that you can tell me that the agency has the ability to just kick

it back and say, no, we like it the way it was the first time.

What’s the likelihood of that happening when you have got OMB

sitting at the right hand of the President, obviously you know, very

close, and under the direction there, sending a return letter and

having the agency head, who is a subordinate of the President, actually standing up to that and saying that oh, no, we’re going to

plow forward because we think we had it right the first time.

Isn’t it more likely, I would ask anybody that wants to answer,

isn’t it more likely that you will get the experts at the agency to

kowtow to the inexpertise or the lack of expertise of the economists

at OIRA?

Ms. CLAYBROOK. That’s exactly what happened with the tire

monitoring rule. In fact, they’re going to issue the authority to

allow an indirect system. So—the one-tire standard. So that’s exactly what does happen. We just had, of course, an agency head,

former Member of Congress, fired for disagreeing with the President’s budget. I should think that if they disagree with the regulation that’s the end of that.

Mr. TIERNEY. My additional fear is they’re going to now hire scientists, as I think somebody was mentioning, that they are going

to hire scientists from the same kind of group that they went to

get advice on these regulations, people with a stacked deck and a

real preconceived idea of where they want to go. It just spells disasVerDate 11-MAY-2000 09:51 Mar 17, 2003 Jkt 000000 PO 00000 Frm 00158 Fmt 6633 Sfmt 6633 D:\DOCS\84600.TXT HGOVREF1 PsN: HGOVREF1
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ter as far as I can see. It looks like there’s a real concern here that

this is an agency that’s being used for a purpose other than what

was originally crafted.

Ms. CLAYBROOK. Mr. Tierney, could I make one more comment?

And that is, the Congress considered for 20-odd years, since 1981,

a regulatory reform bill which has never passed. It’s a bill that Dr.

Graham supported vigorously, and it’s never been enacted into law.

One of the things that it had in it that we objected vigorously to

was peer review of agency regulations, which take a lot of additional time; in addition, there are no conflict-of-interest standards

so that industry people who have a self-interest can sit on the peer

review panel.

Dr. Graham has announced that he is going to reinstitute peer

review and that he is going to have it be that if an agency does

peer review, then their rules are more likely to be accepted. If they

don’t get peer review, they’re going to get heavier scrutiny. What

you’re having is, if there’s any extension of authority beyond the

scope of their statutory basis, to me it is in this office of OIRA and

its head, Dr. Graham. So he is assuming the authority to do this

kind of thing. It’s in this report. It’s one of the elements that he

spells out in the back of the report, a number of areas that they’re

going to be issuing new guidelines.

For example, they’re not reissuing the Executive order. A big

stink was made about the Executive order when Dr. Graham was

up for confirmation. Senator Lieberman made a huge issue of it. So

Dr. Graham is not going to rewrite that because it will attract a

lot of attention. He’s going to issue guidelines, which is one of the

things he mentioned today. These guidelines are essentially going

to be the equivalent of an Executive order, but they’re going to be

issued by Dr. Graham.

Mr. TIERNEY. Sometimes people confuse cute for smart. But the

problem with this whole thing is, you know, there just seems to be

no real balance to the system. And, I have to ask Ms. Heinzerling,

if you were one of the peer people that looked at that report, what

would you do to set this issue straight? How would you get OIRA

to function in a way what we could trust that it wasn’t biased and

that it didn’t have preconceived notions, that it actually was doing

its legislative job?

Ms. HEINZERLING. That’s a really hard question. I guess I would

say, first of all, that OIRA operates, as I say, with this history of

interference with agency rulemaking and the history, at least

through most of its experience, of an anti-regulatory bias. It’s just

hard to take out of an agency that exists. It’s hard to take out of

that office. Many of the staff people there have been there for

years. I’ve heard EPA staffers tell me that they won’t even propose

some regulations because they can’t get it by the desk officer in

charge. Which goes to your question earlier about the influence of

these interventions on agency decisionmaking.

So I almost wonder whether a fresh start is necessary in order

to sort of root out this kind of deregulatory bias or anti-regulatory

bias. I think OIRA serves some important functions. I think paperwork reduction is important. As I say, I think the coordination

among agencies is important.

156

What has developed now, at least as I see it, is an office that has

a strong bias toward economic analysis of regulations, even in cases

where those regulations, as I’ve said, are not predominantly economic. So you get a misfit between the agencies saying, look, we’re

going to increase visibility in the Grand Canyon, we’re going to

save lives, we’re going to, you know, reduce asthma in kids, and

the office within the White House that’s charged with reviewing

those has by its history and by the disciplinary expertise of the personnel—doesn’t listen to those kinds of qualitative kinds of benefit

statements.

So I think it’s hard to—I think it’s hard to reform within OIRA

if OIRA is to say—to imagine an OIRA that performed this kind

of cost/benefit analysis or reviewed it, that didn’t interfere with

what agencies do.

Mr. TIERNEY. Thank you.

Mr. OSE. The gentleman yields back.

Dr. Hopkins, what is your view of the utility of agency-by-agency

data on regulatory accounting?

Dr. HOPKINS. I think it can serve a very useful purpose since it

hones in on the units that have separate statutory authorizations

given to them. So, if we have the analysis by agency, we’ll be able

to track it back to the laws that correspond to those agencies.

But, if I may, Mr. Chairman, I could add a comment on the conversation that has just been taking place, with your permission?

Mr. OSE. Please.

Dr. HOPKINS. I find it puzzling to hear the characterization of

OIRA as involving a small cadre of economists who are ‘‘intruding

upon agency prerogatives’’ in an anti-regulatory way, because I

think one can go back to every President since President Nixon—

of both parties—each of these Presidents has wanted to have a

small cadre of economists in the Executive Office of the President

who were ‘‘intruding upon agency prerogatives’’ when it comes to

regulation.

I joined the administration of President Ford in 1975, precisely

for the purpose of being a part of a cadre of economists ‘‘intruding

upon agency prerogatives.’’ That mission continued under every

President, without exception, since that time. So this is not some

new nefarious scheme of OIRA since 1981 or under Dr. Graham,

it’s a consistent effort that every President has felt needed as a

counterbalance to the agency regulators.

Mr. OSE. Well you’re suggesting that, if the standard for judging

OIRA is the empirical data of number of return letters or number

of refusals to allow to proceed, if that’s the standard by which

OIRA is judged, are you suggesting for 8 years they were just absent?

Dr. HOPKINS. I’m not sure that’s an adequate standard by which

to judge their performance. It seems to me the more important contribution that entity can make is to be an advocate for balanced

economic analysis of regulatory issues. It has taken different forms

under different administrations. But, the same cadre of economists

has persevered through each administration, sometimes working

more visibly, sometimes less visibly, to try to bring that kind of analytical balance to regulatory decisionmaking.

Mr. OSE. I don’t like the word ‘‘cadre.’’

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Ms. Dudley, do you share that opinion?

Ms. DUDLEY. Yes, I’d like to make a similar point. In terms of

the last administration and this one, I think perhaps what we’re

seeing now is a more transparent role for OIRA. I think that’s a

benefit, that with the return letters and with OIRA’s actions, it’s

very visible what OIRA is doing. I think the same can be said for

your requirement for an annual accounting of costs and benefits. It

makes it transparent so that Ms. Claybrook and I can discuss what

discount rate is appropriate.

So a regulation-by-regulation, agency-by-agency data base with

consistent assumptions allows people to adjust the assumptions

and do different analyses with it. But, you can’t do that if it’s not

a transparent data base of regulations, which I think is what you

are asking OMB to do.

Mr. OSE. Dr. Miller, any thoughts on that?

Dr. MILLER. I agree with that. Let me just say I thought those

were two excellent statements. Let me add, though, that the notion

that these green-eyeshade economists over there have no compassion or concerns about the benefits generated by regulations is not

true, anymore than you could characterize the budget people at

OMB as being completely unsympathetic to the notion that certain

kinds of spending programs by the Federal Government do generate benefits.

And, a methodological point I wanted to raise in response to a

comment made earlier: I don’t take issue with the allegation that

the sum total of benefits of regulation exceeds the sum total of

costs. Goodness, I hope so. Just as the sum total of benefits generated by all the spending programs of the Federal Government

should exceed those costs. I sure hope so.

The question is at the margin, what do you do? Should some expand, some contract? Some programs make sense, some don’t; some

new programs that are not funded maybe make sense. It’s a process where I think you elected representatives would be in the best

position to make those kind of determinations, and you should

make those determinations only, as Ms. Dudley was pointing out,

with more transparency, more information. I would urge to you

consider establishing a regulatory appropriations or budgeting

process that’s analagous to the appropriations process on the

spending side.

Ms. CLAYBROOK. Could I just comment on one thing?

Mr. OSE. With the consent of the ranking member, my time can

be extended. There you go.

Ms. CLAYBROOK. Thank you, Mr. Chairman. I’ve never seen an

analysis of the spending part of our budget in terms of costs and

benefits. And, in fact, you know, industry loves Uncle Sugar, they

don’t like Uncle Sam. So they lobby like mad to have limits on

Uncle Sam. But, for Uncle Sugar, it’s open season. There are just

huge amounts of money that are expended in the budget that have

no analysis whatsoever in terms of their costs and their benefits.

So as you look at the regulatory agencies, you know, I urge you

to, No. 1, consider that. Second, the agencies that—at least the

ones that I have overseen and worked with and lobbied to get

something done out of it, the amount of data that they produce before they issue a regulation are huge. Now, whether or not it’s in

158

the same format, agency by agency, to facilitate OMB putting it

into one big package is another issue. But in terms of the issues

that are raised, these are usually problems that have existed for

15, 20, 30 years. These are issues about which Congress has had

hearings. These are often issues about which Congress has commanded the agency to take action. There are lengthy regulatory

proceedings. I don’t know any rule that’s issued in less than 2

years, and usually it’s 4 to 5.

So this huge amount of data that is produced, in fact, by these

regulatory agencies—and I think that for OMB to say that, or John

Graham to say, that there’s not enough data, I would ask him and

I urge you to ask him which agencies aren’t producing those data,

because I’ll tell you we don’t see it. We sue these agencies from

time to time. It’s really hard. We don’t sue them most of the time

because they do produce a lot of support for their decisions.

Mr. OSE. Let me answer your first question, just something I

learned here recently, but in terms of measuring the impact in programs funded by the Federal Government, there is something

called the Government Performance and Results Act of 1993 which

does require agencies to measure and report on program results

achieved for dollars expended. So there is some accountability, that

I will admit readily that the agency progress in making those reports is at best mixed to date. So it’s much the same question.

Ms. CLAYBROOK. Does it cover all government agencies?

Mr. OSE. It’s much the same question on the reverse of what

we’re asking in the regulatory world, and that is how do you evaluate how to spend scarce resources? The imposition of $830 billion

odd in annual cost is a tax, as sure as you and I are sitting here.

To the extent that Congress, in effect, ought to be accountable for

that and make the agencies accountable for that, that’s the thrust

of our efforts. Whether it’s the airport in Mr. Tierney’s district, or

the freeway in mine, or the schools in both of ours, to the extent

that we have some expenditure occurring by virtue of Federal mandate, I want to know whether it’s having an impact, whether it’s

positive or negative.

I think everybody in Congress would appreciate that information.

That’s why we ask where is our report, as you heard me earlier.

We could use it, and we will. And, we may well end up with different judgments accordingly, but where is our regulatory accounting report that’s due by statute? That’s what we’re after.

Ms. CLAYBROOK. Mr. Chairman, if I could just ask you a question. If the report——

Mr. OSE. Unfortunately, Ms. Claybrook, I ask questions.

Ms. CLAYBROOK. If I could make a comment then. If this

report——

Mr. OSE. Ms. Claybrook, we’re going to bring this hearing to a

halt. I do appreciate your attending. Ms. Heinzerling, thank you.

Ms. Dudley, thank you. Dr. Hopkins, Dr. Miller, I do appreciate it.

I appreciate your patience, Congressman Tierney.

We will submit our closing statement for the record.

159

With that, we are adjourned.

[Whereupon, at 4:36 p.m., the subcommittee was adjourned.]

[The prepared statements of Hon. Doug Ose, Hon. John F.

Tierney, and additional information submitted for the hearing

record follows:]

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