I 113th CONGRESS 2d Session H. R. 3863 IN THE HOUSE OF REPRESENTATIVES January 14, 2014 Mr. Brady of Texas introduced the following bill; which was referred to the Committee on the Judiciary A BILL To amend title 5, United States Code, to establish uniform requirements for thorough economic analysis of regulations by Federal agencies based on sound principles, and for other purposes.

1. Short title This Act may be cited as the Sound Regulation Act of 2014 . 2. Findings Congress finds the following: (1) Growing Federal regulation that is highly prescriptive in nature burdens American industry and impairs its international competitiveness. (2) Prescriptive regulation takes away flexibility, is adversarial in nature, leads to unintended consequences, and, especially as it proliferates, slows economic growth and job creation. (3) Despite evidence of increasing regulatory costs, Federal agencies hold fast to the presumption that their rules are in the public interest. (4) Some statutes prohibit consideration of costs and benefits in rulemaking, although none prohibit agency analysis of costs and benefits for informative purposes. (5) For independent regulatory agencies cost-benefit analysis is not institutionalized. Executive agencies perform cost-benefit analysis pursuant to Executive order and under the purview of the Office of Information and Regulatory Affairs (OIRA), which takes direction from the President. No peer review is required of analyses by either set of agencies. (6) There are no statutory standards for cost-benefit analysis in Federal rulemaking and there are no consistent, material consequences when rules are based on faulty or inadequate analysis. (7) Agencies conduct their own regulatory impact analyses largely by methods of their own choosing and only on a small fraction of the rules they issue. Agencies use regulatory cost-benefit analysis mainly in support of favored, preconceived rules rather than as a decision tool. Common deficiencies include— (A) lack of a coherent theory by which to define a problem, determine why it occurs, and guide the agency to the most efficient response; (B) lack of objective evidence that an actionable problem actually exists, what its dimensions are, and how they differ from acceptable norms; (C) lack of comprehensive analysis to determine whether a market malfunction exists and orient rulemaking to its causes, not its symptoms; (D) failure to set clear and realistic objectives whose benefits justify the cost of achieving them; (E) objectives that are set disconnected from costs and may be expansive and vague so that any regulation can be made to appear beneficial; (F) agencies increasingly claiming incidental benefits (so-called co-benefits) that are not in furtherance of the stated objective and even private (as opposed to public) benefits for their rules; (G) failure to develop regulatory options in light of market analysis and rank them by how efficiently they will improve the market process; (H) inconsistent assumptions and methodologies across agencies; (I) invalid baselines for gauging regulatory effects; (J) omissions of important impacts, such as on employment and international competitiveness of U.S. firms; (K) failure to reevaluate regulations after implementation; and (L) failure to consider the cumulative costs of regulation by the various Federal, State, local, and tribal agencies. (8) Despite continually changing market conditions, agencies do not regularly review their existing regulations and regulatory regimes. They also do not review the division of functions among different Federal agencies or among Federal, State, local, and tribal agencies. Regulations lose their purpose, yet linger and accumulate, imposing unnecessary costs and slowing economic growth to the detriment of material living standards and, to some extent, the very social conditions that are the objects of regulation. (9) Agencies typically do not conduct regulatory cost studies proactively and report to Congress unnecessary costs that are not under the agencies’ control because of the way laws are written. Agency recommendations on how to improve the efficiency of regulation by modifying an existing statute could be helpful to Congress. 3. Uniform use of cost-benefit analysis Section 553 of title 5, United States Code, is amended by adding at the end the following: (f) (1) Prior to any rulemaking under this section, an agency shall comply with the following: (A) The agency shall identify, in the context of a coherent conceptual framework and supported with objective data— (i) the nature and significance of the market failure, regulatory failure, or other problem that necessitates regulatory action; (ii) the reasons why national economic and income growth, advancing technology, and other market developments will not obviate the need for the rulemaking; (iii) the reasons why regulation at the State, local, or tribal level could not address the problem better than at the Federal level; (iv) the reasons why reducing rather than increasing the extent or stringency of existing Federal regulation would not address the problem better; and (v) the particular authority by which the agency may take action. (B) Before the agency increases the extent or stringency of regulation based on its determinations pursuant to subparagraph (A), it shall— (i) set an achievable objective for its regulatory action and identify the metrics by which the agency will measure progress toward the objective; (ii) issue a notice of inquiry seeking public comment on the identification of a new objective under clause (i); and (iii) give notice to the committees of Congress with jurisdiction over the subject matter of the rule. (C) The agency, if the agency is not seeking to repeal a rule, shall develop at least 3 distinct regulatory options, in addition to not regulating, that the agency estimates will provide the greatest benefits for the least cost in meeting the regulatory objective set under subparagraph (B) and, in developing such regulatory options, shall apply the following principles: (i) The agency shall assume that individuals are rational and not qualify that assumption unless the agency— (I) has conclusive evidence of a detrimental systematic behavioral bias; and (II) can devise behavioral regulatory options that do not preclude any choices of market participants. (ii) The agency shall, to the extent practicable, attempt to engage private incentives to solve a problem and not supplant private incentives any more than necessary. (iii) The agency shall consider the adverse effects that mandates and prohibitions may have on innovation, economic growth, and employment. (iv) An agency’s risk assessment shall be confined to its jurisdiction, subject to specific regulatory authority. Agency assessments of the risks of adverse health and environmental effects shall follow standardized parameters, assumptions, and methodologies. An agency also shall provide analyses of increases in risks, whatever their nature, produced by the regulatory options under consideration. (v) The agency shall avoid incongruities and duplication in regulation at the Federal, State, local, and tribal levels. (vi) The agency shall compare and contrast the regulatory options developed and explain how each would meet the regulatory objective set pursuant to subparagraph (B). (D) The agency shall estimate the costs and benefits of each regulatory option developed, notwithstanding any provision of law that prohibits the agency from using costs in rulemaking, at least to the extent that the agency is able to— (i) exclude options whose costs exceed their benefits; (ii) rank the options by cost from lowest to highest; (iii) estimate the monetary cost of any adverse effects on private property rights, identify the categories of persons who experience a net loss from a regulatory option, and explain why the negative effects cannot be lessened or avoided; (iv) establish whether the cost of an option exceeds $50,000,000 for any 12-month period, except that the dollar amount shall be adjusted annually for inflation based on the GDP deflator, and the President may order that a lower dollar amount be used for a particular period; and (v) identify the key uncertainties and assumptions that drive the results and provide an analysis of how the ranking of the options and the threshold determination under clause (iv) may change if key assumptions are changed. (E) The estimates pursuant to subparagraph (D) shall— (i) follow the methodology established pursuant to paragraph (2)(A); (ii) to the maximum extent practicable, comply with any guidelines issued by the Administrator of the Office of Information and Regulatory Affairs pertaining to cost-benefit analysis; and (iii) include, at a minimum— (I) agency administrative costs; (II) United States private sector compliance costs; (III) Federal, State, local, and tribal compliance costs; (IV) Federal, State, local, and tribal revenue impacts; (V) impacts from the regulatory options developed on United States industries in the role of suppliers and consumers to each industry substantially affected, especially in terms of employment, costs, volume and quality of output, and prices; (VI) nationwide impacts on overall economic output, productivity, consumer and producer prices; (VII) international competitiveness of United States companies; and (VIII) distortions in incentives and markets, including an estimate of the resulting loss to the United States economy. (F) The agency shall publish for public comment all analyses, documentation, and data under subparagraphs (A) through (D) for a public comment period of at least 30 days (subject to applicable limitations under law, including laws protecting privacy, trade secrets, and intellectual property) and correct deficiencies or omissions that the agency becomes aware of before choosing a rule to propose. (2) (A) Beginning not later than the date that is 180 days after the effective date of this section— (i) each agency shall, by rule, establish and maintain the specific cost-benefit analysis methodology appropriate to the functions and responsibilities of that agency and establish an appropriate period for review of new rules to assess the cost effectiveness of each such new rule at achieving the objective identified under paragraph (1)(B)(i) the new rule was intended to address; (ii) the methodology so established shall— (I) include the standardized parameters, assumptions, and methodologies for agency assessments of risk under paragraph (1)(C)(iv); (II) comply, to the maximum extent practicable, with technical standards for methodologies and assumptions issued by the Administrator for the Office of Information and Regulatory Affairs; (III) include the scope of benefits and costs consistent with the framework used and the metrics identified in the establishment of the regulatory objective under paragraph (1); (IV) not include consideration of incidental benefits but only those benefits that were considered in the establishment of the regulatory objective; (V) limit consideration of costs and benefits to costs and benefits that accrue to the population of the United States; (VI) constrain the agency from presuming that continued augmentation or tightening of mandates and additional prohibitions cause benefits and costs to change linearly but determine at what point benefits will rise less than, and costs will rise more than, proportionally; (VII) include comparison of incremental benefits to incremental costs from any action the agency considers taking and refrain from actions whose incremental benefits do not exceed their incremental costs; and (VIII) include analysis of effects on private incentives and possible unintended consequences; and (iii) the agency shall adhere to the methodology so established in all rulemakings. (B) If the agency does not select the least-cost regulatory option as its proposed rule, the agency shall justify its selection, explaining— (i) how that selection furthers other goals or requirements relevant to regulating matters within the agency’s jurisdiction and why these should override cost savings; and (ii) why each of the other regulatory options not chosen would not sufficiently further such other goals or requirements. (C) If the agency makes a determination under paragraph (1)(D) that the monetized cost of a rule exceeds the applicable monetary limit under clause (iv) of such paragraph for any 12-month period, the agency head shall— (i) first issue an advanced notice of proposed rulemaking; (ii) provide notice to the appropriate Congressional committees and keep such committees informed of the status of the rulemaking; and (iii) ensure that— (I) the agency shall notify the Administrator of the Small Business Administration, the Director of the Office of Management and Budget, and affected parties, and provide each such person with information on the potential effects of the proposed rule on affected parties and the type of affected parties that might be affected; (II) not later than 15 days after the date of receipt of the materials described in subclause (I), the Director, in consultation with the Administrator, shall identify representatives of affected parties, 25 percent of which shall represent small business concerns (as such term is defined in section 3(a) of the Small Business Act), when possible, and all the major stakeholders shall have the opportunity to obtain advice and recommendations about the potential effects of the proposed rule; (III) the agency shall convene a review panel consisting wholly of full-time Federal officers, employees, and contractors in the agency responsible for the proposed rule, the Director, the Administrator, and the representatives of affected parties identified pursuant to subclause (II); (IV) the agency shall conduct a detailed analysis of the costs and benefits of the regulatory option it is advancing, and, in doing so— (aa) the agency shall consider the cumulative and interactive costs of regulatory requirements of Federal, State, local, tribal, and (where applicable) international regulations; and (bb) the agency shall identify the key uncertainties and assumptions that drive the results and provide an analysis of how the ranking of the regulatory options changes if the key assumptions are changed; (V) the panel shall review agency material prepared in connection with this subsection, including any draft proposed rule, and review the advice and recommendations of each affected party representative identified; (VI) not later than 60 days after the date the agency convenes a review panel pursuant to subclause (III), the review panel shall report on the comments of the affected party representatives and its findings as to issues related to the provisions of this subsection, and such report shall be made public as part of the rulemaking record; (VII) where appropriate, the agency shall modify the proposed rule or the cost-benefit analysis under subclause (IV) based on the report under subclause (VI); (VIII) subject to applicable limitations under law, including laws protecting privacy, trade secrets, and intellectual property, the agency shall publish for comment all analyses, documentation, and data under this paragraph for a public comment period of at least 30 days and correct deficiencies or omissions that the agency becomes aware of before adopting a proposed rule; and (IX) affected parties, including State, local, or tribal governments, and other stakeholders may participate in the rulemaking by means such as— (aa) the publication of advanced and general notices of proposed rulemaking in publications likely to be obtained by affected parties; (bb) the direct notification of interested affected parties; (cc) the conduct of open conferences or public hearings including soliciting and receiving comments over computer networks; and (dd) reducing the cost or complexity of procedural rules to ease participation in the rulemaking. (D) Every 4 years the agency shall conduct a review of all rules of the agency in effect and determine based on objective data whether its rules are working as intended, furthering their objectives, imposing unanticipated costs, and generating a net benefit or not, and shall amend such rules if appropriate. The agency shall report to Congress the findings of each such review. (E) Any person may petition an agency to amend an existing rule made prior to the establishment of methodology under this paragraph, and, if the agency denies such a petition, that denial shall be subject to review under chapter 7 of this title. (F) Notwithstanding any other provision of law, including any provision of law that explicitly prohibits the use of cost-benefit analysis in rulemaking, an agency shall conduct cost-benefit analyses and report to Congress the findings with specific recommendations for how to lower regulatory costs by amending the statutes prohibiting the use thereof. (3) For purposes of this subsection— (A) the term regulatory options means any action an agency may take to address an objective identified under paragraph (1)(B)(i), including the option not to act; (B) the term private incentives means financial gains or losses that motivate actions by private individuals and businesses, and does not include any law or regulation that prescribes private actions or outcomes; and (C) the term incidental benefit means a claimed benefit outside the specific regulatory objective or objectives identified under paragraph (1)(B)(i) a rule is intended to address as identified in paragraph (1)(A). (4) All determinations made under this subsection shall be subject to review under chapter 7. . 4. Congressional review Section 801(a)(2) of title 5, United States Code, is amended by adding at the end the following: (C) The Comptroller General shall examine the cost-benefit analysis for compliance with the requirements of section 553(f), including the agency methodology established under section 553(f)(2)(A). (D) The Comptroller General shall examine any risk analysis under section 553(f)(1)(C)(iv) pertaining to the cost-benefit analysis for compliance with the requirements of section 553(f). (E) The Comptroller General also shall examine the agencies’ quadrennial regulatory reviews for consistency with the requirements of section 553(f) and report to Congress on the results. .