Mr. Chairman and Members of the Committee: We are pleased to be here today to discuss the implementation of Executive Order 12866, “Regulatory Planning and Review.” Issued on September 30, 1993, the order was designed to, among other things, “enhance planning and coordination with respect to both new and existing regulations.” It outlines the administration’s regulatory philosophy and principles, describes the organization of the federal regulatory system, and initiated a process to review and revise or eliminate certain existing regulations. That review process ultimately became part of the administration’s overall regulatory reform effort. The order also allocates responsibilities to both federal agencies and the Office of Management and Budget (OMB) in a centralized regulatory review process, and recognizes OMB’s Office of Information and Regulatory Affairs (OIRA) as the repository of expertise on regulatory issues. As the Chairman and Ranking Member of this Subcommittee requested, we focused our review on three issues: (1) the extent to which agencies are adhering to and OIRA is applying the executive order’s cost-benefit analysis requirements; (2) whether OIRA is significantly changing agencies’ proposed regulations during its review process; and (3) whether agencies are eliminating regulations and, if so, whether the elimination and revision of regulations are reducing regulatory burden. The methodology we used concerning each issue will be discussed in detail later, but in general we met with OIRA and agency officials and reviewed OIRA and agency files regarding specific regulations. such analyses, regulatory alternatives are being evaluated, and potential benefits are monetized. Our review focused on the three issues I mentioned, and as I will describe later, data limitations prevented us from fully addressing some of those issues. Agencies’ responsibilities in the executive order to assess the costs and benefits of their proposed regulations vary depending on whether the regulatory action involved is “significant” or “economically significant.” A significant regulatory action is defined in the order as any action “that is likely to result in a rule that may (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.” Any regulatory action that meets the first of these criteria is considered “economically significant.” If the action does not meet the first criterion but meets any of the other three criteria, it is considered “significant for noneconomic reasons.” said that agencies should, at a minimum, include a statement in the preamble to proposed significant regulations indicating that they considered the potential costs and benefits of the regulations during their development. “(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.” OIRA officials told us that these provisions mean that agencies should provide OIRA with a copy of a cost-benefit analysis when economically significant proposed regulations are submitted to OIRA for review. However, they also said that, in practice, agencies do not do cost-benefit analyses for all economically significant proposed rules. For example, they said that it would not be worth the time and effort required for an agency to do a cost-benefit analysis for economically significant crop price support regulations based on legislated formula. increase in costs or prices for consumers, individual industries, federal, state, or local government agencies, or geographic regions; or (3) significant adverse effects on competition, employment, investment, productivity, innovation, or the international competitiveness of U.S. enterprises—criteria similar to those used to describe “economically significant” rules in Executive Order 12866. Like the cost-benefit requirements in the Clinton executive order, the Reagan order said regulatory impact analyses should contain descriptions of the potential costs and benefits of the rule and of the costs and benefits of alternative approaches. To determine the extent to which agencies provide a copy of a cost-benefit analysis for each economically significant rule, we asked the Regulatory Information Service Center (RISC) to provide us with a listing of all such rules that were published in the Federal Register as final rules during calendar year 1995. RISC provided us with a listing of 39 rules that it said met those criteria. However, we discovered that 10 of these 39 rules were not economically significant and/or were not final rules, and therefore should not have been part of our analysis. regulations on the payment of covered outpatient drugs under rebate agreements with manufacturers. We reviewed OIRA’s files for each of these rules to see if they contained a cost-benefit analysis. If we could not locate the analysis in OIRA’s files, we asked OIRA staff for a copy of the analysis. For 28 of the 29 economically significant rules, a cost-benefit analysis document was either in OIRA’s files or was provided by OIRA staff. Although we did not attempt to assess the quality of the analyses conducted, the analyses for 26 of the 28 rules appeared to have all three of the elements the executive order requires—assessments of costs, benefits, and the costs and benefits of alternative approaches. One analysis covering two rules (the early- and late-season migratory bird hunting rules) appeared to lack a discussion of the costs and benefits of alternative approaches. The one economically significant final rule for which we could not find a cost-benefit analysis was issued by the Department of Veterans Affairs (VA) in response to a Supreme Court decision interpreting a statutory requirement that VA provide compensation for disability or death resulting from VA hospitalization, medical or surgical treatment, or examination. The file for the rule did contain a discussion of the rule’s “costs and budgetary impact” that centered on how to calculate the overall cost of the payments. OIRA officials said that the file contained no discussion of the benefits of the payments or alternative approaches because the payments were statutorily required, and therefore the cost discussion alone met the requirements of the executive order. We also asked RISC to provide us with a list of all final rules issued in 1995 that were significant for noneconomic reasons. RISC provided a list of 259 such rules, from which we randomly selected a 10 percent sample (26 rules). Although the size of this sample prevents us from generalizing our findings to all 259 rules, the sample can demonstrate the kinds of cost-benefit “assessments” OIRA said satisfied the executive order’s requirement. benefits of the regulatory action. The remaining 14 rules contained neither a cost-benefit analysis nor language in the rule discussing the rules’ costs or benefits. OIRA officials said a cost-benefit assessment was not prepared for these 14 rules because of particular circumstances in each case. They said that some of the rules were simply implementing a detailed statutory or procedural requirement, some were essentially administrative in nature (e.g., harmonizing two existing programs in different agencies), one eliminated an outdated requirement, and one was significant only because of its relation to a larger rule. In such cases, OIRA officials said they do not recommend that agencies conduct a cost-benefit assessment because it would not contribute substantially to decisionmaking. In essence, they said, a blanket requirement that agencies conduct a cost-benefit assessment would not pass a cost-benefit test. The second major issue we were asked to address was whether OIRA is significantly changing agencies’ proposed regulations during the review process. Although we found evidence of some OIRA involvement in all of the regulations we investigated, the data available did not provide sufficient evidence to conclusively determine whether OIRA-recommended changes were made to all of the regulations. Aggregate data compiled by RISC indicate that the proportion of regulations that were changed during the time period they were under OIRA review increased substantially between 1981 and 1996, but the data do not reveal the source of those changes. OIRA and agency files and interviews with OIRA staff indicated that most of the rules that the aggregate data indicated had changed while at OIRA were changed at least in part because of suggestions or recommendations by OIRA, and most of those changes appeared significant. However, in many other cases it was unclear what changes had been made to the rules during the review process or whether OIRA had recommended those changes.