During this Committee’s hearings on S. 981, one of the witnesses indicated that Congress should determine the effectiveness of previously enacted regulatory reforms before enacting additional reforms. Perhaps the most directly relevant of those reforms to S. 746 is title II of the Unfunded Mandates Reform Act of 1995 (UMRA), which requires that agencies take a number of analytical and procedural steps during the rulemaking process. We examined the implementation of UMRA during its first 2 years of operation and, for several reasons, concluded that it had little effect on agencies’ rulemaking actions. First, the act’s cost-benefit requirement did not apply to many of the rulemaking actions that were considered “economically significant”actions under Executive Order 12866 (78 out of 110 issued in the 2-year period). Second, UMRA gave agencies discretion not to take certain actions if they determined that those actions were duplicative or unfeasible. For example, subsection 202(a)(3) of the act requires agencies to estimate future compliance costs and any disproportionate budgetary effects of the actions “if and to the extent that the agency determines that accurate estimates are reasonably feasible.” Third, UMRA requires agencies to take actions that they were already required to take. For example, the act required agencies to conduct cost- benefit analyses for all covered rules, but Executive Order 12866 required such analyses for more than a year before UMRA was enacted and for a broader set of rules than UMRA covered. Like UMRA, S. 746 contains some of the same requirements contained in Executive Order 12866 and in previous legislation. However, the requirements in the bill are also different from existing requirements in many respects. For example, S. 746 would address a number of topics that are not addressed by either UMRA or the executive order, including risk assessments and peer review. These requirements could have the effect of improving the quality of the cost-benefit analyses that agencies are currently required to perform. Also, S. 746 applies to rules issued by independent regulatory agencies that are not covered by Executive Order 12866. “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.” “(A) the agency proposing the rule or the Director (of the Office of Management and Budget) reasonably determines is likely to have an annual effect on the economy of $100,000,000 or more in reasonably quantifiable costs; or (B) is otherwise designated a major rule by the Director on the ground that the rule is likely to adversely affect, in a material way, the economy, a sector of the economy, including small business, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments, or communities.” Therefore, a rule that is economically significant under Executive Order 12866 because it is likely to have more than $100 million in benefits (but perhaps only $90 million in costs) would not be covered by the analytical requirements in S. 746 (unless designated by the Director). Also, the bill does not cover a rule if the agency determines that it imposes $90 million in costs plus other costs that are not “reasonably quantifiable.” If the intent of the bill is not to exclude these kinds of rules covered by the executive order, the definition of a major rule in subsection 621(7)(A) could be amended to eliminate the words “in reasonably quantifiable costs.” The centerpiece of S. 746 is its emphasis on cost-benefit analysis for major rules. The bill establishes detailed procedures for preparing those analyses and using them in the rulemaking process. Therefore, it is important to understand how agencies are currently preparing cost-benefit analyses. Mr. Chairman, in a 1998 report prepared at your and Senator Glenn’s request, we examined 20 cost-benefit analyses at 5 agencies to determine the extent to which those analyses contain the “best practices” elements recommended in the Office of Management and Budget’s (OMB) January 1996 guidance for conducting cost-benefit analyses. We concluded that some of these 20 analyses did not incorporate OMB’s best practices. For example, the guidance states that the cost-benefit analysis should show that the agency has considered the most important alternative approaches to the problem addressed by the proposed regulatory action. However, 5 of the 20 analyses that we examined did not discuss any alternatives to the proposed action, and some of the studies that discussed alternatives did so in a limited fashion. For example, the Food and Drug Administration’s (FDA) regulation on adolescents’ use of tobacco examined six regulatory alternatives but contained only a few paragraphs on the five that were ultimately rejected. A more thorough discussion of the alternatives that FDA considered would have better enabled the public to understand why the agency chose the proposed action. Six of the cost-benefit studies did not assign dollar values to benefits, and only six analyses specifically identified net benefits (benefits remaining after costs have been accounted for)—a key element in OMB’s guidance. Executive Order 12866, on which OMB’s guidance is based, emphasizes that agencies should select approaches that maximize net benefits unless a statute requires another regulatory approach. assumptions were not identified or were not explained in 8 of the analyses. For example, one analysis assumed a value of life that ranged from $1.6 million to $8.5 million while another analysis that was prepared in the same year assumed a value of life that ranged from $3 million to $12 million. In neither case did the analysis clearly explain why the values were chosen. Eight of the 20 cost-benefit analyses that we examined in our 1998 report did not include an executive summary that could help Congress, decisionmakers, the public, and other users quickly identify key information addressed in the analyses. In our 1997 report, 10 of the 23 analyses supporting air quality regulations did not have executive summaries. We have previously recommended that agencies’ cost-benefit analyses contain such summaries whenever possible, identifying (1) all benefits and costs, (2) the range of uncertainties associated with the benefits and costs, and (3) a comparison of all feasible alternatives. S. 746 addresses many of these areas of concern. For example, when an agency publishes a notice of proposed rulemaking (NPRM) for a major rule, section 623 of the bill would require agencies to prepare and place in the rulemaking file an initial regulatory analysis containing an analysis of the benefits and costs of the proposed rule and an evaluation of the benefits and costs of a reasonable number of alternatives. Section 623 also requires an evaluation of the relationship of the benefits of the proposed rule to its costs, including whether the rule is likely to substantially achieve the rulemaking objective in a more cost-effective manner or with greater net benefits than other reasonable alternatives. Finally, it requires agencies to include an executive summary in the regulatory analysis that describes, among other things, the key assumptions and scientific or economic information upon which the agency relied. vary from one analysis to another, the agencies should explain those variations. If enacted, Congress may want to review the implementation of this part of S. 746 to ensure that the initial regulatory analysis requirements apply to all of the rules that it anticipated. As I previously noted, the bill’s analytical requirements apply to all major rules at the time they are published as an NPRM. The Administrative Procedure Act of 1946 (APA) permits agencies to issue final rules without NPRMs when they find, for “good cause,” that the procedures are impracticable, unnecessary, or contrary to the public interest. When agencies use this exception, the APA requires the agencies to explicitly say so and provide an explanation for the exception’s use when the rule is published in the Federal Register. In a report we issued last April, we pointed out that 23 of the 122 final rules that were considered “major” under the Small Business Regulatory Enforcement Fairness Act and published between March 29, 1996, and March 29, 1998, were issued without a previous NPRM. If the same proportion holds true for the major rules covered by S. 746, the initial analytical requirements in the bill would not apply to nearly one-fifth of all final major rules. We also examined the issuance of final rules without NPRMs in another report that we issued last year. In some of the actions that we reviewed, agencies’ stated rationales for using the good cause exception were not clear or understandable. For example, in one such action, the agencies said in the preamble to the final rule that a 1993 executive order that imposed a 1994 deadline for implementation and incorporation of its policies into regulations prevented the agencies from obtaining public comments before issuing a final rule in 1995. In other actions, the agencies made only broad assertions in the preambles to the rules that an NPRM would delay the issuance of rules that were, in some general sense, in the public interest. appropriate situations. Similarly, we believe that using the issuance of NPRMs as the trigger for analytical requirements may be entirely appropriate. However, as a result, some major rules will probably not be subject to these requirements. S. 746 also requires agencies to provide for an independent peer review of any required risk assessments and cost-benefit analyses of major rules that the agencies or the OMB Director reasonably anticipate are likely to have a $500 million effect on the economy. Peer review is the critical evaluation of scientific and technical work products by independent experts. The bill states that the peer reviews should be conducted through panels that are “broadly representative” and involve participants with relevant expertise who are “independent of the agency.” We believe that important economic analyses should be peer reviewed.