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HOW TO IMPROVE REGULATORY ACCOUNTING:

COSTS, BENEFITS AND IMPACTS 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 EIGHTH CONGRESS

FIRST SESSION

MARCH 11, 2003

Serial No. 108–3

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

WILLIAM J. JANKLOW, South Dakota

MARSHA BLACKBURN, Tennessee

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

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

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

———

BERNARD SANDERS, Vermont

(Independent)

PETER SIRH, Staff Director

MELISSA WOJCIAK, Deputy Staff Director

RANDY KAPLAN, Senior Counsel/Parliamentarian

TERESA AUSTIN, Chief Clerk

PHILIP M. SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON ENERGY POLICY, NATURAL RESOURCES AND REGULATORY

AFFAIRS

DOUG OSE, California, Chairman

WILLIAM J. JANKLOW, South Dakota

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

CHRIS CANNON, Utah

JOHN SULLIVAN, Oklahoma

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

JOHN F. TIERNEY, Massachusetts

TOM LANTOS, California

PAUL E. KANJORSKI, Pennsylvania

DENNIS J. KUCINICH, Ohio

CHRIS VAN HOLLEN, Maryland

JIM COOPER, Tennessee

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

DAN SKOPEC, Staff Director

BARBARA F. KAHLOW, Deputy Staff Director

MELANIE TORY, Clerk

ALEXANDRA TEITZ, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on March 11, 2003 ............................................................................ 1

Statement of:

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

Affairs, Office of Management and Budget ................................................. 9

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

chairman, Capanalysis Group; Robert Hahn, director, AEI-Brookings

Joint Center for Regulatory Studies; Jim Tozzi, former Deputy Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget, advisory board member, Center for Regulatory Effectiveness; Lisa Heinzerling, professor of law, Georgetown University

Law Center; and Rabbi Daniel J. Swartz, executive director, Children’s

Environmental Health Network .................................................................. 41

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

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

Affairs, Office of Management and Budget:

Information concerning ranking regulatory investments in public

health ...................................................................................................... 25

Prepared statement of ............................................................................... 11

Hahn, Robert, director, AEI-Brookings Joint Center for Regulatory Studies, prepared statement of ............................................................................ 51

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

Information concerning measuring criteria ............................................. 142

Prepared statement of ............................................................................... 93

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

chairman, Capanalysis Group, prepared statement of .............................. 44

Ose, Hon. Doug, a Representative in Congress from the State of California, prepared statement of ........................................................................... 3

Swartz, Rabbi Daniel J., executive director, Children’s Environmental

Health Network:

Information concerning measuring criteria ............................................. 140

Prepared statement of ............................................................................... 119

Tozzi, Jim, former Deputy Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget, advisory board member, Center for Regulatory Effectiveness:

Information concerning the Regulatory Cost Accounting Act of 1980 .. 72

Prepared statement of ............................................................................... 85

(1)

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

FEDERAL REGULATIONS

TUESDAY, MARCH 11, 2003

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, Janklow, Miller, Tierney and Cooper.

Staff present: Dan Skopec, staff director; Barbara Kahlow, deputy staff director; Melanie Tory, clerk; Yier Shi, press secretary; Alexandra Teitz, minority counsel; and Jean Gosa, minority assistant

clerk.

Mr. OSE. Good afternoon. Welcome to today’s hearing on the Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs. I am pleased to be here with my colleagues at this hearing.

In fall of 2001, the Small Business Administration released a report which estimated that, in the year 2000, Americans spent $843

billion to comply with Federal regulations. This report concluded

that if every household received a bill for an equal share, each

would have owed $8,164. The report also found that in the business

sector, those hit hardest by Federal regulations are small businesses. It stated firms employing fewer than 20 employees face an

annual regulatory burden of $6,975 per employee, a burden nearly

60 percent above that facing a firm employing over 500 employees.

Regulations add to business costs and decreased capital available

for investment.

In September 2002, another study entitled, ‘‘Compliance Costs of

Federal Workplace Regulations: Survey Results for U.S. Manufacturers,’’ revealed that, in 2000, manufacturers spent an average of

$2.2 million per firm, or $1,700 per employee, just to comply with

Federal workplace regulations.

Because of congressional concern about the increasing costs and

incompletely estimated benefits of Federal rules and paperwork, in

1996, Congress required the Office of Management and Budget,

which we’re going to refer to from now on as 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.

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Congress established a 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 law requires OMB to estimate the total annual

costs and benefits for all Federal rules and paperwork in the aggregate, by agency, by agency program, and by major rule, and to include an associated report on the impacts of Federal rules and paperwork on certain groups, such as small business.

Today, we will examine OMB’s draft sixth annual regulatory accounting report, which was published on February 3, 2003, the

same day as release of the President’s budget. In addition, we will

discuss how to improve compliance with the statutory requirements

for an accounting statement by agency and by agency program and

for an associated report on impacts.

Data by agency and by agency program are important for the

public to know the aggregate costs and benefits associated with

each agency and each major regulatory program. For example,

what are the aggregate costs and benefits of the requirements imposed by the Environmental Protection Agency or the Labor Department’s Occupational Health and Safety Administration? Is

there an alternative approach for EPA or OSHA to more effectively,

with less burden on the public and less cost to the public, accomplish an intended objective?

From September 1997 to February 2003, OMB issued five final

and one draft regulatory accounting reports. All six failed to meet

some or all of the statutorily-required content requirements. For

example, all six were not presented as an accounting statement,

and the February 2003 did not include the associated report on impacts. However, OMB has progressively made improvements, such

as adding agency-level detail for eight agencies in March 2002 and

adding agency program-level detail for seven major regulatory programs in February 2003.

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

budget, OMB tasks agencies annually 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 cost-benefit estimates for the agency

as a whole and for each of the agency’s major regulatory programs.

After our March 2002 hearing, I recommended that OMB issue

annual regulatory accounting bulletins to require agency, bureau

and program estimates. This would assist OMB in preparing more

complete annual regulatory accounting statements. To date, OMB

has not done so.

I’m going to enter the rest of my statement in the record. I do

want to welcome our witnesses. I look forward to their testimony.

My time has expired.

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

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Mr. OSE. I’d like to recognize the gentleman from Massachusetts

for the purpose of an opening statement for 5 minutes.

Mr. TIERNEY. Thank you, Mr. Chairman.

Dr. Graham, thank you for joining us again. I apologize that I

have to leave after the opening statement. Certainly it is no disrespect, and I know that you’ve been kind enough and gracious

enough to make yourself and your staff available whenever we

need to talk to you, and I appreciate that.

Mr. Chairman, I want to thank you for holding today’s hearing.

Over the past several decades, the United States has made great

strides in protecting public health and the environment. Workplaces are safer than those of our parents. Most of our children are

growing up with cleaner air, safer drinking water and safer products. Laws, such as the Clean Air Act, the Safe Drinking Water Act

and the Occupational Health and Safety Act, have made this

progress possible.

But, the day-to-day improvements in all these areas are due to

implementing regulations issued by government agencies. While

the Clean Water Act calls for fishable and drinkable waters, it’s the

EPA’s regulations that have cleaned up our rivers by requiring

each facility to limit its pollution discharges.

Over the years, regulated industries have waged an ongoing battle against government mandates to protect health, safety and the

environment. The public overwhelmingly supports strong regulatory protections in these areas. As a consequence, they’re more

rarely compelled to mount a frontal assault on popular laws, such

as the Clean Air Act. Instead, industry is increasingly focused on

subtly influencing the regulatory process. This background is critical context for understanding innocent-sounding regulatory reform

proposals.

But, we hear today that the White House Office of Information

and Regulatory Affairs improves the efficiency of government by

stringently analyzing and reviewing regulations and assessing the

overall burdens that regulations impose on society. Unquestionably, there is room for improvement in regulation, but, for many

advocates of stringent regulatory review, the real underlying goal

of such reviews is not better regulation, but less regulation. Many

of the same corporations that have spent millions of dollars to

lobby Congress and Federal agencies against regulatory requirements fund some of the institutions we will hear from today.

My constituents want to know the government is acting wisely

on their behalf. They want to protect the environment, but they

don’t want to shut down industry. They are willing to pay a bit

more for products so their children won’t get asthma. They want

a safe workplace, but they don’t want their employer to go out of

business. These are the tradeoffs that regulation requires, and the

regulatory agencies make these tradeoffs every day using information provided by every interested party.

What my constituents don’t want is a disguised and systematic

assault on regulations that protect public health and the environment.

So, Mr. Chairman, I look forward to receiving the testimony from

the witnesses on this issue. We’ll read it, and my staff, of course,

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will be here throughout the hearing. And, I ask unanimous consent

to include relevant materials in the record.

Mr. OSE. Without objection.

Mr. TIERNEY. Thank you.

Mr. OSE. The gentleman from South Dakota for the purposes of

an opening statement for 5 minutes.

Mr. JANKLOW. Thank you very much, Mr. Chairman. I’m going

to be extremely brief. As a new Member of Congress, and a new

member of this committee, I look forward to working under your

leadership on a bipartisan basis to look at these kinds of issues.

I find it absolutely incredible that this country could be spending approximately $850 billion a year through its various business entities and organizations to comply with Federal mandates and Federal rules with respect to, basically for all practical purposes, bookkeeping.

This is unbelievable. This is one of the reasons that we find ourselves continuously in a more uncompetitive atmosphere. There

isn’t any question that it is not an issue of a clean environment.

I have five grandchildren. They drink the water. They bathe in it.

Their food is cooked in it.

We need a safe workplace for everyone. There isn’t any question

about that. But, the real question is to do what we need to get done

in the environmental sense, to do what we need to get done in the

safe working area sense, to do what we need to get done in the regulatory sense, does it really take approximately $850 billion a year

for people to comply? Is there not a more efficient, more effective

way that it can be done? Is there not a more reasonable, productive

way that it can be done without having incurred this type of expense?

If, after thorough, honest examination, we reach the conclusion,

all of us, that it can’t be done any better, then we ought to continue

to do it this way, but, if the truth is that there is a more efficient,

more effective, more productive way to do it, and at the same time

accomplish the goals and objectives that we set for ourselves as a

society, then we’re honor-bound and duty-bound to try and find

that way and get it implemented as quickly as possible.

So, I look forward to the enlightenment we’ll get from these witnesses, the discussion under your leadership, Mr. Chairman, so

that we can move forward on this to try and see if there isn’t a better way to deal with the regulatory environment that our society

has to deal with. Thank you.

Mr. OSE. I thank the gentleman, and look forward, as our new

vice chairman——

Mr. JANKLOW. Thank you.

Mr. OSE [continuing]. To your efforts here.

I also want to welcome the gentlelady from Michigan, Candice

Miller. Do you have a statement you would like to make?

Mrs. MILLER OF MICHIGAN. I do not, Mr. Chairman.

Mr. OSE. OK. We’re grateful for your attendance and participation in this subcommittee.

Now, for the benefit of the witnesses, we’re going to—I just want

to make sure we go through the ground rules here carefully. We

have received your written testimony. We’ve read it. If we haven’t

read it, it’s not your fault, but somebody else’s.

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We’re going to be very attentive to the 5-minute rule here so that

we can get to Member questions. If there are more Member questions than can be accommodated within the 5-minute rule, we’ll

have a second round of questions. I am going to be very attentive

to the 5-minute rule, and the gavel is going to be right next to me.

So, I want to make sure everybody understands that going in.

Again, we do appreciate you submitting your testimony in writing beforehand. It has been read. Trust me. I read it. I read it

again this morning.

The other thing here is that we, as a matter of course, swear in

all of our witnesses. So our first panel, Dr. Graham, if you would

please rise.

[Witness sworn.]

Mr. OSE. Let the record show that the witness answered in the

affirmative.

Dr. Graham joins us. He is the Director of the OIRA—excuse me,

the Administrator. I stand corrected. He has been here numerous

times to visit with us, both in committee and over the phone. We’re

always grateful for his input.

Dr. Graham, thank you for coming. You’re recognized for 5 minutes.

STATEMENT OF JOHN D. GRAHAM, ADMINISTRATOR, OFFICE

OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF

MANAGEMENT AND BUDGET

Dr. GRAHAM. Thank you, Mr. Chairman. I look forward to the opportunity to discuss our annual report to the Congress on the costs

and benefits of Federal regulation. We have, as you know, a draft

report open for public comment now, and I want to just highlight

a few of the key features of that report.

For the first time, as you note, Mr. Chairman, this report was

released at the same time as the administration’s budget. We did

this, as you know, in substantial measure upon your request. We

agree with you that this will help appropriators do their work of

tailoring budgetary evaluations to performance of programs, and

certainly costs and benefits are an important element in the performance of programs.

Second of all, for the first time this report covers the entire past

10 years of Federal regulatory activity. We have, in fact, looked at

over 50 major rules during this period, and there is good news in

this report. The benefits of these major rules are estimated in the

range of $135 billion per year, with an upper bound maybe as high

as $218 billion, while the costs are in the range of $38 to $44 billion. Keep in mind that these figures don’t include the nonquantified benefits and costs of these regulations.

Why does this year’s report offer some good news compared to

previous reports? The answer is found in a third feature of the report. For the first time, we have broken down the performance of

these regulations not just by agency, but by the program within

each agency, and it turns out there is one particular program in

the Federal Government that is responsible for the majority of all

the benefits accounted for by all regulations in the Federal Government, and that is the Clean Air Program of EPA’s Office of Air and

Radiation. And, indeed, if you take this one program out of the staVerDate 11-MAY-2000 09:43 Apr 24, 2003 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 D:\DOCS\86439.TXT HGOVREF1 PsN: HGOVREF1
10

tistics, the remaining programs have a much more questionable

balance of benefits and costs. They do exceed the cost, but not by

very much.

Now, it turns out that we are actually trying to expand the authority and resources for this particular program. As you know, in

his State of the Union Address, President Bush asked for Congress

to pass the Clear Skies Initiative, and this would accomplish a 70

percent reduction in power plant pollution over the next 15 years.

And, this is accomplished not through traditional command-andcontrol, litigation-oriented regulation. It is accomplished through

market-based cap and trade programs, such as those accomplished

in the Clean Air Act Amendments of 1990. This is what we mean

by more efficient and innovative regulatory approaches.

Finally, for the first time OMB guidelines on regulatory analysis

and accounting have been made available for public comment. We

have previously gotten expert review and interagency review, but

this is the first time we are asking anyone who wants to offer comments on how we can improve the way we analyze regulations and

review the analyses of agencies.

In these guidelines, we recognize that the value of these benefit

and cost numbers is only as good as the quality of the science and

analysis that underpins them, and hence we encourage people to

participate in the process of improving these guidelines.

Mr. Chairman, I’ve looked forward to working with you and other

members of the subcommittee to continue improvements in the report. I heard your opening statement. We realize we don’t have an

A grade at the present time, but we would like to argue that we

are in a trend-line of improvement. Thank you very much.

Mr. OSE. Thank you, Dr. Graham. We are cognizant of the improvement that has been made. So we’re grateful for that.

[The prepared statement of Dr. Graham follows:]

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Mr. OSE. We’re going to go to questions. Appreciate the brevity

of your comments, given the testimony you’ve submitted.

I’m going to claim my time first.

The law requires OMB to include in its annual accounting statement data separately for each agency and for each agency regulatory program. The February 3rd draft report seems to be missing

data on many agencies and most agency regulatory programs. If

you’ll look over here on the screen and on the stand, the ones in

red are the salient or the related programs that we’re talking about

there.

At last year’s hearing on March 12th and in two letters to OMB

since then, one on March 27th of last year and one on January 3rd

of this year, I asked if OMB would issue an annual OMB bulletin

to the agencies which would require agency estimates of aggregate

and new regulatory burden as it does in annual OMB bulletins to

the agencies for aggregate and new paperwork burden. To date, I’m

not aware of OMB having done so, and we do have some legislation

to attempt to address that.

But, my question is there must be some reason why OMB has

not done that, if that is the case, and I’d like to know why. That

is the first part of the question. Without agency input, how does

OMB expect to include a complete aggregate agency-by-agency and

agency program detail in its subsequent annual regulatory accounting reports?

Dr. GRAHAM. Mr. Chairman, we have looked at all major regulations of all of the agencies for the last 10 years. There are no missing agencies. There are no missing major rules, to the best of our

knowledge. We differ on whether the nonmajor rules should somehow be attempted to be quantified and included in this calculation,

and before you seek the legislation that you have referred to, we

urge you to consult with people in the agencies and make sure that

such information even exists. As you know, the requirement for a

cost-benefit analysis only applies to the economically significant or

major rules that are included in the report. So, we could pass a

piece of legislation and ask for this information, but it’s not obvious

that it is there for the agencies to provide, and I can assure you

that we at OMB don’t have that information, and we aren’t in a

position to provide it to you, sir.

Mr. OSE. You’ll note that we haven’t dropped the legislation yet,

so that consultation will take place before we do so.

Dr. GRAHAM. Yes.

Mr. OSE. And I want to make sure everybody understands, in

terms of a major rule, just for the edification, that is the $100 million threshold?

Dr. GRAHAM. Yes. For the—there are lawyers in the room, so I

guess I have to be very careful about this, but there’s a subtle distinction between major rule and an economically significant rule,

and I could not explain that to you in detail, but both of them have

as an important component, this $100 million per year threshold

of economic impact. And, we have tried to identify all of the major

rules for the last 10 years that meet that threshold and have at

least some quantification of benefits and costs, and those are included in this year’s report.

Mr. OSE. All right. Thank you.

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My next question is rather lengthy. I’m going to go ahead and

yield time to my good friend from South Dakota for the purpose of

questioning.

Mr. JANKLOW. Dr. Graham, I believe your testimony was that the

costs for $135 to about $218 billion in benefit under the rules you

have examined were from $38 to $44 billion; is that correct?

Dr. GRAHAM. Correct.

Mr. JANKLOW. And, you said you’ve looked at all of the basic

rules, the major rules that have a big cost impact within the government; is that correct?

Dr. GRAHAM. Well, that have had a big cost impact and for which

agencies have estimated costs.

Mr. JANKLOW. OK. How do you square that number with the

$845 billion number that the Small Business Administration had

for compliance?

Dr. GRAHAM. Yeah. I think the effort in the Small Business Administration report is to look at all of the costs of all regulations,

not just major regulations, and all of the transfer costs in the Federal budget that are stimulated by regulation. So that is really a

different kind of number.

Our focus here is on regulations that impact the private sector

and State and local governments. We don’t include in our numbers

regulations that are primarily budgetary impact regulations.

Mr. JANKLOW. All right. So it’s not apples to apples.

Dr. GRAHAM. It’s not apples to apples.

Mr. JANKLOW. Sir, in doing the analysis that you and your agency do, have you been able to find any areas of suggestion that you

think can be done as well, more efficiently, more productively or in

a better cost-wise manner? I mean, the name of the game is are

the rules and regulations that are required the cheapest possible

cost? Where are we doing it wrong?

Dr. GRAHAM. Well, I think the classic example is the one I mentioned in my opening statement. We currently have a clean air regulatory system that requires electric utilities to run through highly

elaborate permitting processes and be subject to litigation every

time they make a renovation or a repair on their facility.

Instead of that, the President has proposed a market-based training program with a cap on national emissions, and that will

achieve pollution reductions at much lower costs than the current

regulatory system that we have.

Mr. JANKLOW. OK. Let’s just take that as a given for a moment,

put it on the shelf. What else can bring about a savings in these

megabillions?

Dr. GRAHAM. Well, in last year’s report, which was published in

December of last year, we described the process that we have

under way to review 316 regulations and guidance documents that

were nominated by the public to be looked at for purposes of your

question. Are there ways that these regulations could be modified

or in some cases rescinded or in some cases strengthened in order

to overall improve public benefit? And, we’re all now meeting with

each of the major agencies that is responsible for these rules, and

it is quite a substantial undertaking.

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In this document, which I think your staff has a copy of, is the

appendix to that report, and it has 316 examples of rules or guidance documents nominated by the public.

Mr. JANKLOW. How many of those would you say are, if I can use

the phrase, politically explosive?

Dr. GRAHAM. I suspect you and the chairman or the subcommittee are probably a better barometer of that than I am, but we’re

looking through each one of them on the merits, costs and benefits

and working with the agencies to make choices.

Mr. JANKLOW. I’ll just end this round with this, sir, but I guess

what I’m trying to get at is I realize the political sensitivity in this

area where we’re treading. I think we all understand that. Are

there any things that we can do better that we could find some

unanimity on?

Dr. GRAHAM. Well, I don’t know the answer to that question, and

quite frankly, we’re not pursuing the process of regulatory reform

from that particular perspective. We’re looking at each of these for

the purposes of whether we think you can make a benefit-cost case

for a smarter regulation or in some cases no regulation at all, and,

if we can make that case, you’ve noticed, I’m sure, that we’re willing to take a little controversy in order to accomplish that. And,

that is the way we feel about it in this administration.

Mr. JANKLOW. Thank you.

Mr. OSE. I thank the gentleman.

Dr. Graham, if I could go back to followup on my first question.

The discussion we had there talked about a 10-year time period

from 1992 to 2002 relative to the major rules that were the subject

of that. However, there is a question about rules issued, say, since

February 1981 when President Reagan issued Executive Order

12291.

Now, the report here does not include any of that period from

February 1981 to October 1992, and I’m trying to figure out if OMB

has taken any steps to include the available data for the still active

major rules that were issued in that period and, beyond that, any

estimates for still active major rules issued before 1981.

Now, I understand that is a heck of a question because of the

complexity of calculating that, but I’m just curious as to the status

of your efforts in those two areas.

Dr. GRAHAM. We have not, Mr. Chairman.

Mr. OSE. OK. Are there any plans to?

Dr. GRAHAM. Well, to be candid with you, Mr. Chairman, we are

not convinced that the costs and benefit information that was estimated prior to the development of those regulations in 1985 or

1975 is really a very good quality scientific indicator of what the

costs and benefits of those regulations are today, and hence what

we have put out for public comment is a proposal that we will

present this information to the public on a 10-year rolling basis. So,

each year, we will tell you for the 10 previous years what those

major rules, costs and benefits are. But as a rough surrogate, we

would argue that, if it is older than 10 years old, we can’t really

use the information that was generated and have that much confidence in it. And, we’re taking public comment and peer review on

that position as we speak.

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Mr. OSE. OK. One of the interesting things in every testimony

here speaks directly to your point there, and that is the quality of

the assumptions underlying every agency submittal to you, you

know, is it hard or is it somewhat malleable? And, that is something that I kind of sit in my office and think about, and I can’t

even imagine the challenge that you have, but I know that we’re

making progress.

The other question I’d like to ask is that the law requires OMB

to submit an analysis of impacts of Federal regulation on State,

local and tribal government. Now, does OMB have any estimates

of the impact of Federal rules and paperwork imposed on State and

local governments by the following agencies: EPA and Health and

Human Services; specifically within EPA, the Office of Water; and

specifically in Health and Human Services for CMS, which was formerly HCFA.

And, the question really delves into wouldn’t such data help in

analyzing the opportunities for either prioritization of efforts within those agencies or the sunsetting, if you will, of such rules that

perhaps their time has passed, so to speak?

Dr. GRAHAM. Just briefly, we have information on any of the

major rules that were enacted by those agencies; however, the summary tables that are in the report only address those programs for

which there were three or more major rules. If there were less than

three, we said as an admittedly arbitrary cut point, we didn’t think

it was necessarily fair to represent that agency’s performance

based upon a sample of two or one.

Now, I want to get back to your earlier point, because we have

some indirect evidence on whether old regulations are really a

major concern of the public.

Mr. OSE. All right.

Dr. GRAHAM. This document was generated when 1,700 Americans responded to the President’s personal request—as well as our

Federal Register notice—for nomination of specific regulations and

paperwork requirements and guidance documents that they felt did

not have benefits that justified their costs or that could have

stronger benefits if they were amended.

It’s interesting, when you look through these 316, only a very

small fraction of them are older rules or guidance documents. A

very strong fraction of them are those that have been enacted within the last 10 years, and, in most cases the commenters are not

asking for these to be repealed, and that makes sense when you

look at some of our cost-benefit information which says a lot of

these rules are pretty sensible. They do have benefits that seem to

outweigh their costs.

What commenters are looking for is modifications of these rules

to make them more practical, more feasible, or to have less cost for

the same benefit. And, I think it’s very important for the focus of

this subcommittee’s effort to see that the agenda here is to make

the regulatory system smarter and to incrementally reduce the cost

while maintaining the benefits or increase benefits while maintaining the costs.

There is no demand that we’re aware of for wholesale elimination

of specific older regulatory programs.

Mr. OSE. The gentleman from South Dakota.

22

Mr. JANKLOW. Thank you, Mr. Chairman.

Sir, could you tell me, the comment period is open until April

3rd. At this point how many comments have you received; do you

know?

Dr. GRAHAM. I don’t know, but quite frankly, what we find, our

experience is that people use that full comment period, and most

of our comments come in toward the end of that period.

Mr. JANKLOW. It’s like a term paper? You get it done——

Dr. GRAHAM. Sort of like us trying to get our report done for release with the Federal budget. It’s got the same spirit to it.

Mr. JANKLOW. And, I notice, sir, also on page 6 of your documentation, you talk about the concern of the administration—the

rightful concern the administration has on unfunded mandates.

Have you ever undertaken an analysis as to the unfunded mandates that are shifted onto State and local governments and what

the real fiscal impact is nationwide? Now, that is something, I

think, that can be done with real definity, if I can use the word

that way, because State and local governments know what they

spend on an annual basis to fulfill mandated programs, and so taking their percentage share of it would be relatively easy.

Has anybody ever done that, I mean, areas with respect to the

Clean Water Act, this whole TMDL set of rules that they have with

EPA? States, governments, local governments have spent huge

quantities of money complying to find out that the National Academy of Sciences in a report issued a little over a year ago said that

is not the best science to utilize with respect to the streams and

the creeks and the rivers in the country. And, so has anybody ever

looked at that particular issue, unfunded mandates’ cost to State

and local governments?

Dr. GRAHAM. You’re raising, I think, an excellent question, and

I have to say I’m not fully satisfied with where we are at OMB in

our current ability to quantify all of those unfunded mandates and

attribute them to specific agencies and to specific agency programs.

In the final report last year, which we released, we do describe

in some detail qualitatively all of the rules—major rules that we

were able to identify that did involve an unfunded mandate, and

we also looked closely at how well agencies are doing their job of

consulting with Governors and mayors before they engage in this

practice of an unfunded mandate.

But, I think that it’s fair to say, we have a lot more work to do

in that area, and it’s something that I think that encouragement

from you would only be helpful, sir.

Mr. JANKLOW. What about the area of mandates on the Federal

Government? Have you ever looked at that? I mean, certain studies

and analyses, regulatory fulfillment that the Federal Government

does with respect to itself, have you ever looked—are those costs

reflected in the costs that you’ve set forward in your reports?

Dr. GRAHAM. If those regulations—even if they are affecting the

Federal Government itself, if they are a major regulation as defined in the discussion we had earlier with the chairman, they

should be included in that report. But, budgetary costs per se, as

I mentioned, would typically be analyzed and dealt with predominantly on the budget side of OMB.

23

Mr. JANKLOW. But, if that happens, we’ll never know the real

cost.

Dr. GRAHAM. Because you’re saying it’s not—it is included in the

budget—in the appropriation as part of the budget process——

Mr. JANKLOW. Right, but it’s hidden—there you can’t find it. I

mean, it’s not on an item, it’s not on a line.

Dr. GRAHAM. Well, I think it would be an excellent idea to have

a more specific accounting within agencies of both how much the

agencies are spending on rulemaking activities themselves and how

much in Federal budgetary dollars are induced by that.

Mr. JANKLOW. I’m familiar—for example, on the Missouri River

with the Army Corps of Engineers, they’ve been working about 16

or 17 years on rewriting a master manual that should have been

done 15 years ago. I believe they spent—at this point they reported

over $23 million, and they’re not done. That’s in compliance with

requirements that they have in the way they carry out their mission.

There just has to be a better way. If we’re smart enough to screw

it up that badly, we ought to be smart enough to figure out how

to straighten it out. We don’t even take incremental steps to

straighten it out, but we just have people like me that complain

about it. The net result is nothing is being done, but money is

being spent.

What does it take to fix problems like this? In your estimation,

sir, what does it take to fix—I mean, obviously we’ve reached the

point of almost gridlock in America with respect to every major

issue. What’s it going to take to fix these little areas? Maybe if we

fix the little stuff, we can head to the big stuff later.

Dr. GRAHAM. Well, I think—I don’t know the answer to your

question, and I don’t know the specifics, quite frankly, of the example that you’re referring to with the Army Corps of Engineers. And,

I’d like to learn more about it, because we are in dialog with all

the agencies, including the Corps, about specific steps that we can

take at OMB to insist upon a more efficient and deliberative process. We agree with the observations that oftentimes this process of

developing analyses and doing rulemakings is often too slow, and

we need to work on making the rulemaking process itself more efficient, less costly, more timely, at the same time that it’s competent

and open to the public.

Mr. JANKLOW. Can you do what you just said within the framework of the existing authority?

Mr. OSE. Your time is expired. We’ll go around and come back.

I want to note that we have been joined by the gentleman from

Tennessee Mr. Cooper, who has requested either a couple minutes

to gather himself or would like to proceed.

Mr. COOPER. I think I’m ready.

Mr. OSE. OK. The gentleman is recognized for 5 minutes.

Mr. COOPER. I’m interested, Mr. Chairman, in actuarial assumptions leading to valuation of human life. It’s my impression that

EPA, OIRA differ, in that OIRA assumes that everybody who dies

prematurely only had 5 more years to live, is that correct; whereas,

EPA prefers an estimate that assumes that everyone has 15 more

years to live. Is that correct, or am I being given bad information?

24

Dr. GRAHAM. I don’t think it’s accurate, sir. I don’t think it’s accurate. I think that you’re referring to the way in which EPA is developing their benefit estimates for reducing the human health

harm from exposure to air pollution. What EPA has done is they

have presented one set of estimates that uses what’s called the

lives-saved approach, and then they presented an alternative set of

estimates that used the life-year-saved approach. And, I believe the

5-year number that you’re referring to is correct with respect to the

life-year-saved approach. I’m not aware that they have estimated

a number of life-year-saved for the lives-saved approach, because

by its inherent nature, it measures the benefits in terms of number

of lives saved.

Mr. COOPER. What is the best study or comparison that would

compare those two approaches so that the average Member of Congress could understand that?

Dr. GRAHAM. Boy, that is a great question.

Mr. COOPER. It may be impossible to——

Dr. GRAHAM. I’ll recogitate on that, but I’ll send you a few things.

Mr. COOPER. That would be helpful.

Dr. GRAHAM. Yes.

[The information referred to follows:]

25

26

27

28

29

30

31

32

33

34

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Mr. COOPER. It’s my understanding that OIRA was heavily involved in developing the benefits analyses for the administration’s

Clear Skies proposal.

Dr. GRAHAM. Correct.

Mr. COOPER. And, I assume if you worked on the benefits, you

also worked on the costs, or just the benefits?

Dr. GRAHAM. Both.

Mr. COOPER. I have been told that the assumptions underlying

the modeling for that assume that it’s less important to save the

lives of elderly people because they have less long to live than it

would be to save the lives of young people. Is that a fair characterization of what was done?

Dr. GRAHAM. No. I don’t think so. Actually, if you look closely at

the benefit estimates that are in what I refer to as the alternative

estimate in my answer to the previous question, the life-year-saved

approach, they assume that each year of life after age 70 is valued

at $250,000 of savings, a rather substantial investment. And, for

each year of life saved for those under age 70, it’s at roughly

$163,000.

So once you’re in the life-year-saved approach, you face the difficult and sensitive issue of how do you value each of those years

of life within the life span, and that is the approach that EPA used

in the alternative estimate.

Mr. COOPER. Perhaps I need to review that document that I was

requesting earlier, but it’s my impression that the administration’s

Clear Skies proposal assumes that lives of people who are younger

than 70 years of age are worth about $3.7 million each, whereas

lives over age 70 are worth considerably less.

Dr. GRAHAM. Actually, the administration’s Clear Skies proposal

presented two sets of estimates. One assumed that all lives saved

are equally valuable at roughly $6 or $7 million per life saved, and

then the alternative estimate used the life-year approach, and it

assumed that, for senior citizens, because they have relatively few

life years remaining, that the valuation of each of their remaining

life years is greater than for those younger than age 70.

Mr. COOPER. I thank you.

I have no more questions, Mr. Chairman. Thank you.

Mr. OSE. I thank the gentleman.

I want to go back to something that Governor Janklow brought

up, if I could, Dr. Graham. He was asking about whether or not

any consultation has been done between State and local interest

groups or the National Governors Association. I was unclear on the

answer relative to the impact on Federal rules and the paperwork

imposed on State and local and tribal governments.

So, the question directly is, has any contact been made with

State or local governments or tribal groups regarding the impact of

Federal rules and paperwork imposed on them?

Dr. GRAHAM. Our final report, our 2002 report, describes for a

variety of the agencies the activities of consultation that are being

undertaken, and I don’t have the specific groups at my fingertips

right now, but there is a substantial amount of consultation described in that report.

Mr. OSE. Is that by regulation or by agency or both?

36

Dr. GRAHAM. I think it’s done by regulation. They describe a variety of different regulations and what the different approaches are

to consulting State and local officials. Is it the Governor’s office? Is

it the State agency? Is it the legislature and so forth?

Mr. OSE. OK. And—but there hasn’t been any—again, those are

individual rules. It hasn’t been an agency kind of approach, if you

will? You have to take the individual rules and aggregate them to

get the agency information?

Dr. GRAHAM. Right. And quite frankly, there’s variability within

agencies on how well they exercise that responsibility. I would be

reluctant to generalize across a whole agency.

Mr. OSE. We go back to that—about the quality of the information—or the assumptions underlying the conclusions.

The next question I have has to do with the manner in which

this information is delivered. This year the accounting statement

with great appreciation came out at the same time as the President’s budget. It came out in the Federal Register. What is the

likelihood of pairing it with the President’s budget? Is there any

positive or negative to be gained by putting the other accounting

statement with the President’s budget, or is there something to be

gained by leaving it separate? I’m curious about that particular

question.

Dr. GRAHAM. I think it’s a good question, and I think, quite

frankly, the utility of that to Members of Congress and the appropriators is something that I think we would be interested in their

judgment on that question.

The one cautionary remark I would make is, we have released

our draft report in the Federal Register at the same time as the

budget. It is not our final report. It has not been peer reviewed. It

has not been subject to public comment. And, consequently, we

would be a little reluctant to put a document like that in the budget documents themselves.

Mr. OSE. Because of its draft nature?

Dr. GRAHAM. Yes.

Now, the statute requires that we get peer review, public comment and interagency review before we go final, and, if you back

up to allow the appropriate time for that activity, as a practical

matter, we would probably have to trail a year to put this in the

Federal budget documents.

Mr. OSE. I don’t want to go that way.

Dr. GRAHAM. So, I think that there are some practical problems

with that idea.

Mr. OSE. All right. I appreciate the feedback.

The other thing you’ve been struggling with, which I just find

amazing, and Governor Janklow brought this up earlier, is that

when the agencies submit to you their information, sometimes it

comes in with what I’m going to call a hodgepodge of standards and

timeframes and what have you. Do you support or do you not support a requirement that this regulatory accounting statement use

the same 7-year timeframe from agency to agency to agency?

Dr. GRAHAM. The 7-year timeframe, as I understand it, comes

from the tradition on the budget side of how they present information, and that is not currently the way in which we develop and

present information for regulatory costs and benefits.

37

For example, if you were to put a new piece of pollution control

equipment on a heavy diesel-powered truck, we would estimate the

costs and benefits over the expected lifetime of the truck. OK? And,

we would not want to cut that off after 7 years, and not count the

operating costs that are higher after 7 years or the benefits that

are gained after 7 years.

Now, one possibility would be to somehow collapse all that information into the 7-year period, but then you have an arbitrary allocation of that to the 7 years.

Mr. OSE. Or you end up discounting the future value of it.

Dr. GRAHAM. What we do currently is we discount all of those future costs and benefits to their present value, but we express those

as an annualized value, like a mortgage payment, over that horizon

of the investment. So, it’s not clear to us how this 7-year exercise

would be accomplished in this case, but we’re open to a suggestion

on whether that would really be useful.

Mr. OSE. I want to come back to this, but my time is expired.

The gentleman from South Dakota.

Mr. JANKLOW. Thank you very much, Mr. Chairman.

Dr. Graham, OMB currently uses what they call an information

collection budget; is that correct?

Dr. GRAHAM. Yes, sir.

Mr. JANKLOW. And, managing the paperwork that needs to get

done, do you support a pilot test to do regulatory budgeting to see

if this would help OMB and the other agencies rank their risks and

establish the priorities, make the choices they have to make?

Dr. GRAHAM. Well, let me start with the premise of the question.

While we do have what’s called an information collection budget,

it is not one where either we or Congress imposes on each agency

a limited amount of paperwork that they’re allowed to do, and then

they can choose which paperwork burdens to impose and which not

to impose. We review each paperwork burden request based upon

its rationale, without any cap on the total amount. Congress has

not imposed a cap. We at OMB don’t feel we have the authority to

impose that cap. We do have the responsibility to review each request on its own merits.

But having admittedly quibbled with the premise of your question a little bit, I want to get to the heart of the question, which

is would it be a good idea to do a pilot project of some form to experiment with the idea of the regulatory budget? And I do think

that there would be some significant advantages to such a pilot.

Mr. JANKLOW. Do you have the legal authority to do that now?

Dr. GRAHAM. I’d have to confer with counsel on that subject, as

I’m not certain about it.

But, the point I would like to make is that I think that, in order

to give the concept of a regulatory budget a fair experiment that

is going to give a good indication of what it would actually be like

if it were done more substantially, I think it should be done on a

very modest basis, probably within a particular agency, and one

where we think we have readily available information to

operationalize the comparison of risks, the number of lives saved

and different programs and so forth. Something like the National

Highway Traffic Safety Administration might be an example of

38

that, with responsibility for the safety of the highways, the safety

of automobiles and so forth.

Mr. JANKLOW. Sir, absent that, is there a better way to do it

than we’re doing it? In your opinion, is there a better way to do

it than we’re doing it?

Dr. GRAHAM. Well, I think we have a lot of work we can do better

at analyzing the specific regulatory packages that are submitted to

it. We don’t for a minute want to suggest that we’re doing all we

can at the present time. We realize we have to work harder at

what we’re doing.

Mr. JANKLOW. How do we fix that? How do we get you to work

harder?

Dr. GRAHAM. Well, I think that these hearings are helpful. As

evidenced today, what happened this year compared to last year is

clear evidence that we do try to be responsive to what the subcommittee feels is critical, and we definitely work in that direction.

But I think, in reaction to your question, I think that it is a constructive idea. We would have to sit down and work out the operational details of how such a pilot might be launched, whether it

requires legislation, whether it doesn’t require legislation. But

we’re open to that. We think that’s a constructive idea.

Mr. JANKLOW. Thank you.

Thank you, Mr. Chairman.

Mr. OSE. The gentleman from Tennessee.

Mr. COOPER. Thank you, Mr. Chairman.

I’d like to return to the value of human life question. It’s my impression from reading the newspaper that the government’s smallpox inoculation program has adopted procedures from an old Policeman’s Compensation Act that values a life at about $260,000

each. You know, say you died as a result of having the inoculation.

The government’s liability would be limited to that amount.

There are other examples of government attempts to value

human life, and you might turn toward an environmental regulation that said you had to clean up all the dirt in the brownfields

and spend hundreds of millions of dollars doing it so that, if you

ate the dirt, you wouldn’t get sick, and you could impute a value,

many millions of dollars, to a human life saved in that instance.

Is there any study that you’re aware of that looks across government agencies to see how different agencies treat the value of

human life? For example, the compensation fund in New York City

for victims of September 11th. The administrator of that fund is

trying to figure out how much to pay each beneficiary for their family, and part of that calculation is their earnings potential over an

estimated future life span, and that calculation, you know, varies

widely between individuals. Janitors get paid less than investment

bankers. Are you aware of any consistent effort for the government

to look at these different valuations or approaches, because it’s

human beings involved in every case?

Dr. GRAHAM. It’s something that we’re concerned about at OMB,

that different agencies—when they do cost-benefit analysis or even

when they do compensation programs of various sorts—have differences in what types of numbers they’re using, and we’re not always fully clear on what the rationale is for why the numbers are

different in one agency than they are in another agency.

39

One of the reasons we’re encouraging the public and academic

experts and others to participate in the process of OMB’s new regulatory analysis guidelines is because that issue is on the table,

whether there should be some consistency across agencies or

whether we should be allowing agencies to do different things in

different situations. So, now is a time for that comment, because

those guidelines are now open.

Mr. COOPER. How long will the comment period last?

Dr. GRAHAM. I think it runs—is it early April, I believe Mr.

Chairman noted at the beginning of the hearing.

Mr. COOPER. I think there’s a professor at Harvard Law School

who is quite an outspoken researcher in this area, and it’s a very

controversial area. He’s been denounced when he makes public appearances for even raising the topic. But, I don’t know if he submitted a comment yet. I may—at least one of the experts that I’m

aware of in the field as we try to go through this thing. I take it

you didn’t meet him while you were at Harvard?

Dr. GRAHAM. Is this Professor Viscusi?

Mr. COOPER. Yes.

Dr. GRAHAM. Yes. We are expecting comments, and we are in

communication with him.

Mr. COOPER. Well, I hope he will weigh in with the debate.

I thank the Chair.

Mr. OSE. I thank the gentleman.

Dr. Graham, the purpose of this when we set out was to try and

find a way whereby Congress took an active role each year in how

the regulatory burden that is placed on the American public by virtue of our actions gets allocated. Is it too high? Is it too low? Is it

just right? Where do we want more, where do we want less and

what have you? Now, that leads me to ask, as I did with Dr. Miller

in an op-ed last year, whether or not it’s appropriate to develop a—

what I refer to as a regulatory appropriations process. Now, that

would necessarily mean that we quantify the burden, we quantify

the benefit, we quantify the cost, and then to make a decision, a

conscious decision as we do in the fiscal appropriations process, as

to whether or not we want to place this burden in exchange for the

benefit on the American public. And, it would mirror, if you will,

the appropriations process for a fiscal side almost exactly.

What is your view of the utility of such a regulatory appropriations process?

Dr. GRAHAM. I can only start by saying that I think the question

you just asked is closely related to the question about the pilot

project on the idea of a regulatory appropriation or a regulatory

budget. I guess my starting point would be, while there is some

good conceptual writing in the literature on the merits of this idea,

and there are people on the panel who will follow me who know

these issues certainly better than I do, my instincts are that we

should lead with pilot project development of experience rather

than jumping directly in. And, there are some concerns about that

kind of idea that we need to get addressed.

For example, we feel strongly that not only the costs of regulation should be considered, but the benefits of regulation should be

considered, and how exactly that would emerge in this process of

a regulatory appropriation. And, we understand on the budget side

40

that they look primarily at the budgetary allocation, but maybe

they don’t always look as carefully as they need to at certain types

of benefit issues. So, it’s something we’re very sensitive to and

think it’s important to keep track of.

So, I guess you’d say in a cautionary way we’re optimistic about

the idea, but we’d like to proceed incrementally.

Mr. OSE. I think that’s what brings home to me the importance

of the work that you do. When you interact with the different agencies and the like, asking them to, in effect, measure their costs and

benefits of this and that program and submit them for a regulatory

accounting purpose, it then will allow those of us who have the

duty, if you will, to allocate resources and make decisions to

prioritize A, B, C, if we can save 100 lives here or we can save—

or remove 35 tons of carbon monoxide there and so forth and so

on.

The question I have is then—kind of to pile on—is a little bit

broader in the sense that are you making progress with the different agencies in terms of standardizing the format under which

they report to you so that apples are apples and oranges are oranges, and that the decisionmakers’ use of this information leads

to, frankly, good decisions? So my question is, is that happening?

Are we making progress?

Dr. GRAHAM. Well, I’m sure we could do better, but the guidelines which are now open for comment are the instrument by which

OMB lays out its expectations for what agencies will supply to us

in the analytic process. But, just to support the general premise

and line of thinking that is behind your question, we’re hearing a

lot in the news today about concerns about the safety of sport utility vehicles, of light trucks and so forth. It would be useful to know

how many lives could be saved through different approaches

through improving the safety of sport utility vehicles. Some of

these ideas are very expensive, but some are very basic things like

people should wear safety belts, we should enforce safety belt laws.

It turns out 70 to 80 percent of the people killed in SUV rollover

crashes were not wearing safety belts. So, before we get into very

grandiose schemes for how we’re going to address that problem, it

would be useful, I think, to look at the more basic and straightforward approaches.

Mr. OSE. My time has expired. The gentleman from South Dakota. The gentleman has no further questions. The gentleman from

Tennessee.

Mr. COOPER. I have no further questions, Mr. Chairman.

Mr. OSE. The gentleman has no further questions. I want to

thank you for coming. We are going to leave the record open in the

event there are written submittals and we appreciate your timely

response to them. That will be for a period of 10 days from today.

As always, it’s great to have you come visit with us to see us making marked progress, in other words, measurable progress forward

in correlating the benefits with the costs of regulation. These

standards that we’re going to use that are out for comment right

now, I think this is at the heart of our next leap forward, and I

encourage your pursuit of that. I appreciate your coming.

Dr. GRAHAM. Thank you, Mr. Chairman.

41

Mr. OSE. We’re going to take a 5-minute recess to allow the second panel to come forward.

[Recess.]

Mr. OSE. We’re going to reconvene. This is the second panel of

today’s hearing. As we reviewed in the first panel, first I want to

welcome the witnesses today for joining us. We appreciate your

taking the time to come down and testify. There are five of you.

Each of you have submitted significant statements. Those statements, I mean, I’ve read them. Trust me, I’ve read them. The staff

has read them. We have had the opportunity to review them. We

appreciate your submitting them. However, given the length of

some of them, we’re going to constrain your summaries of them to

5 minutes each, and we’ll just move from my left to right as it relates to that. Then we’ll go to questions from Members.

Now, as indicated in the earlier panel, we routinely swear in our

witnesses here. So if all five would rise.

[Witnesses sworn.]

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

affirmative. Today on the second panel are Dr. James C. Miller III,

who is the former Director of OMB and now with CapAnalysis

group. Dr. Robert Hahn who is the director of the AEI-Brookings

Joint Center for Regulatory Studies. Dr. Jim Tozzi who is a former

Deputy Administrator for the OIRA over at OMB and an advisory

board member for the Center for Regulatory Effectiveness. We have

Lisa Heinzerling—am I saying that correctly?

Ms. HEINZERLING. Yes.

Mr. OSE. OK. Who is a professor of law at Georgetown and Rabbi

Daniel J. Swartz who is the executive director at Children’s Environmental Health Network.

Thank you all for coming. Dr. Miller, you are going to be first for

5 minutes.

STATEMENTS OF JAMES C. MILLER III, FORMER DIRECTOR,

OFFICE OF MANAGEMENT AND BUDGET, CHAIRMAN,

CAPANALYSIS GROUP; ROBERT HAHN, DIRECTOR, AEIBROOKINGS JOINT CENTER FOR REGULATORY STUDIES;

JIM TOZZI, FORMER DEPUTY ADMINISTRATOR, OFFICE OF

INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET, ADVISORY BOARD MEMBER, CENTER FOR REGULATORY EFFECTIVENESS; LISA

HEINZERLING, PROFESSOR OF LAW, GEORGETOWN UNIVERSITY LAW CENTER; AND RABBI DANIEL J. SWARTZ, EXECUTIVE DIRECTOR, CHILDREN’S ENVIRONMENTAL HEALTH

NETWORK

Dr. MILLER. Thank you, Mr. Chairman. I have the report and

thank you for admitting that into the record.

[NOTE.—The information can be found at www.omb.gov and is on

file with the subcommittee.]

Dr. MILLER. I’ll try to be very brief. I will make the point that

the OMB report this year is of better quality than last year. There

are some deficiencies. It’s a draft report rather than a final report.

There are a lot of inconsistencies in the data that are presented.

By and large, though, I make the same point I made last year. This

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plate that OMB has requested. OMB might be more aggressive in

insisting on the agencies providing the information in a consistent

fashion, and perhaps that will be the case next year. Technically,

I think the work is quite good. The draft guidelines incorporate

some of the best, I think, very high-quality standards. I think

that’s very important.

Second, the vast majority of the information that reaches OMB

for this report comes from the agencies. Now, I know the agencies

realize that there are biases in the information they receive. People

who advocate regulations tend to overstate the benefits. People who

oppose regulations tend to overstate the costs. But, by and large,

the raison d’etre of the agencies is to issue regulations. So, if there

is a bias, I think the bias is that they tend to overstate benefits

and understate costs.

Third, independent agencies don’t report their information under

the Executive orders. I remember very vividly talking with thenVice President George Herbert Walker Bush about this, and he

made the decision not to extend President Reagan’s Executive

Order 12291 to the so-called independent agencies.

I would urge you to consider extending this requirement and the

requirements of regulatory reporting statutes to the so-called independent agencies. Few of them really do the benefit-cost analysis

to support the rules and those that do tend to fall short, in my

judgment, of the kind of standard that OMB outlines in its guidelines.

Fourth, there are a lot of cases where regulatory agencies are explicitly forbidden to follow the kind of analysis that we all are looking for. That is to say, sometimes Congress says no matter what

the cost, you must do it this way. Sometimes it says you must follow some kind of engineering standards rather than performance

standards. These really raise cost—or in the alternative, with the

same costs you could realize substantially greater benefits.

I really urge you to have OMB do a study of this or to initiate

a study some other way in order to find out the nature of this.

Finally, even if the OMB report were perfect, you still don’t have

a process for evaluating regulations, applying restraints on costs,

and prioritizing. OMB does a good job, I think, but they can only

go so far, and I really think Congress should have a regulatory appropriations process—the idea we—Mr. Chairman, you and I—

wrote about last year.

So I urge you to talk with your colleagues about that. I urge you

and your colleagues to urge the agencies to respond to OMB more

completely and in a more expeditious manner, and a more complete

manner, and in a manner that’s more consistent across agencies

and regulations.

And, by the way, I want to respond to your question. I think

OMB should issue this report, a final version, at the same time the

budget comes out. It ought to be a regulatory budget.

Twenty years ago, when I was OIRA Director and Jim Tozzi was

Deputy Director of OIRA, we talked about having a regulatory

budget. We didn’t get it done, but surely somebody can get it done,

and if you put the pressure on OMB and the agencies, I think you

can do it. I think you would have a much better handle on total

regulation. The administration can do it on its own if it wants to

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take the initiative, and I would encourage you and encourage other

people in the administration, such as John Snow, the Secretary of

Treasury to work with on this. Snow is an economist, very welltrained, thoughtful guy, and he could lead an effort in this regard.

Thank you, Mr. Chairman.

Mr. OSE. Thank you, Dr. Miller.

[The prepared statement of Dr. Miller follows:]

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Mr. OSE. Dr. Hahn for 5 minutes.

Dr. HAHN. Thank you, Mr. Chairman. My testimony was jointly

written with Dr. Robert Litan of the Brookings Institution, and we

ask that the written remarks be submitted into the record.

Mr. OSE. Without objection.

Dr. HAHN. Coming to testify here is an honor, but it reminds me

a little bit of what Yogi Berra said some time ago that this feels

like deja vu all over again. I’ve been studying regulation and the

cost and benefits of regulation for over a quarter of a century now.

My sense is that the debates over regulatory policy have often been

highly partisan and ill-informed, and I think that it’s important to

look for mechanisms to try to depoliticize the process.

Too often, legislators and agencies find it in their interest to

highlight the benefits of regulation without also noting the costs.

We believe it’s important to highlight both and that the public has

a right to know how and why regulations are implemented. One of

the things that economists generally agree on is that there is significant waste in the current regulatory system. This work is supported by the AEI-Brookings Joint Center, including a recent analysis of the rule on corporate average fuel economy, which is not

found to pass a benefit-cost test.

And, in addition, Dr. Graham has also done some work when he

was at Harvard that suggests we could get a lot more bang for our

regulatory buck.

In the testimony that you have, we offer 10 recommendations, 5

directed at OMB and 5 directed at Congress for improving regulatory accountability and transparency. I want to focus on three of

them right now.

The first, and Dr. Miller touched on this, is that we think it’s

really important in the analysis that’s done for regulations to put

a good summary in front of it. So someone like you, who is very

busy, can look at it very quickly and see what the agency says

about costs, benefits, and whether this regulation passes a benefitcost test?

So, we argue very strongly for a template, a kind of standardized

summary table that would give you a very good idea of what’s contained in that 300 or 400-page document.

Second, we believe that OMB should publish available estimates

on the cost and benefits of regulations from independent agencies;

but we also, in line with the recommendation made by Dr. Miller,

would go further and request that independent agencies provide

annual assessments of the costs and benefits of each of their major

regulations.

Why do I say that? Well, if you read the newspaper, you probably

are aware of the fact that the FCC had a fairly controversial decision recently about the extent to which the regional Bell operating

companies should be regulated, the extent to which they should

share their broadband services and the local loop. I think that having the FCC do an analysis of that multi-million, if not billion, dollar issue would be good in terms of helping the commissioners

make a reasonable decision and good in terms of making the process more transparent.

Finally, I’d like to suggest that Congress should create a congressional office of regulatory analysis, or at least a separate agency

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outside of the executive branch, to independently assess important

regulatory activity occurring at all Federal regulatory agencies.

I can see that I’m running out of time; so I’m not going to make

a lengthy case for this, but I merely want to note that there was

an opportunity to do this in the 106th Congress. It would have cost

$500 million for a pilot project that would have resided at GAO. My

colleague and I thought that was an incredible bargain given the

upside potential associated with this investment. One of the problems that OIRA has is that it can’t always be honest about what

it thinks politically because it has to tow the administration line.

This agency could do that. Let me conclude, because I see that I’m

out of time. Thank you.

Mr. OSE. Thank you Dr. Hahn.

[The prepared statement of Dr. Hahn follows:]

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Mr. OSE. Dr. Jim Tozzi for 5 minutes.

Dr. TOZZI. Thank you, Mr. Chairman and distinguished members

of the committee. I’m very pleased to appear here today, first of all,

because of the leadership this committee has given historically to

OMB’s regulatory office. Without this committee and its movement

under the Paperwork Act, there would not be any regulatory office

at OMB, and the more things change in Washington, the more they

stay the same because I still see Congressman Brooks looking down

at me after 35 years.

I’m here to speak on a very specific issue, and the issue is on a

regulatory budget. Notwithstanding my pleasant personality, I was

asked because of only one thing. I developed the first regulatory

budget when I was the Assistant Director of OMB, and I was appointed by President Carter at that time, and we developed a regulatory budget for EPA. The numbers, the facts and data are here.

It’s been given to your committee’s staff, and it’s also on the Center’s Web site. I think it’s real numbers, real regs, real process, and

it’s there.

Mr. OSE. Would you like us to make it a part of the record?

Dr. TOZZI. Yes, sir please.

Mr. OSE. Without objection.

[NOTE.—The information can be found at www.thecre.com and is

on file with the subcommittee.]

Dr. TOZZI. Now, we could go over all the details of that but I

don’t think this is the right time. Basically, when we looked at the

regulatory budget, one of the important things that we had to do

was get adequate cost information, and so being younger and more,

what would you call, idealistic, we drafted a Regulatory Cost Accounting Act of 1980. I would like that introduced in the record if

the Chair——

Mr. OSE. Without objection.

Dr. TOZZI. And, a section-by-section analysis of the regulatory

cost accounting——

Mr. OSE. Hearing no objection, that will be done.

[The information referred to follows:]

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Dr. TOZZI. And, Mr. Chairman, as most Tozzi-proposed legislation, it didn’t get out of the administration, but in any event, it was

subjected to interagency review and it set up a regulatory cost accounting system governmentwide. I must say, it was opposed

across the board by virtually all agencies, including some of my colleagues at OMB; so it was not a winner.

But, where are we now? I’ll get to the bottom line. We could say

there’s a lot of problems with the concept of regulatory budget, but

by and large, we still don’t have a way, even if we look at individual regs, of looking at their total cost to society and they’re—I

would suggest Dr. Miller’s and Dr. Hahn’s and Dr. Graham’s and

any other doctors who testified, view on the fact that’s the right

way to go.

But let me say that there’s one thing, before we invent a new

wheel, we have a regulatory budget right now without numbers,

and it’s this thing called the Unified Agenda of Federal Regulations. It comes out every 6 months. Your committee was the leadership in requiring all the agencies to do it. It has every major regulation issued by the government, and, if you want to start the work

on a pilot study, I would look at converting this document into a

regulatory budget. President Reagan signed Executive Order No.

12498 that took the first steps toward a regulatory budget where

OMB reviewed all the regs before they went out and debated them

with the agencies. Many of these regs are costed out, so all you

have to do is start putting numbers on it and develop some algorithms.

Finally, in terms of regulations, if Dr. Hahn would yield 1

minute of his time that he didn’t use, I have two recommendations.

The first recommendation is——

Mr. OSE. Dr. Tozzi, Dr. Hahn used all of his time, so I’m

sorry——

Dr. TOZZI. Oh, I’m sorry. Mr. Chairman, I notice your mathematical ability and I will never question it again. I have 60—68

seconds.

What I would recommend is two things. When I was at OMB we

had 100 staff. They’re down to 50. So if you’re going to lay any new

requirement, I know this committee’s not in favor of unfunded

mandates, and so, if you lay this requirement on them, it’s an unfunded mandate without increasing their staffing.

Second, if you’re going to move toward a regulatory budget, I

would make a rebutable presumption in favor of moving this document into a regulatory budget before I started a brand new reporting system. Thank you.

Mr. OSE. Thank you, Dr. Tozzi.

[The prepared statement of Dr. Tozzi follows:]

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Mr. OSE. Ms. Heinzerling, you are recognized for 5 minutes.

Ms. HEINZERLING. Thank you. I have four points I’d like to make

today. First, OMB’s demand that agency rules pass OMB’s test of

cost-benefit analysis violates many existing laws. Second, if the assumptions embodied in OMB’s current style of cost-benefit analysis

were put to a vote in Congress, I believe they would fail. Third, as

Dr. Graham indicated this afternoon, clean air regulation represents one of the best regulatory bargains around, even according

to the strict terms of cost benefit analysis. Yet, OMB has mysteriously singled out this kind of regulation for particularly penetrating scrutiny, and even for deregulatory action.

Fourth, OMB’s intention expressed in this draft report and in

interviews recounted in an article in the New York Times this

morning, to subject even more of the values we hold dear, including

privacy and freedom itself, to cost-benefit analysis is a project

doomed to failure, and it is one that flouts our country’s founding

commitment to adhere to certain basic principles regardless of the

monetary tradeoffs that might be involved in adhering to them.

This commitment is indeed a basic premise of the Bill of Rights

itself.

First, most Federal laws do not require, and many do not even

allow agencies to use OMB-style cost-benefit analysis in developing

regulatory policy. In its new guidelines for cost-benefit analysis,

however, OMB appears to encourage, or even to require, agencies

to circumvent statutory directives when they conflict with OMB’s

cost-benefit agenda. These guidelines effectively put OMB rather

than Congress in charge of defining the scope of agency authority.

This is not OMB’s role under the law.

Second, the assumptions embodied in OMB’s current style of

cost-benefit analysis would not, I believe, be enacted into law if

they were put to a vote in this body. I limit myself to one example.

In recent cost-benefit analyses, as discussed already this afternoon,

OMB has estimated the value of life based on an assumption that

the elderly are worth less than younger people. They start with an

assumption that the elderly are worth $2.3 million and younger

people are worth $3.7 million. Is it unreasonable to believe this assumption would fail to be enacted into law if considered by this

body? I think not.

Third, the positive cost-benefit profile of clean air regulations

should make it the darling of today’s OMB. That it is not, that it

has been subject to deregulatory activity, and to especially heightened scrutiny without the corresponding cost-benefit analysis that

is applied to regulatory actions, reveals, in my opinion, the political

bias that lies at the heart of OMB’s oversight activities.

Fourth, and finally, in an administration in which life, health,

and the environment all have been given a price, albeit a heavily

discounted one, I suppose it should not surprise us that it is now

proposed that privacy and freedom itself also be given a dollar

value. The explanation, as I understand it, is that, if privacy and

freedom are not stated in monetary terms, if they are not given a

price, then they will not count for anything when they are threatened. It seems to me just the opposite is the case. Once we say that

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privacy and freedom have a precise and finite monetary price, once

we allow them to be traded away for money, then we have cheapened these values deeply and perhaps irremediably. Thank you.

Mr. OSE. Thank you, Ms. Heinzerling.

[The prepared statement of Ms. Heinzerling follows:]

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Mr. OSE. Rabbi Swartz for 5 minutes.

Rabbi SWARTZ. Thank you. I’m grateful for your interest in this

issue and the opportunity to share our ideas with you. The Children’s Environmental Health Network is a nonpartisan multidisciplinary national organization whose mission is to protect children

from the environmental health hazards they face in the womb and

during their growing years.

First, some context for our concerns. How are children different?

Because of normal childhood behaviors in the natural course of

human development, children are often at greater risk from environmental contaminants. They eat, breathe and drink more than

adults, taking in greater exposures per pound that may affect their

rapidly growing bodies. That is why an exposure that for an adult

has no effect may, for a child, cause life-long harm, as witness lead

poisoning. Regulatory accounting has failed to adequately capture

costs and benefits to children from health and other regulations, in

part because of a lack of recognition of these differences.

Additional problems arise, however, due to some of the assumptions commonly used in cost-benefit analysis, including removing,

or at least reducing the visibility of any benefit that could not be

monetized. For example, OMB noted about EPA’s nonroad rule,

that EPA also lists a variety of other benefit categories which it

was not able to monetize, ranging from infant mortality to damage

to urban ornamental plants. I would say that preventing infant

deaths is quite important, but, since EPA didn’t monetize that benefit, it doesn’t count.

Next, ignoring the constraints children operate under: depending

on adults for their protection, not making their own choices or

aware of the consequences of their actions and without the resources available to adults. These problems are compounded because children of color, or living in lower income communities often

face disproportionate environmental health risks, while most costbenefit analyses assume equal distribution of all costs and benefits

across society.

This latest guidance compounds these and several other problems in a variety of ways. I’d like to just review two now: an increasing reliance on monetizing, and a rigid adherence to discounting. I’m not arguing against quantification per se, which cannot

only be valuable but is possible without resorting to the often artificial, assumption ridden and far from transparent process of translating health or quality of life to dollar figures.

Instead, I’m asking, is putting a dollar value on a concept, a

value, or a person, particularly a child, either useful or more fundamentally in consonance with basic American values?

As our President noted last Thursday evening, how do you measure the benefit of freedom or the immeasurable cost of lost lives,

how to measure the value of a parent’s love or the religious value

that we place on having healthy children? Children’s high value to

parents is borne out by economic research. For example, one recent

paper found that parents have a significantly higher willingness to

pay to avoid acute illnesses affecting children than those affecting

adults.

Now to discounting. In this guidance OMB acknowledges that its

practice of discounting benefits in the future has been questioned,

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in part because such discounting greatly reduces health benefits to

children. Let me give you one example of this from last year’s

budget documents. For us noneconomists, it would seem that, when

we prevent the death of a 3-year-old child with a life expectancy

of 78 years, that we would have saved 75 life years, while preventing the death of a 40-year-old saves 39 years. With OMB’s discount, however, the 40-year-old saves approximately 13.3 discounted life years. And, the 3-year-old? Approximately 14.3 discounted life years. OMB says, and we agree, ‘‘special ethical considerations arise when comparing benefits and costs across generations.’’ But then it limits such considerations to the same fine print

as that which has not been fully monetized.

Finally, this guidance also assumes that overestimated benefits

are a greater concern than overestimated costs. This is not supported by real world data, which show that the actual costs of regulations are frequently below the preregulation estimate while the

benefits from such regulatory decisions as removing lead from gasoline are more than an order of magnitude higher than predicted.

Finally, we agree with OMB when it says, ‘‘when important benefits and costs cannot be expressed in monetary units, then it is

less useful, and it can even be misleading.’’ Our hope is that OMB

will change its guidance to put this important observation into effect.

Mr. OSE. Thank you, Rabbi Swartz.

[The prepared statement of Rabbi Swartz follows:]

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Mr. OSE. Now, as is our practice, we will go to each Member now

for questions, to the extent there are questions that don’t get answered within their respective 5-minute period. We will have multiple rounds accordingly, as we did with the last panel. I’m willing

to lead off.

For Dr. Miller, Dr. Hahn and Dr. Tozzi. Actually, I think this is

more accurately for Dr. Hahn and Dr. Tozzi. In his written statement, Dr. Miller supports the need for agency input into OMB’s annual regulatory accounting report. Do you think the OMB should

issue an annual OMB bulletin to the agencies, which would require

agency estimates of aggregate and new regulatory burden, as it

does in annual OMB bulletins to the agencies for aggregate and

new paperwork burden? Dr. Miller supports the need, in his written statement, for the same information on aggregate and new regulatory burden. Dr. Hahn, do you agree with that? Do you think

OMB should issue an annual OMB bulletin to the agencies which

would require that?

Dr. HAHN. I don’t know the answer to that, Mr. Chairman. The

reason I don’t know the answer relates to a fundamental confusion

I’ve heard in some of the testimony today. We operate in a world

of finite resources. So we have to make difficult tradeoffs, as Dr.

Graham pointed out, among, for example, like investing in certain

SUV safety and the like. By the same token, if you’re at OIRA, and

have a fixed number of employees, you need to consider whether

the investment in this new innovation is going to be cost effective,

and I simply don’t know the answer to that without thinking about

it further.

Mr. OSE. So, if I understand your question, you don’t know

whether or not OMB should issue such a bulletin, which would require for regulatory burden much what they require for the paperwork burden?

Dr. HAHN. My gut says yes, it’s a good idea, but I would want

to ask Dr. Graham how it would impact other aspects. I mean, certainly it would be very useful to know much more about the regulatory burdens than we do now.

Mr. OSE. Dr. Tozzi, what about your position?

Dr. TOZZI. Well, you see I have worked for Dr. Miller a long time,

and every day we’d start a staff meeting he’d explain that I was

the deputy. But, if I could be relieved of that conflict of interest——

Mr. OSE. By congressional edict you are relieved of that——

Dr. TOZZI. Thank you, sir. I want the record to show that. I think

there might be a need for a bulletin, but my question is, if you take

Dr. Miller’s approach, the bulletin would look at measuring aggregate costs across the board, and it would probably help OMB. My

question is, if you arrived—my favorite thing of turning this into

a regulatory budget, but then the bulletin wouldn’t be on total economic costs. There would be a bulletin and it would be a bulletin

that turned this into a regulatory budget. So I guess in summary,

Mr. Chairman, where I am, I’m in the same church or synagogue,

but a different pew.

Mr. OSE. Dr. Miller, any response?

Dr. MILLER. I agree with——

Mr. OSE. That was good, Dr. Tozzi.

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Dr. MILLER. I agree with my colleague, Dr. Tozzi. Actually, I

think what we were just talking about is a template and just asking the agencies to present the information in a consistent format,

a consistent way. You could better address some of the questions

Ms. Heinzerling had about some of these measures if they were in

a consistent format across the agencies. If you look at this report,

you’re struck by the fact that OMB had to grapple with the fact

that many of the reports from the agencies are inconsistent one to

the other. Even within agencies there are different standards.

Mr. OSE. Your concern is we have apples and apples or oranges

and oranges rather than apples and oranges?

Dr. MILLER. Mr. Chairman, I wish I had said it your way.

Mr. OSE. I’m not going to measure or match wits with either you

or Dr. Tozzi, regardless of which church we all attend.

My time has expired. Governor Janklow, for 5 minutes.

Mr. JANKLOW. Dr. Tozzi and Ms. Heinzerling, could you tell me,

Dr. Tozzi, do you agree with her analysis, the way she presents it,

the factual basis of her analysis?

Dr. TOZZI. Governor, I’d like to go through her analysis a little

bit more, but I do think Professor Heinzerling is asking the question of what’s the limitations of benefit-cost analysis, and it depends where you sit as to where you stand. And, I think she’s

raised some legitimate concerns that’s been raised in the literature

for a number of years you can only push this tool so far.

But, on the other hand, the macro issue that’s been around for

years and years, can you ever assign value to a life? And, the question is—before you get into the details of the methods, the question

is do you want to? And, implicit in most Federal programs there

is a cost, the opportunity cost—there’s a cost associated with saving

a life, and, so, the issue is how you measure it? And I would defer

to the professor here, whether her issues—whether it should be

done at all or the methodology for doing so. I think there is an implicit cost and the question that’s up for debate is how, and the

professor may have a different view on that.

Mr. JANKLOW. Please.

Ms. HEINZERLING. Yes. I don’t think cost benefit of the type that

OMB performs should be done, and this doesn’t mean that we have

to spend an infinite amount of money to save every human life.

Most Federal regulation of health and safety and the environment

takes economic costs and technological feasibility into account. It

puts a thumb on the scales in favor of regulation. It tells an agency

please protect health, safety and the environment to the best you

can, but don’t bankrupt industries, don’t bring them to the brink

of failure, try to limit plant closings, do what you can in the most

efficient way possible. That is the basic framework under which our

health, safety and environmental agencies operate.

In my opinion, that’s a very different charge from saying to

them—which you haven’t done actually as a body in Congress—

saying to them, we would like you to look at the amount that individuals have indicated they are willing to pay for health, safety

and the environment, and limit your interventions to that amount.

And, it seems to me very different, the numbers may be very different, and the whole enterprise is different when one considers in

the first case, let’s do the best we can to protect health and the enVerDate 11-MAY-2000 09:43 Apr 24, 2003 Jkt 000000 PO 00000 Frm 00138 Fmt 6633 Sfmt 6633 D:\DOCS\86439.TXT HGOVREF1 PsN: HGOVREF1
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vironment; and, in the second place, let’s limit our interventions to

those the market basically has already produced.

Mr. JANKLOW. Rabbi Swartz, do you disagree with the subject

completely of a regulatory budget or do you disagree more so with

the procedure that’s been followed or suggested?

Rabbi SWARTZ. I think it’s an excellent way to lay out the

choices, and it would be the second. I think that one can total up

costs and benefits in a way that—and here I think, in fact, trying

to put a dollar figure on everything gives you more of apples and

oranges than would some other ways of explicitly leaving some

judgments to lawmakers.

For example, I can see the attraction of wanting to compare a

traumatic head injury to a cancer to asthma and to have one objective standard that lets you say that so many cases of traumatic

head injury equals so many cases of asthma, but there isn’t. It’s not

going to be objective. It’s going to be assumption ridden, and so

why not instead look at how—what’s the most efficient way to combat asthma, what’s the most efficient way to combat traumatic

head injuries, and then let you, as our elected officials, make the

decision about what’s most important for our country.

Mr. JANKLOW. Dr. Miller, do you think there’s another way to

look at the substance as opposed to the procedure in a regulatory

budget? Do you agree with Rabbi Swartz?

Dr. MILLER. I really don’t. I really don’t. Let me address Professor Heinzerling’s initial point that the use of benefit-cost analysis

is unlawful: She is welcome to her opinion, but it goes against all

the evidence. If it is, in fact, unlawful, someone surely would have

sought injunctive relief and no one has. There have been some important cases, such as whether OMB can prevent an agency from

meeting a congressionally mandated time table. The Supreme

Court held it could not. The Executive orders all start out with ‘‘in

so far as’’ permitted by law. Obviously, if it’s not permitted by law,

you can’t do it. That point, I think just a red herring.

The other question: I don’t want to label Professor Heinzerling’s

or Rabbi Swartz’ testimony as necessarily fitting this mold, but so

much of what you hear is that you ought not look at benefits and

costs at all. It’s like coming up with a Federal budget and not expecting people to testify and talk about the relative merits of the

various programs.

You in Congress have to make those judgments, and basing those

judgments on information and analysis is surely better than doing

it blindly, and what Dr. Tozzi’s been saying, Dr. Hahn’s been saying, things like you ought to work on the information and make

sure you understand it and do the analysis correctly and make

your judgments—it ought to be an informed decision rather than

an uninformed decision, and for the life of me, I can’t understand

why someone would argue you ought to make uninformed decisions

rather than informed decisions.

Mr. JANKLOW. Thank you.

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

Mr. COOPER. Thank you, Mr. Chairman. I must admit, I didn’t

expect to be interested by this panel, but it has intrigued me. You

read the title of it and you——

Ms. HEINZERLING. We’re happy to serve.

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Mr. COOPER [continuing]. Think, oh, boy, I’d rather be somewhere else. Let’s assume for a moment that this regulatory budgeting approach is valid. If it is at the regulatory level, then why isn’t

it even more important to implement at the congressional voting

level, which none of our colleagues would countenance? All the regulation is, is an administrative principle that’s within the scope of

the statute, but I think we, as Members, realize that we deal with

life and death issues, war and peace issues, love and affection

issues that are impossible to quantify, and I have the greatest respect for economists and accountants, and I would love to apply

their principles to what we do, but, if you take a book like Against

the Gods by Peter Bernstein, a study of risk in the world, you realize that even a prominent Wall Street analyst has concluded that

much of our knowledge is so new that even Wall Street types are

unfamiliar with the quantification techniques.

I’d like to point out one paragraph in Ms. Heinzerling’s testimony, which I think the average American should focus on if

they’re looking at this issue. It reads as follows: ‘‘it’s hard to overstate the effect of discounting on benefits that will accrue to future

generations. In the year 2100, the Census Bureau predicts the population of the United States will be approximately 571 million people. At OMB’s 7 percent discount rate, saving the entire population

of the United States one century from now becomes equivalent in

cost benefit terms to saving about 658,000 people today. With the

magic of a calculator, over 570 million lives simply disappear.’’ You

know, we have to be careful with numbers. The average American

has trouble understanding an interest rate, much less a discount

rate.

We have to have lots of Federal regulations to help people understand what your mortgage lender is doing to you or other lenders.

So it’s important that we focus on these things, and I would like

to ask Dr. Miller and Dr. Tozzi if this is such a great idea, let’s

not even think of applying it at the congressional level, how about

the tax expenditure budget level? Last week we were asked to vote

on a tax break for foreign bettors on U.S. horse races. Another tax

break was on folks who manufacture bow and arrow sets, presumably for children. I don’t think it’s in the Pentagon budget. Another

tax break was for those who mix diesel fuel with water, which I

always thought was illegal, but those are three of the things that

we were asked to allow special tax leniency for. Would you suggest

applying cost-benefit analyses to each of those provisions?

Dr. TOZZI. Sir, it’s the—first of all, the idea of a discount rate

and where it fits in a regulatory budget is probably a tier 11 issue.

The idea of putting a regulatory budget together, just laying out all

the regs and their costs in some orderly way, that is such a job and

what we’re getting down to the discounts rate is how you estimate

the cost. OK? And, that is a big issue to the economics profession,

I agree, but in terms of a regulatory budget, look at the budget you

people look at, several trillion dollars.

Has it ever come up to you what the discount rate behind those

programs were? Never. And, we’re very capable of spending money

without that number. So I think there’s a lot of technical issues on

it, but I don’t think we should confuse resolving what the discount

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rate is and how you can use that opposed to the imposition of a

regulatory budget. I think it’s way down the line.

Dr. MILLER. Congressman Cooper, I do not know of any responsible academic who argues that you shouldn’t apply discount rate

in comparing benefits and costs. That is just totally beyond the

pale, as far as academic research goes. On your question of defending these, I would apply benefit-cost analysis to the three issues

you raised based—and on your description they would all fail fast.

Dr. TOZZI. It depends—maybe yes, maybe no. It depends if I got

one.

Mr. COOPER. An honest man. I don’t think the question is whether it’s not appropriate, in theory, to apply discount rates, but no

one really knows what a discount rate really is. I used to be an investment banker. They’re all over the lot. You can manufacture reports to prove almost anything you want. Ms. Heinzerling has

worked for perhaps one of the foremost jurists in this country, as

far as economics, Richard Posner. You know, I’m not sure about

Justice Brennan’s qualifications in that regard. But I think, perhaps, Dr. Miller you should allow more latitude. I think some of

these people are responsible. I don’t think you meant to apply that

they’re all irresponsible. And, this is something that we should

have a valid and lively debate on.

I appreciate you gentlemen raising the issue, but I’ve never

heard a Republican yet say that we should do this for a tax expenditure budget. In fact, the Reagan view is tax expenditures

don’t exist. It’s all the people’s money.

Dr. MILLER. Could I volunteer to be the first?

Mr. COOPER. I will look forward to your column on that subject.

Dr. MILLER. I might write one. But back to the point, you might

disagree over what the discount rate might be, and it might be different for different starting points, as Dr. Hahn will probably

elaborate. If I misunderstood, I apologize to Professor Heinzerling,

but if I understood the import of what you read from her testimony, she would reject the notion of a discount rate—not a question of whether it should be 7 percent or 4 percent or 3 percent or

6 percent, but reject the notion. To me it’s just flat out nonsensical.

Mr. OSE. The gentleman’s time has expired. We’ll come around

again. Drs. Miller, Hahn and Tozzi, we had a discussion in the first

panel about the inclusion of the regulatory accounting statement

and its associated report on impacts with the President’s budget at

submittal time, and Dr. Miller has already offered in his comment

that can be delivered concurrent with the President’s budget.

Dr. Hahn and Dr. Tozzi, do you think delivering those pieces of

information concurrent with the budget would increase the overall

utility of the information to Congress, or would it make any difference?

Dr. TOZZI. Well, before I got on the regulatory budget, I was in

the budget business at OMB for a long time, and I think the budget side of OMB is going to oppose that very, very heavily and I will

tell you why. First of all, if you compare the accuracy in their mind

of the data in the Federal budget that’s up for appropriation, with

what will come out of this system, in this current system, and put

the OMB stamp of approval on it, I think there’s going to be a big

debate on that.

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So, I think there’s going to be a reluctance within the institution

to do that. Second, I think there’s going to be an overall resistance

because of the nature of who uses the budget, and it goes up

through the budget shops of all the agencies, and you’re going to

have a lot of procedural work to be done to match two information

flows, all the regulatory people into that budget process. So I can’t

argue. I agree with Dr. Miller that in the long run, that if we had

a regulatory budget and the numbers were of sufficient accuracy,

I agree they could be mixed. I think in the short run, I’d rather

have the limited resources again turning this into a regulatory

budget and marry them at a later stage in time with the Federal

budget when the data is of comparable accuracy.

Mr. OSE. Let me come back to that question. Dr. Hahn, do you

share that opinion?

Dr. HAHN. Yes, I basically share that opinion.

Mr. OSE. Going back to your point about the unified agenda

there being the more interesting document, how much time—if

we’re not going to pare this regulatory accounting statement with

the President’s budget, how much time do you think should elapse

between the submittal of the President’s budget and the issuance

of these——

Dr. TOZZI. Well, that’s a good question.

Fortunately this comes out every 6 months and so it has a lot

more real time information in it than the President’s budget. It’s

supposed to be due out in October or April, and they’ve been pretty

good recently. They’ve been missing it by a month. So what you’ll

see, Mr. Chairman, if they meet these dates, you’ll have a picture

of the regulatory state 2 or 3 months before the budget comes out

and 2 or 3 months after the budget comes out.

Now, if at some point in time you wanted to marry these, I think

that could be done, but I don’t think that would be the main problem right now. The main problem is taking the steps procedurally

to turn this into a regulatory budget. I don’t think that 3 months

one way or the other, before or after that system is a big handicap.

Mr. OSE. Chronologically, the President drops his budget in——

Dr. TOZZI. January/February.

Mr. OSE. Yes, early February. At least the House calendar moves

to adopt the budget by April 15. Now, how do we reconcile that

timeframe? Because it would seem to me that the Budget Committee would need the regulatory accounting statement in order to decide how they want to allocate resources.

Dr. TOZZI. Correct, and what I’m suggesting is they’re going to

have two documents because between October of 1 year and April

the following year, the changes in total macro costs could be substantial, I doubt it. And, second, if they would have enough time

to work on the October edition well before that markup, because

if we come out in April with this, it’s too late for them to do it, but

I don’t think—the numbers have to bear themselves out. I just

don’t think with a document this size, unless there’s some really

unusual rule which comes out, October numbers would not be that

bad to work on each year because you’d work with the October

budget for the early markups. By the time you had final markup,

you’d have the April edition.

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Mr. OSE. My time has expired. I’m going to come back to this

question.

Governor Janklow.

Mr. JANKLOW. Rabbi Swartz, last year Susan Dudley, when she

gave testimony before this committee, said, ‘‘Studies reveal that a

reallocation of current spending from lower risk to higher risk

problems could greatly increase the lifesaving benefits of regulations designed to reduce health and safety risks and achieve other

goals.’’

If this is correct, if what she says is correct, isn’t regulatory accounting really essential to better protect public health and safety?

Rabbi SWARTZ. The thing that I think is really important to remember, and I think it was Dr. Tozzi who mentioned this, is that

this is a tool, and it’s going to have some use but it’s not going to

do your job for you, and for example, in terms of comparing risks,

one piece of information that’s very helpful when you’re making decisions about risk is what’s the most frequent risk, but risk for

what? Is it risk for being a fashion catastrophe or a terrorist catastrophe? So, you want to see the size of the effect, and you also want

to see is it a reversible effect or not? Is it something you can fix

easily or something that’s basically irreversible?

Mr. JANKLOW. But, if we don’t know the costs or the benefits of

a regulation, then how do we really know if—we say we’re trying

to do, we’re doing it in people——

Rabbi SWARTZ. I’m sorry. I’m not arguing against measuring

costs and benefits. What I’m arguing about is a way that does, that

says that the only thing you measure are dollar values.

Mr. JANKLOW. Could you make available to us or your organization—and frankly, I don’t know if they’re the same sir, because I

don’t know you folks that well. Could you make available to the

committee what methodology you don’t like that’s being followed or

recommended, and what methodology you suggest should be used

for a regulatory accounting approach?

Rabbi SWARTZ. Sure, and along that line I would—I’m a little intimidated correcting Dr. Miller’s notion of the economic field, but

I know at least six economists who are well published, well regarded in the field who have written about the inappropriateness

of discount rates under certain circumstances. I’m not, and I don’t

think that Professor Heinzerling is saying you never use discount

rates, but discounting health benefits has some fundamental theoretical problems. And, you can read those in Richard Howarth at

Dartmouth, or Edward Barbier at the University of Wyoming, or

Jane Hall at Fullerton and——

Mr. JANKLOW. But I’m also suggesting, sir, if you’d make available to us what is it that you suggest should be the measuring criteria.

Rabbi SWARTZ. Sure. I would be glad to.

[The information referred to follows:]

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Mr. JANKLOW. Could you do the same thing too, Dr. Heinzerling,

also?

Ms. HEINZERLING. Absolutely. Absolutely. I think you’ll find that

it’s reflected in many of our current laws, the approach that I’ll

provide for you. But absolutely I’d like to do that.

[The information referred to follows:]

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Mr. JANKLOW. Do you think the current law that we have is the

best we can do?

Ms. HEINZERLING. No. I would never say that but I don’t think

that cost-benefit analysis is going to improve the ways in which I

think the current system fails. For one thing, the current system

fails to regulate many risks as stringently as I think should be required. Second, cost-benefit analysis adds to the informational burdens already borne by the agencies. It’s expensive. It’s time consuming. It’s contentious, it leads to litigation. At the end of the

day, nobody’s satisfied with it, and so, yes, I think that there are

places where we could improve things.

I think economists have really helped us out in many ways by

pointing out ways in which social goals can be achieved more

cheaply. I think that all of that is all to the good. I don’t think that

the system will be improved by reducing everything to dollars and

then discounting them over a period of time.

Mr. JANKLOW. Thank you. Dr. Hahn you’re smiling. Why?

Dr. HAHN. Yes. Professor Stigler, may he rest in peace—he was

a Nobel Laureate in economics said, ‘‘It takes a theory to beat a

theory.’’ I think one of the problems with all these criticisms, you

put your finger on it, is they don’t really have a theory that beats

the implementation of cost-benefit analysis in a broad sense. It just

defies common sense to say you shouldn’t think about what the

costs and benefits are before you make a decision either individually or socially.

Mr. JANKLOW. Thank you.

Dr. MILLER. Could I just add one point sir? You might ask the

question, can benefit-cost analysis be misapplied? The answer is, of

course. It’s done all the time, and that is one reason some very

good people criticize benefit-cost analysis. I’m not trying to defend

all benefit-cost analysis. I have criticized my share. I have sent

some back when I was OIRA head. The question, though, is whether it is a useful tool; and the answer is, yes, it is a very useful tool.

Broadly defined, benefit-cost analysis, as Dr. Hahn was suggesting,

is what you think when you make your decision—should I go this

way or that way? And, even if you don’t tote up and monetize benefits and costs, you’re revealing that you think this way is better

than that way when you take the former path.

Mr. OSE. The gentleman’s time is expired.

The gentleman from Tennessee for 5 minutes and 45 seconds.

Mr. COOPER. I thank the Chair. There are many failings of government. We all realize that our budgeting process does not rely on

accrual accounting. We don’t have a capital budget. Lots of things

that Congress has decided we do not need to have because we’re

not like a corporation. We’re different. When Dr. Hahn said it takes

a theory to beat a theory, I thought our theory was the Constitution of the United States and the Bill of Rights, things like that;

essentially human documents that do not tell, for example—every

jury has to rely on cost-benefit analysis before they issue a verdict.

I can’t help but wonder if some liberals might not—should be for

this regulatory budgeting concept, because my guess is the foreign

aid budget of the United States would have to be multiplied 100

or 200-fold, since the fee to keep alive in a foreign country might

take as little as $1 a day; and, yet, we in our country, our infinite

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wisdom, choose not to do that. Then the question of whether their

lives are worth less than our lives over here.

To me, I love accounting and economics. I think it’s great. I think

we should apply these tools when and if appropriate, but I’m deeply worried that we might be creating a little bit of a monster here

that—not to preclude any of this analysis, but to wholesale stop

regulations as Dr. Graham seems to have. It seems to me that

maybe we’re allowing the tools to control the master here, especially when so few people in the general public are equipped at all

to deal with these tools.

You know, there are some great economists who proved that

there’s no such thing as a hot streak in basketball. Each shot is

independent. But tell that to a sports fan, you know. They would

no more believe you than they would have believed pre-Galileo that

the Earth was round.

You know, we have to work with what we’ve got here, which are

human beings. And, to me, we need to gradually introduce these

tools when and if appropriate, and then see if we can improve the

wisdom of our decisions as we go along. Is that—Dr. Hahn.

Dr. HAHN. If I understand you Congressman Cooper, I agree with

you, only you said it more eloquently than I would have. I’m not

suggesting that the results of a cost-benefit analysis that a good

economist does should be decisive in the sense that it should immediately be implemented.

What I am suggesting is that toting up the benefits and costs,

both those that can be quantified and those that can’t in some systematic fashion, can usefully inform decisionmaking when we’re

making multibillion-dollar decisions, as we do in regulatory agencies every day, not that they would necessarily be decisive.

Mr. COOPER. We’re having a huge fight here now in dynamic

scoring. We can’t decide when or if to apply that, and that is relatively simple in comparison to these decisions. But, that’s the current state of play in Congress right now is—I don’t think we’ve

picked a new head of the Joint Tax committee, have we? We do

have Dr. Hosaka and the CBO, and I’m sure he delivered a crushing blow to dynamic scoring—this was last week—when he was expected to deliver a much more favorable scoring of the President’s

budget than in fact he turned in.

But, to me it’s exciting to contemplate these new tools, but,

they’re so primitive, as I think Dr. Bernstein pointed out in his

book. I had no idea as a relatively young economist that so many

of these things were so recently invented. The human mind has a

long way to go before we fully understand a lot of these things, but,

I thank the Chair and yield back the balance of my time.

Mr. OSE. The gentleman yields back.

Dr. Miller, Hahn and Tozzi, the President’s budget comes out

with a 7-year analysis in terms of the impact of its proposals. It’s

got the past year, the current year, the budget year and the 4 following outyears.

Now, the question I have is whether or not it would be helpful

to Congress so that the on-budget and off-budget costs of that

budget—the President’s budget—could be evaluated in a simultaneous or concurrent fashion. Do you think that would be positive

or negative? Dr. Miller.

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Dr. MILLER. I think it would be positive, but I have said many,

many times I think Congress can get carried away with looking at

the outyears. The aggregate figures for spending and for revenues,

are not very reliable.

Mr. OSE. So we have to recognize that those are projections, of

course.

Dr. MILLER. Yes. And the same thing with regulation; though

your question triggers the question of whether they’re more reliable

than the fiscal figures. If you’re looking at the deficit figures, they

probably have the variance that is much higher than the variance

on major regulations.

Mr. OSE. So, at least for the past year, the current year, the

budget year, it might be useful.

Dr. MILLER. Yes.

Mr. OSE. But, as you move out, your variation—I mean, your——

Dr. MILLER. Confidence interval.

Mr. OSE [continuing]. Confidence interval gets higher and higher

and higher.

Dr. Hahn.

Dr. HAHN. I agree with what Dr. Miller said. I think it is a good

idea, given my own belief and what the research of others suggests,

that regulation has a reasonably big impact on the economy; that

you, as our decisionmakers, are given the kind of information you

need to see that. So, I would be for informing you in that way.

Mr. OSE. Dr. Tozzi.

Dr. TOZZI. Sir, I don’t think that data are available. When we put

the budget for President Carter together, the regulatory budget,

what we did was an incremental regulatory budget. We took the

cost of all pending regulations over—that were coming out, and the

problem is the data base has a total cost of the regs, but we had

no idea if you were going to put $1 billion for a clean air reg, what

the expenditures by thousands of companies were going to be over

the ensuing years.

So, I don’t think that data are available, and I think the initial

effort on a regulatory budget would be looking at the incremental

total costs imposed by that regulatory menu and then developing

some algorithm of how you set a total on it. I think trying to spread

those macrocosts on a year-by-year basis are going to be very difficult. I haven’t seen any data base even close to that that will

allow us to do it.

Mr. OSE. So, to use Mr. Cooper’s word, it’s pretty dynamic, isn’t

it?

Dr. TOZZI. Dynamic, I think is sort of a yuppie term for budgeting. I’m not sure what it is.

Mr. OSE. This issue of a pilot test for regulatory budgeting, Dr.

Miller, I’d be curious as to your feedback as to whether or not it’s

useful. I don’t know which agency or program you might pick, but

in terms of setting up a pilot program for regulatory budget approach, do you think it would be useful; which agency do you think

you probably want to use as the template; and what would you expect to achieve?

Dr. MILLER. That is a good question. I mean, I would address one

of the larger regulatory agencies, one that has reasonably good

data on benefits and cost, one whose regs tend to be reasonably hoVerDate 11-MAY-2000 09:43 Apr 24, 2003 Jkt 000000 PO 00000 Frm 00155 Fmt 6633 Sfmt 6633 D:\DOCS\86439.TXT HGOVREF1 PsN: HGOVREF1
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mogeneous and comparable, and then maybe even a component of

that. Say, for EPA—might do just the air part.

The authorizing committee could insist the agencies do that in

cooperation with OMB and talk about the total costs imposed upon

the private sector. They could force the agencies to address how

they might establish priorities and yield more cost-effective results.

That is, everything else equal, for the cost it imposes upon the private sector, how to get greater benefits—or alternatively, for the

same benefits how to lower costs; the same kind of things you demand of agencies when you talk about appropriating money for

programs. You ask them to give you information about how to accomplish the goals most efficiently.

In response to Mr. Cooper—I’m sorry he’s left. What we’re proposing here and discussed before is that Members of Congress

make those determinations. I just think that you ought to be more

informed rather than less informed, and doing a regulatory budget

would be a way of your getting a handle on what the agency does

and force them to be more cost-effective and get them thinking the

right way about this—responding to the public which pays their

salaries.

Mr. OSE. Five minutes is awfully short.

Governor, we’re going to go to 10-minute rounds, and you’re

going to be first.

Mr. JANKLOW. I’m going to be very brief, Mr. Chairman. Dr.

Tozzi, back when President Carter was a candidate for President,

coming off his tenure as a Chief Executive of Georgia, he was a

strong proponent and advocate of what they called in those days

zero-based budgeting. Did you ever attempt to do that during his

administration, and was there any success at all, or what was

your—the analysis, if it was tried? And, I don’t know if it was.

Dr. TOZZI. Yes, sir. At that point in time, I was Chief of the Environment Branch in OMB and I had jurisdiction over EPA’s programs and a couple of other environmental programs. And, President Carter’s zero-based budgeting looked at—there was no base to

any program, and we would rank-order all of the programs.

And, I will say that was the third or fourth such big system I

helped put in. President Johnson put in PPBS, Planning Programming Budgeting System. President Carter put in zero-based budgeting. The Nixon administration put in management by objective.

And you name it and I was there. OK? That is the reason I——

Mr. JANKLOW. Have you recorded all of this for the National Archives?

Dr. TOZZI. Not on the record, sir.

The question is that’s why my reluctance to put any big governmentwide system on cost accounting in. I think the process of setting a regulatory budget where you put—just simply put all the

regs in an agency in one place, people look at them and debate the

merits of those. They look at individual things on the entrees and

say, hey, are you going to look at this alternative? What cost information? And, you come up with an identified menu of what you’re

going to do, the way to go to get all the details of how you do the

discount rates and setting up the regulatory budget look—they

want a base. They want to know all the costs of existing programs.

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I think that is a humongous exercise that maybe goes the way of

some of these other exercises.

If you look at a regulatory budget, incremental costs that are

going to be put on that or quantified, I think you can do something;

but, I’m reluctant to say you’re going to have right now a regulatory system that looks at all the costs of all the regs of every Federal Government agency and totals them up. I think that’s a big

job and may go the way of those other 15 things I worked on.

Mr. JANKLOW. Dr. Hahn, you’re shaking your head no and commenting to Dr. Miller. Go ahead.

Dr. HAHN. No. I think most people are talking about doing a regulatory budget. This is just in response to Dr. Tozzi. You’re talking

about at least trying it out with respect to a pilot program, in response to your question; and also incrementally, the new regulations, what impact will they have over time and how do we

prioritize them.

Mr. JANKLOW. Rabbi Swartz, given Dr. Tozzi’s explanation of

what he thinks we ought to do, do you disagree with that, and, if

so, why?

Rabbi SWARTZ. I don’t. As Dr. Hahn said to an earlier question,

the key would be to get more information from this than it adds

burden to the various agencies. They do have limited staffs and

limited resources. So I would want to make sure that the information you get out of it is worth as much to you as the time that they

can’t be doing the other parts of their job. And, I can’t make that

judgment. I don’t have the expertise to do that. But, that’s what

I would look at.

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

Mr. OSE. I think one of the curious things that I hear is that on

a day-to-day-to-day basis, all of us who sit on this side of the microphone struggle with how to allocate resources. I mean, Rabbi

Swartz, you just said something that I thought was particularly insightful, and that was that we’re not sitting out at the agencies

making the day-to-day decisions to—is this consultant or is this

person going to dedicate their time to evaluate the cost and the

benefits of this program, or are they going to go implement the system? It’s not our role.

Our role is to decide, all right, we’re going to put X number of

resources here, Y number there, and Z number there.

Now, what I’m trying to get to is some year-after-year-after-year

means of tracking what Congress authorizes, allocates, and appropriates against the benefit that we get as a country from those authorizations, allocations, and appropriations, and then somehow or

another reconcile that with the unauthorized or unappropriated

burden that we put on the American—on the United States as a

whole.

I think we have, frankly, some difficulty in deciding what the priorities should be. I mean, that’s why we have at least two different

parties. But, I don’t think anybody struggles terribly hard with the

need to at least prioritize.

Now, I want to just go through here and understand the degree

to which this tool can be used, this regulatory accounting tool can

be used. I mean, I hear from Dr. Miller that it is a tool and only

a tool. I hear, perhaps, Rabbi Swartz suggesting that the tool has

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severe limitations. Would you care—I mean, Doctor, would you care

to—we’re going to go right down the dias here, the table. I want

to give you an opportunity here, before we close, to evaluate the validity of the information that we might get out of a regulatory accounting proposal.

Dr. MILLER. Oh, I think it could be very useful, and if you push

the agencies to give it a high priority, it would be reasonably accurate and to the point and will help the quality of your decisionmaking a lot. Even if you disagree over priorities, you and your colleagues, you’re more likely to come up with something that makes

sense than if you are in the dark about a lot of these things. So,

the more information you have, the better. The better the analysis,

the better your decisions.

And, the point that I have made and you’ve made before is compared to all of this intense scrutiny and work that is done on the

appropriations process, which accounts in the discretionary side for

less than the total resources commanded by regulation, the amount

of focus on regulation is de minimis.

Mr. OSE. Dr. Hahn.

Dr. HAHN. I think the regulatory accounting proposal has a lot

of merit. I think we have to take stock of where we are now. My

research and that of others suggests that the regulatory analyses

that the agencies are doing, while quite variable in quality, are frequently poor and not summarized very well. And, it’s not put into

the kinds of statements that would be useful for you, as you were

suggesting. So, I think moves in that direction would be very constructive.

Mr. OSE. Dr. Tozzi.

Dr. TOZZI. Mr. Chairman, what I am recommending is not that

you propose a regulatory accounting system, I’m recommending

that you start a regulatory budgeting system, which would mean

that you would take this document before me, and as Dr. Miller

said, look at one component of an agency. Here’s EPA, which obviously—because I think they do a pretty good job. There’s 100 regulations under development in this document; and the regulatory

budget to me, the first start would be a debate on two things:

Which of those resources—which of those should go forward, which

ones should you put money on to work on; and second, within a

reg, what alternatives should be looked at? What is its timeframe?

And, there should be a debate on that, and the Congress would

act on this menu. I do not need at this point in time a massive regulatory accounting system to do that. You could implement it out

of this book. It’s a regulatory budget. Doesn’t have numbers in it,

but it’s the same as a Federal budget. You could look at that and

debate the programs, make a decision of what goes in this document, and an informed congressional debate on each of these programs. And, I don’t need the regulatory accounting system to do

that right now.

Mr. OSE. Professor Heinzerling.

Ms. HEINZERLING. I think part of the premise of your question

is that we would have more information if we had a regulatory accounting requirement. And, I would just point out that we have a

huge amount of information about regulations already. We’re swimVerDate 11-MAY-2000 09:43 Apr 24, 2003 Jkt 000000 PO 00000 Frm 00158 Fmt 6633 Sfmt 6633 D:\DOCS\86439.TXT HGOVREF1 PsN: HGOVREF1
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ming in information. The agencies are practically paralyzed by analytical requirements.

And, so the first thing I would ask is, what good would this regulatory requirement do in comparison to the system that we already

have? I would agree—I don’t agree with everything Dr. Graham

says, but, today, I agree very much with something he said, which

is that, if we had such a system, we have to remember to look at

benefits as well, and not just at costs. And, so the hesitation I

would have, in addition to the one I just stated, is that we would

want to be able to look at the benefits that are gained by these programs and not just the costs.

And, the other observation I would make is that I think it seems

to me that all of the witnesses here have agreed, even if they like

regulatory accounting or regulatory budgeting, which are different

things, if they like either one or both of those things, they don’t

think we should start by imposing this requirement on all of the

agencies at once. And, I just point out again the mystery here,

which is that Dr. Miller suggests we start with EPA as an example,

and yet here again the puzzle that I opened with remains; which

is, if EPA has some of the biggest regulatory bargains around, why

are we starting with this agency and starting with something that

might hobble it even further?

The last point I’d simply make is that I’m not aware of—and I’d

be happy to see cites. I’m not aware of analysis that does a costbenefit analysis on cost-benefit analysis. I think it would be very

interesting to see that.

Mr. OSE. Rabbi Swartz—that was well put.

Rabbi SWARTZ. I want to second Professor Heinzerling’s point

about the sea of information; and certainly in an ideal world, the

more information the better. But, you don’t live in an ideal world.

You live in the real world. And, you have limited staff and limited

ability to take stuff in, too. So, you’re going to need summaries, and

it makes those summaries more palatable if they’re all in the same

format. And, that requires things to be translated from one kind

of information to another. And, if there is one thing that I know

that I’m more expert in than anybody else on this panel, it’s how

controversial translating is. You can gain or lose a lot of information in the translation, depending on how good the original information is and how good the translator is.

So there are going to be costs to try to get everything—every

piece of information the same way.

Is it good to have a summary of it? It is great to have a summary

that at least puts things in the columns—here are all the costs and

here are all the benefits—whether they are tabulated or not. I

think that would be very useful. But the extra tweaking you have

to do to be able to get a single number on each side may cost you

more than it gains you.

Mr. OSE. Governor, you have anything you want to add?

Mr. JANKLOW. No, I don’t. Thank you very much to all of you,

and I think your comments at the end are really appropriate. We

just have to figure out how to move forward in a sensible way, because I don’t think anybody questions the fact there has to be a

cost-benefit understanding of what it is that we do when we’re taking money from taxpayers and spending their money.

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Mr. OSE. I thank the gentleman from South Dakota. I want to

express my appreciation to the panel that joined us for our second

session today.

We’re going to leave the record open for 10 days in case there are

Members who wish to submit written questions, and we would appreciate your timely responses to that. I am grateful for your taking the time today, and I’m sure we’ll have at least another meeting or two on regulatory accounting in the future. Have a great

day. We’re adjourned.

[Whereupon, at 4:22 p.m., the subcommittee was adjourned.]

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