Cost-Benefit and Other Analysis Requirements in the Rulemaking Process
Released: 2014-12-09T00:00:00

Introduction

A common concern voiced by proponents of regulatory reform in recent decades has been that the costs associated with certain regulations outweigh the benefits that the regulations are intended to provide. Another, and somewhat related, view is that more intelligent regulatory policies could achieve the same social goals (e.g., cleaner environment, safer workplaces) at less cost, or could achieve more ambitious goals at the same cost. To improve the quality and effectiveness of federal rules and minimize burden, regulatory reform proponents have frequently advocated greater use of a range of analytic tools during the rulemaking process, including cost-benefit analysis (sometimes referred to as benefit-cost analysis) and cost-effectiveness analysis.

Cost-benefit analysis, in this context, involves the systematic identification of all of the costs and benefits associated with a forthcoming regulation, including nonquantitative and indirect costs and benefits, and how those costs and benefits are distributed across different groups in society. A proposed regulatory requirement is judged to pass the "cost-benefit test" if the sum of its anticipated benefits outweighs, or otherwise justifies, the sum of its present and future costs in present value terms. Cost-effectiveness analysis seeks to determine how a given goal can be achieved at the least cost. In contrast to cost-benefit analysis, the concern in cost-effectiveness analysis is not with weighing the merits of the goal, but with identifying and comparing the costs of alternatives to reach that goal (e.g., in terms of dollars per life saved).

The prospective (also known as ex ante ) estimates of benefits and costs that are done before rules are issued are necessarily uncertain and heavily dependent on numerous assumptions. Particularly difficult to quantify are long-term or uncertain effects of rules where subtle interactions between various factors are often not well understood or directly measurable. Cost-benefit analysis is particularly controversial when it seeks to rationalize inherent value trade-offs and to place a value on benefits not traded in the market (e.g., health or lives). Also, Congress has required cost-benefit analysis in some statutes (as discussed in detail later in this report), prohibited it in other statutes, and not precluded it in still other statutes. These issues notwithstanding, many economists believe that, when used carefully and with adequate data, cost-benefit analysis can be an effective tool in regulatory decision making.

Although many federal agencies are currently required to prepare cost-benefit analyses and cost-effectiveness analyses for certain rules before they are published in the Federal Register , proposed legislation has been introduced in the 113 th Congress to expand those requirements to more agencies and more types of rules, and to produce more detailed analyses. This report identifies a number of those bills, but first describes the existing requirements for cost-benefit and other types of analysis in the federal rulemaking process. It also discusses options for changing the current set of analytical requirements. The report does not, however, attempt to address issues related to the quality of the analyses that agencies develop, or whether agencies use the results of cost-benefit analyses to guide decision making.

Cross-Cutting Regulatory Analysis Requirements

The current set of regulatory analytical requirements has been established incrementally during the last 40 to 50 years through a series of presidential and congressional initiatives, including statutes, executive orders, circulars, and other documents. Those initiatives vary in terms of the agencies and rules they cover, and the types of analyses that are required. Most of the analytical requirements cover Cabinet departments and "independent agencies" such as the Environmental Protection Agency (EPA), but some also cover "independent regulatory agencies" such as the Securities and Exchange Commission (SEC), the Federal Communications Commission (FCC), and the Nuclear Regulatory Commission (NRC).

Presidential Initiatives

Each President within the past 40 years has required some form of regulatory analysis before agencies' rules are published in the Federal Register . For example:

In 1971, President Nixon required agencies to develop a summary of their regulatory proposals, a description of the alternatives that they considered, and the costs of those alternatives. In 1974, President Ford required agencies to develop an "inflation impact statement" for each major proposed rule. In 1978, President Carter required agencies to prepare a regulatory analysis that examined the cost-effectiveness of the alternative regulatory approaches for major rules.

Current broadly applicable cost-benefit analysis requirements in the rulemaking process are primarily traceable to President Reagan's Executive Order 12291, which was issued in February 1981. Under that executive order, the "covered agencies" (Cabinet departments and independent agencies, but not independent regulatory agencies) were generally required to (1) refrain from taking regulatory action "unless the potential benefits to society for the regulation outweigh the potential costs to society," (2) select regulatory objectives to maximize net benefits to society, and (3) select the regulatory alternative that involved the least net cost to society. The order also required covered agencies to prepare a "regulatory impact analysis" for each "major" rule, which was defined as any regulation likely to result in (among other things) an annual effect on the economy of $100 million. Those analyses were required to contain a description of the potential benefits and costs of the rule, a determination of the net benefits of the rule, a description of alternative approaches that could substantially achieve the regulatory goal at lower cost, and an explanation of why those approaches were not selected.

Executive Order 12866

Executive Order 12291 remained in place until September 1993, when President Clinton issued Executive Order 12866. The Clinton executive order, which is still in effect, revoked the Reagan order, but established analytical principles and requirements that are similar (although not identical) to those it replaced. For example, in its "Statement of Regulatory Philosophy" in Section 1(a), Executive Order 12866 states that the "covered agencies" (again, Cabinet departments and independent agencies, but not independent regulatory agencies)

should assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating. Costs and benefits shall be understood to include both quantifiable measures (to the fullest extent that these can be usefully estimated) and qualitative measures of costs and benefits that are difficult to quantify, but nevertheless essential to consider. Further, in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach.

Section 1(b) of Executive Order 12866 delineates certain "Principles of Regulation" that covered agencies "should adhere to" (to the extent permitted by law and where applicable). For example, the agencies are told that they should

design their regulations "in the most cost-effective manner to achieve the regulatory objective. In doing so, each agency shall consider incentives for innovation, consistency, predictability, the costs of enforcement and compliance (to the government, regulated entities, and the public), flexibility, distributive impacts, and equity"; assess both the costs and the benefits of their intended regulations and, "recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs"; and tailor their regulations "to impose the least burden on society, including individuals, businesses of differing sizes, and other entities (including small communities and governmental entities), consistent with obtaining the regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations."

The heart of the economic analysis requirements is in Section 6 of Executive Order 12866, which differentiates between "significant" and "economically significant" rules. "Significant" rules are defined as those that satisfy any of four conditions:

(1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive order.

Rules fitting the first of these conditions are often referred to as "economically significant" or "major" regulatory actions.

Section 6(a)(3)(B) of Executive Order 12866 states that, for each "significant" regulatory action, covered agencies are to provide to the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB) a general "assessment of the potential costs and benefits of the regulatory action." However, Section 6(a)(3)(C) of the executive order states that, for each "economically significant" regulatory action, agencies are to also provide to OIRA (unless prohibited by law):

(i) An assessment, including the underlying analysis, of benefits anticipated from the regulatory action (such as, but not limited to, the promotion of the efficient functioning of the economy and private markets, the enhancement of health and safety, the protection of the natural environment, and the elimination or reduction of discrimination or bias) together with, to the extent feasible, a quantification of those benefits;

(ii) An assessment, including the underlying analysis, of costs anticipated from the regulatory action (such as, but not limited to, the direct cost both to the government in administering the regulation and to businesses and others in complying with the regulation, and any adverse effects on the efficient functioning of the economy, private markets (including productivity, employment, and competitiveness), health, safety, and the natural environment), together with, to the extent feasible, a quantification of those costs; and

(iii) An assessment, including the underlying analysis, of costs and benefits of potentially effective and reasonably feasible alternatives to the planned regulation, identified by the agencies or the public (including improving the current regulation and reasonably viable nonregulatory actions), and an explanation why the planned regulatory action is preferable to the identified potential alternatives.

In emergency situations, or when an agency is required by law to act more quickly than normal review procedures allow, the rulemaking agency is required to comply with the order's requirements "to the extent practicable." Section 10 of Executive Order 12866 states that nothing in the order affects otherwise available judicial review, and it goes on to say that the order "is intended only to improve the internal management of the Federal Government and does not create any right or benefit, substantive or procedural, enforceable by law or equity by a party against the United States, its agencies or instrumentalities, its officers or employees, or any other person."

OMB Circular A-4

In January 1996, OIRA published a document that described "best practices" for preparing the economic analyses called for by the executive order. In essence, the best practices document said that the analysis should (1) clearly state the need for the proposed action (e.g., market failure) and make clear why federal regulation (as opposed to other methods such as state regulation or subsidies) is the appropriate solution, (2) clearly show that the agency considered the most important alternative approaches, and (3) assess the incremental costs and benefits of the proposed action. The best-practices document also stated that cost-effectiveness analysis should be used where possible to evaluate alternatives.

In September 2003, OMB and the Council of Economic Advisors finalized OMB Circular A-4 on "Regulatory Analysis," which refined and replaced the 1996 best practices document. The circular states that it was "designed to assist analysts in the regulatory agencies by defining good regulatory analysis ... and standardizing the way benefits and costs of Federal regulatory actions are measured and reported." It also states that a "good regulatory analysis should include the following three basic elements: (1) a statement of the need for the proposed action, (2) an examination of alternative approaches, and (3) an evaluation of the benefits and costs—quantitative and qualitative—of the proposed action and the main alternatives identified by the analysis."

With regard to need, OMB Circular A-4 states that the agency should describe the statutory or judicial directives that authorize the action, and describe the problem that it intends to address. The underlying problem can involve a market failure (e.g., a monopoly that adversely affects consumers, or inadequate information about a product) or other social purposes (e.g., to combat discrimination). The statement of need should also consider other alternatives to federal regulation, including the option of state or local regulation. After determining that federal regulation is needed, OMB Circular A-4 requires the agency to consider a "reasonable number" of alternative regulatory approaches available within the statutory authority provided to the agency. For example, the circular says agencies should consider different compliance dates, enforcement methods, levels of stringency, requirements based on firm size or geographic region; performance standards instead of design standards, market approaches instead of direct controls; and informational measures instead of regulation. With regard to analytical approaches, the circular states that agencies should use both cost-benefit analysis and cost-effectiveness analysis. When all benefits and costs can be expressed in monetary units, cost-benefit analysis can clearly indicate which approach is most efficient in terms of net benefits. However, in many (and perhaps most) cases, agencies are not able to express all of the benefits or costs in monetary units. In such cases, OMB Circular A-4 states that cost-benefit analysis "is less useful, and it can even be misleading, because the calculation of net benefits in such cases does not provide a full evaluation of all relevant benefits and costs." Analysts should therefore attempt to quantify benefits or costs as much as possible (e.g., tons of pollution avoided, or the number of children who will not suffer discrimination), and "exercise professional judgment" in determining whether non-quantified factors are important enough to justify consideration of the regulation.

Although some contend that certain benefits cannot be monetized (e.g., deaths or illnesses avoided), agencies have developed a variety of methods of doing so, often by determining the number of "statistical lives" that the rules are expected to extend or save, and then multiplying that number by an estimated "value of a statistical life" (VSL). OMB Circular A-4 notes that academic studies have identified VSLs from $1 million to $10 million, but it does not recommend that agencies use a particular VSL. In 2009, the Department of Transportation's (DOT's) VSL was $6.0 million while the Environmental Protection Agency's (EPA's) VSL was nearly $7.9 million.

OMB Circular A-4 describes cost-effectiveness analysis as a way to "identify options that achieve the most effective use of the resources available without requiring monetization of all of relevant benefits or costs." It allows analysts to compare a set of regulatory actions with the same primary outcome. For example, the analysis may indicate that one option costing $100 million is expected to save 50 lives (i.e., $2 million per life saved), while another option costing $200 million is expected to save 200 lives during the same period (i.e., $1 million per life saved).

The circular also discusses a variety of other economic analysis issues, including measuring costs and benefits against a baseline (i.e., the way the world would look absent the proposed regulation); discounting when benefits and costs do not occur within the same time period; and how uncertainty should be treated (e.g., ranges, probability distributions, and estimates of expected value). For particularly large rules with annual economic effects of $1 billion or more, agencies are instructed to

present a formal quantitative analysis of the relevant uncertainties about benefits and costs. In other words, you should try to provide some estimate of the probability distribution of regulatory benefits and costs. In summarizing the probability distributions, you should provide some estimates of the central tendency (e.g., mean and median) along with any other information you think will be useful such as ranges, variances, specified low-end and high-end percentile estimates, and other characteristics of the distribution.

Finally, OMB Circular A-4 provides guidance on the regulatory accounting statements that are required under the Regulatory Right-to-Know Act, and summarizes analytical requirements in other statutes and executive orders.

Executive Orders 13563 and 13579

Executive Order 13563, issued by President Obama in January 2011, reiterated many of the general principles of regulation in Executive Order 12866. For example, it says covered agencies (Cabinet departments and independent agencies) must (to the extent permitted by law): (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs, (2) tailor regulations to impost the least burden on society, and (3) select regulatory approaches that maximize net benefits. It also directs agencies to "use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible." Section 6 of the executive order requires covered agencies to develop a plan under which they would periodically review their existing significant rules. Although the executive order does not apply to independent regulatory agencies, a February 2011 memorandum from the OIRA Administrator encouraged those agencies to "give consideration to all its provisions."

In July 2011, President Obama issued Executive Order 13579, "Regulation and Independent Regulatory Agencies." The executive order encouraged independent regulatory agencies to comply with some of the principles in Executive Order 13563 that were directed to Cabinet departments and independent agencies (e.g., public participation, integration and innovation, flexible approaches, and science), and said independent regulatory agencies "should" develop a plan for the periodic review of their rules. In a separate memorandum issued the same day as the executive order, the President said he was doing so with "full respect for the independence of your agencies." Executive Order 13579 does not, however, directly apply the cost-benefit principles in Executive Orders 12866 or 13563 to independent regulatory agencies, and does not require them to conduct any type of economic analysis before issuing their rules.

Analytical Requirements in Other Executive Orders

In addition to the broadly applicable analytical requirements in Executive Order 12866 and related guidance, several other executive orders have required covered agencies (Cabinet departments and independent agencies) to analyze their regulations for particular purposes. For example:

Executive Order 13045 on "Protection of Children from Environmental Health Risks and Safety Risks," issued in April 1997, requires each covered agency, "to the extent permitted by law and appropriate, and consistent with the agency's mission," to "address disproportionate risks to children that result from environmental health risks or safety risks." For any substantive rulemaking action that "is likely to result in" an economically significant rule that concerns "an environmental health risk or safety risk that an agency has reason to believe may disproportionately affect children," the agency must provide OIRA with "an evaluation of the environmental health or safety effects of the planned regulation on children," as well as "an explanation of why the planned regulation is preferable to other potentially and reasonably feasible alternatives considered by the agency." Executive Order 13132 on "Federalism," issued in August 1999, requires covered agencies to prepare a "federalism summary impact statement" whenever they issue a rule that has "significant federalism implications." The assessment is to contain "a description of the extent of the agency's prior consultation with State and local officials, a summary of the nature of their concerns and the agency's position supporting the need to issue the regulation, and a statement of the extent to which the concerns of State and local officials have been met." The executive order says the consultation and impact statement requirements apply "to the extent practicable." Executive Order 13175 on "Consultation and Coordination with Indian Tribal Governments" requires covered agencies to "have an accountable process to ensure meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications." In addition, the order states that no agency shall promulgate a regulation that has tribal implications and preempts tribal law without first consulting with tribal officials, providing OMB with a "tribal summary impact statement," and making available to OMB any written communications the tribal officials submitted to the agency. Executive Order 13211, issued in May 2001, requires covered agencies (to the extent permitted by law) to prepare and submit to OMB a "Statement of Energy Effects" for "significant energy actions." The statement, which is to be published in the proposed rule and the final rule, is to include a detailed statement of "any adverse effects on energy supply, distribution, or use" for the action, and reasonable alternatives and their effects.

None of these executive orders apply to independent regulatory agencies, and all of them give federal agencies substantial discretion to define key terms (e.g., "disproportionately affect," "significant federalism implications," and "significant energy actions") that determine the degree to which they cover agencies' rules.

Supplemental Publications

On October 28, 2010, OMB published an agency checklist for the regulatory impact analyses required by Executive Order 12866 and OMB Circular A-4. It contains repeated references to provisions in the executive order and the circular, and states that nothing in the checklist "alters, adds to, or reformulates existing requirements in any way." Among other things, the checklist asks whether the agency's analysis (1) has a reasonably detailed description of the need for the regulatory action, (2) explains how the action will meet that need, (3) quantifies and monetizes the expected costs and benefits of the action to the extent feasible, (4) explains and supports a reasoned justification that the benefits of the regulatory action justify the costs, (5) assesses the potentially effective and reasonable alternatives to the action (including at least one alternative that is more stringent and one that is less stringent), and (6) explains why the planned regulatory action is preferable to those alternatives.

On February 7, 2011, OMB published a document entitled Regulatory Impact Analysis: Frequently Asked Questions . Again, OMB said "nothing said here is meant to alter existing requirements in any way." Among other things, OMB indicated the following:

A rule may be considered "economically significant" if it is expected to have $100 million in costs, benefits, or transfers in any one year, and rules that do not cross that threshold but could adversely affect a small sector of the economy and would threaten to create significant job loss would still be considered "economically significant." Agencies' regulatory impact analyses should be presented in plain language, and should include a clear executive summary of their central conclusions and an accounting statement with a table summarizing the expected costs, benefits, and transfers. When considering regulatory alternatives, agencies should begin by asking whether to regulate at all, and should consider deferring to regulation at the state or local level. If federal regulation is needed, agencies should consider analyzing at least three options: the preferred option, a more stringent option, and a less stringent one. Agencies should also generally include a sensitivity analysis showing how results can vary with changes in assumptions, data, and analytical approaches.

In August 2011, OMB issued a primer to "assist agencies in developing regulatory impact analyses (RIAs), as required for economically significant rules by Executive Order 13563, Executive Order 12866, and OMB Circular A-4." The primer contains nine steps for conducting a proper regulatory impact analysis: (1) describe the need for the regulatory action; (2) define the baseline; (3) set the time horizon of analysis; (4) identify a range of regulatory alternatives; (5) identify the consequences of regulatory alternatives; (6) quantify and monetize the benefits and costs; (7) discount future benefits and costs; (8) evaluate non-quantified and non-monetized benefits and costs; and (9) characterize uncertainty in benefits, costs, and net benefits.

Congressional Initiatives

Congress has also required federal agencies to analyze the effect of certain rules before they are issued. Some of the requirements are potentially applicable to a range of agencies and regulations, while other requirements are focused on particular agencies or types of rules (e.g., those affecting the environment or small businesses). In addition to the cross-cutting requirements discussed below, there are many other requirements that are tied to particular agencies and statutes. For example, Section 1102(b) of the Social Security Act (42 U.S.C. §1302(b)) requires the Department of Health and Human Services to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals.

Unfunded Mandates Reform Act

The statutory provisions that most closely approximate the types of analysis required in Executive Order 12866 are in Title II of the Unfunded Mandates Reform Act (UMRA) of 1995 (2 U.S.C. §§1532-1538). Before promulgating a rule containing a mandate that may result in the expenditure of $100 million or more in any one year by the private sector, or by state, local, and tribal governments in the aggregate, UMRA requires covered agencies (Cabinet departments and independent agencies, but not independent regulatory agencies) to prepare a written statement containing (among other things) a "qualitative and quantitative assessment of the anticipated costs and benefits ... as well as the effect of the Federal mandate on health, safety, and the natural environment." The written statement is also generally required to include estimates of future compliance costs, and any disproportionate budgetary effects on particular regions, governments, or segments of the private sector, and estimates of effects on the national economy, including effects on job creation, productivity, full employment, and international competitiveness. OIRA has primary responsibility for monitoring agency compliance with Title II of UMRA, and publishes an annual report on the implementation of Title II. UMRA provides for limited judicial review of agency compliance with these analytical requirements. Specifically, Section 401(a)(2)(B) states that if an agency fails to prepare the written statement required in Section 202, "a court may compel the agency to prepare such written statement."

As the Government Accountability Office (GAO, formerly the General Accounting Office) pointed out several times during the past 15 years, however, UMRA's analytical requirements do not apply to most economically significant rules, give agencies substantial discretion regarding their implementation, and do not require agencies to do much more than is already required in Executive Order 12866. For example, the requirements in Section 202 of UMRA are not triggered if the agency issues a final rule without a previous notice of proposed rulemaking. (About half of all final rules do not have a prior proposed rule.) Also, UMRA does not apply unless there are "expenditures" of at least $100 million in a year (which may not be the same as "impact on the economy" or even "cost"), and does not apply to "voluntary" programs or conditions of federal financial assistance. Agencies do not have to estimate certain effects if they determine such estimates are not "reasonably feasible." In February 1998, GAO reported that, because of the way the statute was written, Title II of UMRA had little effect on agencies' rulemaking actions during its first two years of implementation. In May 2004, GAO again reported that UMRA's written statement requirements did not apply to most major or economically significant final rules issued in 2001 and 2002, even though some of the rules "appeared to have potential financial impacts on affected nonfederal parties similar to those of the actions that were identified as containing mandates at or above the act's thresholds." In February 2011, GAO reiterated these conclusions, noting that there are at least 14 reasons why a rule would not be considered a "mandate" under UMRA.

National Environmental Policy Act

Other statutory analytical requirements have been enacted with regard to particular issues or constituencies. For example, the National Environmental Policy Act (NEPA) of 1969 (42 U.S.C. §§4321-4347) requires federal agencies to include in every recommendation or report related to "major Federal actions significantly affecting the quality of the human environment" a detailed statement on the environmental impact of the proposed action. The environmental impact statement must delineate the direct, indirect, and cumulative effects of the proposed action. Agencies are also required to include in the statement (1) any adverse environmental effects that cannot be avoided should the proposal be implemented, (2) alternatives to the proposed action, (3) the relationship between local short-term uses of the environment and the maintenance and enhancement of long-term productivity, and (4) any irreversible and irretrievable commitments of resources that would be involved if the proposed action should be implemented. As discussed in a separate CRS report, just about every word in the term "major Federal actions significantly affecting the quality of the human environment" has been disputed, scrutinized, and defined by the courts.

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. §§601-612) requires federal agencies to assess the impact of their forthcoming regulations on "small entities," which the act defines as including small businesses, small governmental jurisdictions, and certain small not-for-profit organizations. Under the RFA, Cabinet departments and independent agencies as well as independent regulatory agencies must prepare a "regulatory flexibility analysis" at the time proposed and certain final rules are issued. The RFA requires the analysis to describe, among other things, (1) the reasons why the regulatory action is being considered; (2) the small entities to which the proposed rule will apply and, where feasible, an estimate of their number; (3) the projected reporting, recordkeeping, and other compliance requirements of the proposed rule; and (4) any significant alternatives to the rule that would accomplish the statutory objectives while minimizing the impact on small entities.

However, these analytical requirements are not triggered if the head of the issuing agency certifies that the proposed rule would not have a "significant economic impact on a substantial number of small entities." The RFA does not define "significant economic impact" or "substantial number of small entities," thereby giving federal agencies substantial discretion regarding when the act's analytical requirements are initiated. Also, the RFA's analytical requirements do not apply to final rules for which the agency does not publish a proposed rule, and some agencies do not consider an RFA analysis to be required if the rule is expected to have significant positive effects on small entities.

The RFA initially did not permit judicial review of agencies' actions under the act. However, amendments to the act in 1996 as part of the Small Business Regulatory Enforcement Fairness Act (SBREFA, 5 U.S.C. §601 note) permitted judicial review regarding, among other things, agencies' regulatory flexibility analyses for final rules and any certifications that their rules will not have a significant impact on small entities. As a result, a small entity that is adversely affected or aggrieved by an agency's determination that its final rule would not have a significant impact on small entities could seek judicial review of that determination within one year of the date of the final agency action. In granting relief, a court may remand the rule to the agency or defer enforcement against small entities. For more than 25 years, however, courts have ruled that agencies need not prepare regulatory flexibility analyses if the effects of a rule on an industry are indirect. Therefore, for example, if a federal agency is issuing a final rule establishing a health standard that is implemented by states or other entities, the federal agency issuing the rule need not prepare a regulatory flexibility analysis even if it is clear that the implementation ultimately will have significant effect on a substantial number of small entities.

GAO has examined the implementation of the RFA several times within the past 20 years, and a recurring theme in GAO's reports is a lack of clarity in the act and a resulting variability in its implementation. For example, in 1991 GAO reported that each of the four federal agencies that it reviewed had a different interpretation of key RFA provisions. In 1994, GAO again reported that agencies' compliance with the RFA varied widely from one agency to another and that agencies were interpreting the statute differently. In a 1999 report, GAO concluded that agencies had broad discretion to determine what the statute required. In a 2000 report, GAO said that the Environmental Protection Agency (EPA) had certified more than 95% of its final rules issued in the late 1990s, and characterized EPA as having a "high threshold" for analysis (albeit within the discretion permitted in the statute). In all of these reports, GAO suggested that Congress consider clarifying the act's requirements and/or give the Small Business Administration (SBA) or some other entity the responsibility to develop criteria for whether and how agencies should conduct RFA analyses. In 2001, GAO testified that the promise of the RFA may never be realized until Congress or some other entity defines what a "significant economic impact" and a "substantial number of small entities" mean in a rulemaking setting. However, other observers have indicated that the definitions of these terms should remain flexible because of significant differences in each agency's operating environment.

Paperwork Reduction Act

Other analytical requirements pertain to certain aspects of the rulemaking process, albeit not the rules themselves. The Paperwork Reduction Act (PRA) (44 U.S.C. §§3501-3520) was originally enacted in 1980, but was subsequently amended in 1986 and again in 1995. One of the purposes of the PRA is to minimize the paperwork burden for individuals, small businesses, and others resulting from the collection of information by or for the federal government. The act generally defines a "collection of information" as the obtaining or disclosure of facts or opinions by or for an agency (Cabinet departments and independent agencies as well as independent regulatory agencies) by 10 or more nonfederal persons. Many information collections, recordkeeping requirements, and third-party disclosures are contained in or are authorized by regulations as monitoring or enforcement tools. In fact, these paperwork requirements are the essence of many agencies' regulatory provisions. The PRA requires agencies to justify any collection of information from the public by establishing the need and intended use of the information, estimating the burden that the collection will impose on respondents, and showing that the collection is the least burdensome way to gather the information.

The original PRA established OIRA to provide central agency leadership and oversight of government-wide efforts to reduce unnecessary paperwork burden and improve the management of information resources. Agencies must receive OIRA approval (signified by an OMB control number displayed on the information collection) for each collection request before it is implemented, and those approvals must be renewed at least every three years. Failure to obtain OIRA approval for an active collection, or the lapse of that approval, represents a violation of the act, and triggers the PRA's public protection provision. Under that provision, no one can be penalized for failing to comply with a collection of information subject to the act if the collection does not display a valid OMB control number. OIRA can disapprove any collection of information if it believes the collection is inconsistent with the requirements of the PRA. However, multi-headed independent regulatory agencies can, by majority vote of the leadership, void any OIRA disapproval of a proposed information collection.

Coverage of Analytical Requirements Varies

As the above discussion indicates, the cross-cutting executive order and statutory analytical requirements vary substantially in terms of the types and amount of analysis required, and the agencies and rules that they cover:

Executive Order 12866 and OMB Circular A-4 contain the most detailed requirements, and cover all rules with a $100 million annual "effect on the economy," but the executive order and the circular do not apply to independent regulatory agencies. The Unfunded Mandates Reform Act contains analytical requirements that are somewhat similar to those in Executive Order 12866, but it applies to only a small percentage of the rules that are covered by the executive order because of substantial limitations in the scope of the act's requirements (e.g., UMRA does not apply to independent regulatory agencies, or to rules that are conditions of financial assistance, rules issued without a notice of proposed rulemaking, or rules that do not require $100 million in "expenditures" in a year). The Regulatory Flexibility Act is broader than either the executive order or UMRA in that it covers independent regulatory agencies, but the RFA does not apply to rules issued without a notice of proposed rulemaking, or to rules that the agencies certify will not have a "significant economic impact on a substantial number of small entities." Some agencies certify that more than 90% of their rules will not have that impact, and therefore are not required to do the analysis. The Paperwork Reduction Act covers independent regulatory agencies, but it only covers agencies' collections of information, not the rules themselves.

Table 1 below summarizes this information, showing that the requirement with most extensive analytical requirements and broad coverage (Executive Order 12866) does not apply to independent regulatory agencies, and the requirements that do apply to independent regulatory agencies (the RFA and the PRA) are more limited in the types of analysis required.

Analytical Requirements Applicable to Selected Independent Regulatory Agencies

Although independent regulatory agencies are not covered by the analytical requirements in Executive Order 12866 and OMB Circular A-4, that lack of coverage may be ameliorated if the individual statutes that provide rulemaking authority to these agencies require cost-benefit or other types of economic analysis. This section of the report examines the analytical requirements in the underlying statutes for selected independent regulatory agencies.

Economic Analysis and Banking Agencies

Because of concerns regarding the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 , July 21, 2010), on May 4, 2011, the 10 Republican Senators on the Senate Committee on Banking, Housing, and Urban Affairs jointly requested that the offices of the inspectors general (OIGs) for five independent regulatory agencies in the banking area provide them with information about the economic analysis requirements applicable to rulemaking in those agencies. The five agencies were the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Office of the Comptroller of the Currency (OCC) within the Department of the Treasury, and the Federal Deposit Insurance Corporation (FDIC). The five OIGs provided written responses to the Senators in June 2011, and those responses are summarized below.

Board of Governors of the Federal Reserve System

The OIG for the Board of Governors of the Federal Reserve System said that statutes related to the board's rulemaking authority, including the Federal Reserve Act and the Bank Holding Company Act of 1956, "generally do not require economic analysis as part of the agency's rulemaking activities." The OIG noted the applicability of the PRA and the RFA to the Board's rulemaking, but said they only require "narrowly tailored evaluations of the rulemaking's paperwork burden and effect on small entities, respectively."

Securities and Exchange Commission

The SEC OIG report identified several statutory provisions that require the commission to analyze the impact of its rules. For example, the report noted that the National Securities Market Improvement Act (15 U.S.C. §77b(b)) requires the SEC to consider whether an action "will promote efficiency, competition, and capital formation" whenever it is "engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest." Also, Section 23(a)(2) of the Securities Exchange Act of 1934 (15 U.S.C. §78w(a)(2)) states that:

The Commission and the Secretary of the Treasury, in making rules and regulations pursuant to any provisions of this chapter, shall consider among other matters the impact any such rule or regulation would have on competition. The Commission and the Secretary of the Treasury shall not adopt any such rule or regulation which would impose a burden on competition not necessary or appropriate in furtherance of the purposes of this chapter. The Commission and the Secretary of the Treasury shall include in the statement of basis and purpose incorporated in any rule or regulation adopted under this chapter, the reasons for the Commission's or the Secretary's determination that any burden on competition imposed by such rule or regulation is necessary or appropriate in furtherance of the purposes of this chapter.

The OIG noted that the RFA and the PRA apply to SEC rulemaking, and that Executive Order 12866 and OMB Circular A-4 do not apply. Nevertheless, the OIG said that "SEC Chairmen have made a commitment to Congress that the SEC will conduct cost-benefit or economic analyses in connection with its rulemaking activities," and said that "the Commission's current rulemaking procedures are closely aligned with the requirements" of the executive order and the circular. The OIG also noted that the SEC's website states that "we take into account benefits and costs in our rulemakings [and] assess alternative regulatory approaches," and that the SEC chairman stated during a congressional hearing in March 2011 that the SEC does conduct cost-benefit analyses.

However, the OIG also pointed out that another SEC commissioner stated in a May 2011 speech that the "Commission has not engaged in a cost-benefit analysis of the rulemakings that were essentially dictated by the law." She reportedly went on to say that "By limiting our cost-benefit analysis to those measures over which the Commission has full discretion, we fail to consider all the costs and benefits that will result from a particular regulatory action."

Federal Deposit Insurance Corporation

The FDIC OIG report noted the applicability of the RFA and the PRA, and said that the "Small Business Regulatory Enforcement Fairness Act also requires the FDIC to conduct cost-benefit analyses of final rules." However, that act only requires agencies to submit a cost-benefit analysis to the Government Accountability Office if the agency has prepared one for the final rule at issue. The report noted that FDIC is not covered by Executive Orders 12866 and 13563 or OMB Circular A-4, but said the agency had issued a Statement of Policy on the Development and Review of FDIC Regulations and Policies that "generally addresses the spirit of, and principles found in, the two executive orders and OMB guidance."

In terms of agency-specific requirements, the FDIC OIG report identified Section 302 of the Riegle Community Development and Regulatory Improvement Act (12 U.S.C. §4802(a)), which states:

In determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, each Federal banking agency shall consider, consistent with the principles of safety and soundness and the public interest - (1) any administrative burdens that such regulations would place on depository institutions, including small depository institutions and customers of depository institutions; and (2) the benefits of such regulations.

Commodity Futures Trading Commission

The June 2011 CFTC OIG report noted that Section 15(a) of the Commodity Exchange Act (7 U.S.C. §19(a)) requires the agency to consider costs and benefits before issuing certain regulations. Specifically, Section 15(a) states the following:

Before promulgating a regulation under this chapter ... , the Commission shall consider the costs and benefits of the action of the Commission. The costs and benefits of the proposed Commission action shall be evaluated in light of - (A) considerations of protection of market participants and the public; (B) considerations of the efficiency, competitiveness, and financial integrity of futures markets; (C) considerations of price discovery; (D) considerations of sound risk management practices; and (E) other public interest considerations.

In light of this requirement, in September 2010, the CFTC Office of General Counsel and Office of Chief Economist created a template for a uniform cost-benefit analysis methodology to be used in Dodd-Frank Act proposed rules. That template stated, in part, that Section 15(a) "does not require the Commission to quantify the costs and benefits of a rule or to determine whether the benefits of the order outweigh its costs; rather, it requires that the Commission 'consider' the costs and benefits of its actions." It went on to say that CFTC "could in its discretion determine that, notwithstanding its costs, a particular rule is necessary or appropriate to protect the public interest or to effectuate any of the provisions or accomplish any of the purposes of the Act."

In May 2011, the same two offices developed "Staff Guidance on Cost-Benefit Considerations for Final Rulemakings under the Dodd-Frank Act." In that guidance, CFTC staff were told to "consider costs and benefits in the Final Rulemakings utilizing the principles set forth in Executive Order 13563 in a manner that is reasonably feasible and appropriate, and consistent with the underlying statutory mandate [in Section 15(a) of the Commodity Exchange Act]." Rulemaking teams were allowed to "choose ... quantitative analysis to respond to comments received." The guidance goes on to say that additional analysis is primarily needed when the comments raise specific concerns about costs and benefits, and that "[q]uantitative benefits need not always be greater than costs because there may be a statutory mandate or policy rationale behind the rule."

Comptroller of the Currency

Section 315 of the Dodd-Frank Act amended the PRA (44 U.S.C. §3502(5)) to designate OCC, which is an agency within the Department of the Treasury, as an independent regulatory agency. Prior to the Dodd Frank Act, OCC was not considered an independent regulatory agency and therefore was subject to Executive Order 12866 and OMB Circular A-4, as well as the Unfunded Mandates Reform Act. OCC still remains a component of the Department of the Treasury, but because it is designated as an independent regulatory agency under the PRA, OCC is no longer subject to those requirements.

After discussing the applicability of analytical requirements in the RFA and the PRA, the Treasury OIG report noted requirements in the Riegle Community Development and Regulatory Improvement Act ("Riegle Act," 12 U.S.C. §4802(a)), which states:

In determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, each Federal banking agency shall consider, consistent with the principles of safety and soundness and the public interest - (1) any administrative burdens that such regulations would place on depository institutions, including small depository institutions and customers of depository institutions; and (2) the benefits of such regulations.

The term "Federal banking agencies" is defined in Section 4801 of the Riegle Act (12 U.S.C. §1813) as the "Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation." Therefore, although its OIG did not mention it, the Board of Governors of the Federal Reserve System also appears to be covered by this requirement.

Summary of the OIG Reports

Although the OIG reports identified statutory cost-benefit requirements that are applicable to all five of the independent regulatory agencies, those requirements are not as directive or as detailed as those in Executive Order 12866 or OMB Circular A-4. The statutory requirements often only require the agencies to "consider" costs and benefits, but do not specifically require the agencies to conduct a detailed analysis or to demonstrate that the benefits of their rules exceed or justify the costs. For example:

The National Securities Market Improvement Act requires the SEC to "consider" whether an action "will promote efficiency, competition, and capital formation," and the Securities Exchange Act of 1934 requires the agency to "consider" the impact that a rule would have on competition. The Riegle Act requires the FDIC, the OCC, and the Board of Governors of the Federal Reserve System to "consider ... any administrative burdens that such regulations would place on depository institutions ... [and] the benefits of such regulations." The Commodities Exchange Act requires CFTC to "consider the costs and benefits of the action of the Commission."

That lack of specificity notwithstanding, however, it is unclear how these agencies will be able to "consider" regulatory costs and benefits if they do not perform some type of systematic economic analysis of their proposed regulations. In the previously mentioned July 2011 decision by the U.S. Court of Appeals for the District of Columbia involving an SEC rule, the court said that the agency has a "statutory obligation to determine as best it can the economic implications of the rule."

Consumer Financial Protection Bureau

Although not included in the 10 Senators' May 4 letter to the OIGs, the Bureau of Consumer Financial Protection (often referred to as the Consumer Financial Protection Bureau, or CFPB) within the Federal Reserve System is also expected to issue Dodd-Frank Act regulations that will be of interest to financial institutions, the public, and Congress. CFPB was created by Title X of the Dodd-Frank Act, which consolidated many federal consumer protection responsibilities into the bureau. The act transferred supervisory and enforcement authority over a number of consumer financial products and services to the bureau on July 21, 2011. Title X and Title XIV of the act contain numerous provisions that require or permit the CFPB to issue regulations implementing the statute's provisions.

Section 1022(b)(2)(A) of the Dodd-Frank Act (12 U.S.C. §5512) establishes certain "standards of rulemaking" for CFPB. Specifically, it states that

the Bureau shall consider—(i) the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule; and (ii) the impact of proposed rules on covered persons, as described in section 1026, and the impact on consumers in rural areas.

Therefore, CFPB, like the other banking agencies, appears to be required to "consider" costs and benefits before issuing its rules, but is not specifically required to prepare detailed cost-benefit analyses to accomplish that goal.

Consumer Product Safety Commission

On July 7, 2011, the Subcommittee on Oversight and Investigations of the House Committee on Energy and Commerce held a hearing at which several independent regulatory agencies testified about their response to the issuance of Executive Order 13563. One of the agencies represented at the hearing was the Consumer Product Safety Commission (CPSC). CPSC Commissioner Robert S. Adler testified that the commission has been required since 1981 amendments to the Consumer Product Safety Act to "conduct an extensive cost-benefit analysis when we promulgate safety rules." He said these provisions "easily match, if not surpass, in their stringency and scope the cost-benefit provisions of the various executive orders on cost-benefit analysis recommended by the Office of Management and Budget." Specifically, he noted a number of provisions in the agency's organic statute that require the CPSC to conduct a regulatory analysis prior to issuing a consumer product safety rule. Commissioner Adler also noted, however, that the agency has issued only nine mandatory safety rules in the last 30 years, "opting instead to work with the voluntary standards sector and to negotiate individual Corrective Action Plans for the recall of specific hazardous products." He also said that certain labeling requirements do not require the same level of regulatory analysis as other types of safety rules.

Another perspective was offered by CPSC Commissioner Anne M. Northup, who said that most of the regulations mandated by the Consumer Product Safety Improvement Act of 2008 (CPSIA) are not required to be issued pursuant to the above-mentioned provisions that require cost-benefit analysis, and that the commission "has never conducted a full cost-benefit analysis of any regulation we have promulgated under the CPSIA." She also said that such an analysis would reveal that many of the regulations that the act required to be issued "cannot be justified."

Implementation of Cost-Benefit Requirements

As noted previously in this report, Executive Order 12866 requires covered agencies to prepare cost-benefit analyses only if their rules are expected to be "economically significant" or "major" (e.g., are expected to have a $100 million annual effect on the economy). A 2011 CRS report examined 100 rules issued during calendar year 2010 that OIRA and the agencies considered to be "major," and concluded that 37 of the rules appeared to be major because they involved annual transfers of $100 million in funds from one party to another party, most commonly the transfer of federal funds to the recipients of those funds (e.g., grants, food stamps, Medicare or Medicaid funds, special pay for members of the military, and crop payments). Ten other rules appeared to be major because they were expected to prompt $100 million or more in annual consumer spending, or because they were establishing fees for the reimbursement of particular federal functions (e.g., issuance of passports and oversight of the nuclear power industry). Thirty-nine rules appeared to be major because they were expected to result in at least $100 million in annual compliance costs, regulatory benefits, or both. In 20 of those 39 rules, estimated annual costs and benefits were both expected to exceed $100 million. In 14 of the 20 rules, the agencies' lowest estimates of regulatory benefits were larger than the highest estimated compliance costs. In only one rule were the lowest costs greater than the highest benefits, and the agency indicated that this result was caused by the lack of discretion provided in the underlying statute.

OMB Annual Reports on Costs and Benefits

OMB's annual reports on the costs and benefits of regulations also indicate the extent to which federal agencies are estimating the costs and benefits of their rules. In the 2013 report, reflecting rules issued during FY2012, OMB reported that executive agencies issued a total of 47 major final rules. Twenty-two of these rules are considered "transfer" rules, which involve monetary transfers. The issuing agencies quantified the amount of the transfer for all but two of these rules. For 14 of the remaining 25 rules, the issuing agencies quantified and monetized both benefits and costs, with annual costs estimated to be between $14.8 billion and $19.5 billion, and annual benefits estimated at between $53.2 billion and $114.6 billion. For the other 11 rules, the agencies monetized only costs or benefits, but not both.

The OMB report also indicated that independent regulatory agencies issued 23 major final rules during FY2012. Seventeen of these 23 rules included some information on the associated costs and benefits. Seven of these rules provided monetized costs, while none provided monetized benefits. The SEC monetized costs for 3 of its 5 rules and 2 of the 3 rules that were issued jointly with the CFTC. The CFTC issued 10 rules in FY2012, 2 of which had monetized costs. There were also 2 rules issued by the CFPB, which included neither monetized costs nor benefits. OMB said that even when these agencies did cost-benefit analyses, it did "not know whether the rigor of the analyses conducted by these agencies is similar to that of the analyses performed by agencies subject to OMB review." OMB went on say the following:

We emphasize that for the purposes of informing the public and obtaining full accounting, it would be desirable to obtain better information on the benefits and costs of the rules issued by independent regulatory agencies. The absence of such information is a continued obstacle to transparency, and it might also have adverse effects on public policy.

Previous OMB Reports

Previous OMB reports evidenced the same patterns of analysis. For example:

In the 2012 report (reflecting rules issued during FY20011), OMB reported that executive agencies issued 53 major final rules, of which 30 were budgetary transfers. For 12 of the remaining 23 rules, both costs and benefits were quantified, with estimated benefits between $34.3 billion and $89.5 billion and estimated costs between $5.0 billion and $10.1 billion. For nine additional rules, the issuing agency was able to identify either costs or benefits, but not both. Independent regulatory agencies issued 17 major final rules in FY2011. None of these included monetized benefits, while six included monetized costs (one from the NRC and five from the SEC). In the 2011 report (reflecting rules issued during FY2010), OMB reported that executive agencies issued 66 major final rules. Thirty-two of these rules were budgetary transfers. Eighteen of these rules included monetized costs and benefits, with combined estimated benefits between $18.8 billion and $86.1 billion and estimated costs between $6.5 billion and $12.5 billion. For 10 additional rules, the issuing agency monetized costs or benefits, but not both. Independent regulatory agencies issued 17 major final rules. None of these rules included monetized benefits, while eight included monetized costs. Six of these rules were issued by the SEC, one was issued by the NRC, and one was jointly issued by the Federal Reserve System and the FTC.

Appendix C of the 2013 OMB report provided information on the number of major rules issued by independent regulatory agencies during the 10-year period from October 1, 2003, through September 30, 2012. That information, shown in Table 2 below, indicates that 64% of agency rules included information on either associated costs or benefits.

The CRS and OMB reports suggest several broad conclusions about the current state of regulatory analysis. First, many of the rules for which agencies are required to prepare cost-benefit analyses are "major" for reasons unrelated to regulatory compliance costs. Therefore, although economic analyses of these rules may be appropriate for transparency or other reasons, it may be unlikely that the analyses will result in significantly reduced compliance costs or increased regulatory benefits. Second, Cabinet departments and independent agencies like EPA are more likely to prepare cost-benefit analyses that produce monetized estimates of costs and benefits than independent regulatory agencies. However, not all rules issued by Cabinet departments and independent agencies contained such estimates. When monetary estimates of costs and benefits are available, estimated benefits are generally higher than estimated costs. Finally, some independent regulatory agencies (e.g., the SEC and the NRC) appear to be more likely to estimate at least the costs of their regulations than other independent regulatory agencies (e.g., the FCC and the Federal Reserve System).

December 2013 GAO Report

In December 2013, GAO published a report on regulatory analyses conducted for rules issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act. In that report, GAO concluded that the agencies issuing rules under Dodd-Frank generally completed the analyses that were required in those rules. Most of the agencies issuing rules under Dodd-Frank are independent regulatory agencies, and, as such, were sometimes required to conduct analyses under the PRA and the RFA. GAO examined a total of 59 "substantive" rules, 10 of which were "major." For the major rules, according to GAO, agencies generally relied on the key elements of OMB Circular A-4 in conducting their analyses.

Regulatory Reform Legislation in the 113th Congress

A number of bills have been introduced in the 113 th Congress that would codify, expand, or otherwise modify existing requirements for cost-benefit or other types of regulatory impact analysis. Some of the bills would expand the principles and requirements in Executive Order 12866 to all agencies or rules, some would require cost-benefit analysis by certain agencies, and other bills would modify the analytical requirements in the RFA or UMRA. A few examples of these bills are listed below.

H.R. 899 , the Unfunded Mandates Information and Transparency Act of 2014, would amend the current analysis requirements in UMRA by making those requirements more broad (i.e., by requiring them to be completed for a greater number of rules) and by requiring a more detailed level of analysis. H.R. 2122 , the Regulatory Accountability Act of 2013, would make several changes to the rulemaking process by amending the Administrative Procedure Act (APA). Among those changes would be a requirement for agencies to conduct cost-benefit analysis when issuing rules, which is not currently required under the APA. H.R. 2542 , the Regulatory Flexibility Improvements Act of 2013, would amend and expand current analysis requirements under the RFA. H.R. 3863 and S. 2099 , the Sound Regulation Act of 2014, would amend the APA to require that agencies conduct cost-benefit analysis when issuing rules. H.R. 5184 and S. 2153 , the National Regulatory Budget Act of 2014, would establish an Office of Regulatory Analysis as an independent establishment in the executive branch that would be required to conduct its own cost-benefit analysis. S. 1173 , the Independent Agency Regulatory Analysis Act of 2014, would authorize the President to subject independent regulatory agencies to cost-benefit analysis requirements that exist in executive order (discussed above) and do not currently apply to independent regulatory agencies.

Concluding Observations

As the preceding discussion indicates, many federal agencies are already required to conduct cost-benefit and other types of analysis before they issue certain proposed or final rules. These requirements have been added incrementally by various statutes and executive orders during the past 40 to 50 years, and sometimes require agencies to perform the same general types of analyses. For example, virtually all of the elements of the written statements that agencies are required to prepare pursuant to UMRA were already required by Executive Order 12866 (e.g., quantitative and qualitative estimates of costs and benefits, effects on the national economy, consideration of a range of alternatives, selection of the alternative that is least costly, most cost-effective, or least burdensome, or an explanation of why that alternative was not selected). The drafters of UMRA appear to have recognized the overlap, stating in Section 202(c) of the statute (2 U.S.C. §1534) that an agency may prepare the written statement "in conjunction with or as part of any other statement or analysis." Section 605(a) of the RFA (5 U.S.C. §605(a)) contains the same type of statement.

Also, many of the current requirements have substantial exclusions and exceptions, or give federal agencies substantial discretion to decide whether an analysis is required. For example, the RFA's analytical requirements do not apply to rules that are issued without a prior notice of proposed rulemaking, and agencies can avoid regulatory flexibility analyses if they certify that their rules do not have a "significant" economic impact on a "substantial" number of small entities. UMRA does not apply to independent regulatory agencies, and contains more than a dozen other ways that "economically significant" rules would not be covered by its requirements. Executive orders on children, federalism, and energy permit agencies to escape coverage of their analytical requirements if they conclude the effects of their rules will not have "disproportionate" effects on children, will not have "significant federalism implications," or do not involve "significant energy actions." Executive Order 12866 and OMB Circular A-4 contain some of the most inclusive and far-reaching analytical requirements, but they do not apply to independent regulatory agencies, or to rules that are not "economically significant."

Congressional Options

Congress could decide to keep the existing analytical framework in place. Alternatively, Congress could decide to enact one or more of the bills listed above, perhaps resulting in more analyses being performed, more detailed analyses, or both. Some of these bills would result in substantial changes to the current requirements discussed above, while other bills would not substantially change the nature or number of regulatory analyses that certain agencies would perform. Finally, enacting one or more of the bills would add to the existing, incrementally developed combination of statutes, executive orders, and OMB circulars that covers some agencies and rules but not others, and could potentially be confusing to agencies and the public.

Another, more comprehensive approach could be to consolidate all of the analytical requirements in one place, and perhaps expand those requirements to include more agencies or more rules, or to require different types of analysis for the rules that are covered. Since Executive Order 12866 and OMB Circular A-4 currently contain the most detailed and inclusive analytical requirements, perhaps the easiest way to accomplish that goal would be to add elements to the executive order and circular and ensure that certain agencies and types of economic effects are included (e.g., effects on small entities, or state, local, or tribal governments). The President could arguably make most of these changes by amending the executive order and the circular without congressional action. In 2011, OMB said obtaining better information on the costs and benefits of independent regulatory agencies' rules was "desirable," and described the absence of such information as an "obstacle to transparency" that may be having "adverse effects on public policy." For more than 20 years, the Administrative Conference of the United States and the American Bar Association have recommended that independent regulatory agencies' rules be reviewed by OIRA.

However, expanding the executive order's cost-benefit analysis requirements to independent regulatory agencies, and requiring those agencies to submit their covered rules and analyses to OIRA for review, may trigger resistance by those in Congress and elsewhere who believe these agencies should remain more independent of presidential influence than Cabinet departments or agencies like EPA. Sally Katzen, OIRA Administrator for five years during the Clinton Administration, favors expansion of the executive order's requirements to independent regulatory agencies, and has suggested that a "sense of the Congress" resolution indicating that such a course would be desirable "would go a long way to ameliorate any concerns in that regard."

Another option would be to amend the executive order to require independent regulatory agencies to prepare cost-benefit analyses, but not require them to submit their rules to OIRA for review. If Congress was to establish a "congressional office of regulatory analysis" as is contemplated in H.R. 214 from the 112 th Congress (introduced by Representative Don Young on January 7, 2011), then perhaps the rules and analyses could be submitted there. Or, to maintain a measure of independence, the independent regulatory agencies could be required to submit their rules and analyses to OIRA, but the agencies could be given the same type of authority they have with regard to PRA submissions—to override any objections from OIRA by a majority vote of the agency's leadership.

Codification of Executive Order's Requirements

Alternatively, Congress could decide to enact legislation codifying and expanding the executive order's requirements to cover independent regulatory agencies, and requiring different types of analyses. Supporters of this approach include Susan Dudley, OIRA Administrator for two years during the George W. Bush Administration, who has said codification could (1) signal congressional support for cost-benefit analysis principles, (2) apply the requirements to independent regulatory agencies, and (3) make compliance with the requirements judicially reviewable. She also said that legislation could emphasize certain types of analyses that have been found lacking (e.g., effects on employment or indirect effects). Support has also come from Professor Peter L. Strauss of Columbia Law School, who testified in February 2011 that codifying in one statute the analytic requirements in Executive Order 12866 and elsewhere, and "framing them to permit needed regulation to proceed efficiently, would in my judgment be a highly desirable step."

Other observers, however, have opposed codification of the cost-benefit analysis requirements in Executive Order 12866. For example, Sally Katzen has said that (1) the executive order's requirements have been successfully implemented for more than 30 years (as evidenced by the fact that OMB's reports regularly show that the costs of rules exceed the benefits); (2) even if the executive orders were not working well, there is no evidence that putting the requirements in statutes would make them work better; (3) the executive orders permit Presidents to emphasize different things during their administrations, which would be lost if the requirements were put in statute; and (4) codification of cost-benefit analysis requirements "would be amending a host of previously enacted statutes that either are silent on the role of costs in the formulation of regulations or do not permit the consideration of such factors."

Another option to cover all or some of the independent regulatory agencies by the requirements of Executive Order 12866 would be for Congress to amend the statutory definition of an "independent regulatory agency" that is referenced in the executive order. Executive Order 12866 defines an "agency" as (unless otherwise indicated) "any authority of the United States that is an 'agency' under 44 U.S.C. §3502(1), other than those considered to be independent regulatory agencies, as defined in 44 U.S.C. §3502(10)." That definition (which is actually in 44 U.S.C. §3502(5)) lists the agencies considered to be independent regulatory agencies (e.g., CFTC, SEC, FCC, and the NRC), and also says it includes "any other similar agency designated by statute as a Federal independent regulatory agency or commission." Congress could amend this provision, stating that, for purposes of Executive Order 12866, all or certain of these agencies would be covered by the analytical and/or rule submission requirements in the executive order. This approach would not, however, prohibit the President or any future President from amending or revoking the executive order.

Contextual Considerations

Whether done by presidential or congressional action, any effort to consolidate or reform the analytical requirements in rulemaking should be cognizant of the state of existing law in this area. Congress has required cost-benefit analysis in some statutes, prohibited it in other statutes, and not precluded it in still other statutes. Both Executive Orders 12866 and 13563 contain the phrase "to the extent permitted by law" when referencing the principles of rulemaking and the analytical requirements, confirming that agencies must adhere to the requirements contained in their authorizing statutes, and may only apply the principles and procedures of the executive orders if the statutes permit them to do so. Should Congress decide to enact legislation superseding existing law, it should do so in full recognition of the likely consequences.

Presidential and congressional requirements for cost-benefit analysis should also recognize that data availability may be an implementation issue, and that additional resources may be necessary for the agencies conducting these analyses. In some cases, the data that agencies need to estimate the costs and benefits of their rules may not exist, or may only be available from regulated entities. Although there is no "typical" cost-benefit analysis (just as there is no "typical" rule), the cost of conducting many individual regulatory analyses has been in the hundreds of thousands of dollars. If more agencies were required to prepare more detailed analyses for more rules, it is likely that the agencies would make the argument that they would be unable to do so without additional resources.