[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




    SHOULD AGENCIES BE ALLOWED TO KEEP AMERICANS IN THE DARK ABOUT 
                     REGULATORY COSTS AND BENEFITS?

=======================================================================

                                HEARING

                               before the

               SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
               NATURAL RESOURCES, AND REGULATORY AFFAIRS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 24, 1999

                               __________

                           Serial No. 106-11

                               __________

       Printed for the use of the Committee on Government Reform


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


                               __________


                    U.S. GOVERNMENT PRINTING OFFICE
57-131                     WASHINGTON : 2000


                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
JOHN T. DOOLITTLE, California            (Independent)
HELEN CHENOWETH, Idaho


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                      Carla J. Martin, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on National Economic Growth, Natural Resources, and 
                           Regulatory Affairs

                  DAVID M. McINTOSH, Indiana, Chairman
PAUL RYAN, Wisconsin                 DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia                    TOM LANTOS, California
LEE TERRY, Nebraska                  PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  BERNARD SANDERS, Vermont
HELEN CHENOWETH, Idaho               HAROLD E. FORD, Jr., Tennessee
JOHN T. DOOLITTLE, California

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                      Marlo Lewis, Staff Director
               Barbara Kahlow, Professional Staff Member
                Karen Barnes, Professional Staff Member
                          Andrew Wilder, Clerk
                 Elizabeth Mundinger, Minority Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 24, 1999...................................     1
Statement of:
    Bliley, Hon. Thomas J., Jr., a Representative in Congress 
      from the State of Virginia.................................    17
    Costa, Jim, senator, California State Legislature, and vice 
      president, National Conference of State Legislatures.......    56
    DeSeve, G. Edward, Deputy Director for Management, Office of 
      Management and Budget......................................    69
    Hopkins, Thomas D., interim dean, College of Business, 
      Rochester Institute of Technology; Angela Antonelli, 
      director, Thomas A. Roe Institute for Economic Studies, the 
      Heritage Foundation; Clyde Wayne Crews, Jr., director of 
      competition and regulatory policy, Competitive Enterprise 
      Institute; and Lisa Heinzerling, professor of law, 
      Georgetown University Law Center...........................    92
Letters, statements, etc., submitted for the record by:
    Antonelli, Angela, director, Thomas A. Roe Institute for 
      Economic Studies, the Heritage Foundation, prepared 
      statement of...............................................   102
    Bliley, Hon. Thomas J., Jr., a Representative in Congress 
      from the State of Virginia:
        Information concerning support...........................    24
        Prepared statement of....................................    19
    Condit, Hon. Gary A., a Representative in Congress from the 
      State of California, prepared statement of.................   155
    Costa, Jim, senator, California State Legislature, and vice 
      president, National Conference of State Legislatures, 
      prepared statement of......................................    59
    Crews, Clyde Wayne, Jr., director of competition and 
      regulatory policy, Competitive Enterprise Institute, 
      prepared statement of......................................   112
    DeSeve, G. Edward, Deputy Director for Management, Office of 
      Management and Budget, prepared statement of...............    72
    Heinzerling, Lisa, professor of law, Georgetown University 
      Law Center, prepared statement of..........................   146
    Hopkins, Thomas D., interim dean, College of Business, 
      Rochester Institute of Technology, prepared statement of...    94
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio:
        Information concerning RIAs..............................     9
        Prepared statement of....................................    10
    McIntosh, Hon. David M., a Representative in Congress from 
      the State of Indiana, prepared statement of................     5
    Terry, Hon. Lee, a Representative in Congress from the State 
      of Nebraska, prepared statement of.........................    16

 
    SHOULD AGENCIES BE ALLOWED TO KEEP AMERICANS IN THE DARK ABOUT 
                     REGULATORY COSTS AND BENEFITS?

                              ----------                              


                       WEDNESDAY, MARCH 24, 1999

                  House of Representatives,
 Subcommittee on National Economic Growth, Natural 
                 Resources, and Regulatory Affairs,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 2247, Rayburn House Office Building, Hon. David M. 
McIntosh (chairman of the subcommittee) presiding.
    Present: Representatives McIntosh, Ryan, Terry, Chenoweth, 
and Kucinich.
    Staff present: Marlo Lewis, staff director; Barbara Kahlow 
and Karen Barnes, professional staff members; Luke Messer, 
counsel; Andrew Wilder, clerk; Elizabeth Mundinger, minority 
counsel; and Jean Gosa, minority staff assistant.
    Mr. McIntosh. The subcommittee will be called to order. 
Today our hearing is on H.R. 1074, the Regulatory Right-to-Know 
Act of 1999. This bipartisan, good government bill was first 
introduced on March 11, 1999, with 17 Democratic and 14 
Republican cosponsors.
    This bill, which requires an annual report on the costs and 
benefits of Federal regulatory programs, is the product of the 
Commerce Committee Chairman Tom Bliley, who has worked very 
hard in this area, and his leadership over the past several 
years has really brought the bill to its current status and 
fruition.
    Today's hearing will provide us with an opportunity to hear 
the administration's views on the legislation, the views of 
State and local governments which are impacted by the Federal 
regulatory programs, and the views of experts in analysis of 
the costs and benefits of Federal regulatory programs.
    I want to especially welcome Chairman Bliley and California 
State Senator Jim Costa, vice president of the National 
Conference of State Legislatures, who will be representing the 
State and local government perspective today. The Clinton 
administration is represented by Mr. Ed DeSeve, who is Deputy 
Director for Management of the Office of Management and Budget. 
OMB's Office of Information and Regulatory Affairs reports to 
him.
    I want to also welcome three expert witnesses: Angela 
Antonelli, who is director of the Thomas Roe Institute for 
Economic Studies at the Heritage Foundation, and also a former 
employee of the Office of Information and Regulatory Affairs; 
Mr. Wayne Crews, who is the director of competition and 
regulatory policy at the Competitive Enterprise Institute; and 
Dr. Thomas Hopkins, interim dean of the College of Business at 
Rochester Institute of Technology. Dr. Hopkins also was 
formerly with the Office of Information and Regulatory Affairs. 
Last, I want to welcome Ms. Lisa Heinzerling, who is a 
professor of law at Georgetown University Law Center.
    The Regulatory Right-to-Know Act and its companion bill on 
the Senate side, S. 59, build on the provisions of the 1997, 
1998, and 1999 Treasury and General Government Appropriations 
Acts. They were authored by Senators Stevens and Thompson. The 
stated purposes of both the House and the Senate bills are 
identical. They are, one, to promote the public right to know 
about the costs and benefits of Federal regulatory programs; 
two, increase government accountability; and, three, improve 
the quality of Federal regulatory programs and rules issued 
thereunder.
    H.R. 1074 requires OMB to prepare an annual accounting 
statement and associated report. The accounting statement would 
provide estimates of the costs and benefits of Federal 
regulatory programs, both in the aggregate and by agency, by 
agency programs, and by major rule. The associated report would 
analyze the direct and indirect impacts of Federal rules and 
paperwork on State and local governments, the private sector, 
small business, wages, consumer prices and economic growth.
    Currently, there is no report that analyzes the cumulative 
impacts of Federal regulations on these important sectors of 
our economy and on these factors that directly affect the lives 
of American citizens. I believe Americans have a right to know 
the cumulative costs and benefits of Federal regulation on 
these sectors and factors, and how they will impact their 
lives.
    Current estimates of the off-budget compliance costs 
imposed on Americans by Federal regulatory programs are close 
to $700 billion annually, a 25 percent increase from 10 years 
ago. Broken down, that is approximately $6,900 for a typical 
family of four in America.
    The bill also requires OMB to quantify the net benefits or 
net costs for each alternative considered in any regulatory 
impact analysis accompanying a major rule. This information 
will help the public understand how and why major decisions 
affecting them were made by the executive branch. It will also 
disclose if the Federal agencies chose the most effective and 
least costly regulatory approach.
    The bill also requires OMB to identify and analyze 
overlaps, duplications and potential inconsistencies among 
Federal regulatory programs, and to offer recommendations to 
reform inefficient or ineffective regulatory programs. To 
ensure that the estimates are fair and balanced and present the 
total picture on the costs and benefits, the bill requires peer 
review of OMB's draft annual report by two or more expert 
organizations and an opportunity for the public and those 
sectors that are impacted to comment. The bill requires OMB to 
respond to these comments in its final report.
    OMB itself has recognized the value of presenting 
information to the public on costs and benefits of Federal 
regulations. In its 1998 report to Congress on the costs and 
benefits of Federal regulations that was issued in February 
1999, and required by the Treasury and General Government 
Appropriations Act, OMB stated, ``The 1997 report was our 
effort to begin an incremental process which we believe will 
lead to improved information on the effects of regulations.''
    Unfortunately, OMB's two cost-benefit reports issued to 
date have been frankly insufficient in several respects. First, 
the OMB's recommendations for improving regulatory programs 
were not as comprehensive as those of us in Congress who have 
been reviewing those programs would like to see. We hear 
complaints from many about the burden and reasonableness of 
certain regulatory programs, and had hoped that OMB would be 
able to address those concerns in that report.
    Second, there were problems with OMB's aggregate estimates 
and other methodological issues. And, third, the report fell 
short by estimating monetized costs and benefits for only 4 of 
the 41 major rules issued last year by the independent 
agencies, presenting incomplete compliance costs and benefits 
in the 33 regulatory impact analyses prepared last year, and 
understating the direct and indirect impacts of these Federal 
regulatory programs. It is not possible to get your hands 
around the total costs of the Federal regulatory process when 
only a small percentage of them are analyzed in this 
methodological manner.
    Commenters expressed the view that OMB should independently 
make its own estimates of costs and benefits of individual 
rules and regulatory programs, and offered several ideas for 
improvements in the process, such as for OMB to establish a 
standardized format for the agencies to present the economic 
information on their rules. I have always been a strong 
proponent for OMB exercising independent judgment on this so 
that they could act as a neutral player among the different 
competing agencies and their policy preferences.
    H.R. 1074 establishes a permanent requirement for OMB to 
annually prepare this important information. The bill will not 
impose an undue burden, I don't think, on OMB since much of the 
needed information is already available in their review process 
under the Executive order. Since President Reagan's Executive 
order, the agencies have been required to perform a cost-
benefit analysis on major rules, and they have continued 
through the Bush administration as well as into the Clinton 
administration. They are required to do that on most of the 
rules, especially the major rules that constitute the bulk of 
Federal regulatory costs and benefits.
    Also, OMB can use many other sources of information, and 
that is one of the benefits of having them be a central 
processing agency for this, because they can reach out and 
include private regulatory accounting studies as well as other 
government studies for different agencies.
    Mr. Bliley's bill has been endorsed by many organizations, 
including the seven major State and local interest groups, the 
National Governors' Association, the National Conference of 
State Legislatures, the Council of State Governments, the U.S. 
Conference of Mayors, the National League of Cities, the 
National Association of Counties, and the International City/
County Management Association. In the groups' endorsement 
letter, the officials wrote, ``We applaud your efforts to 
encourage greater accountability with regard to the burden of 
costly Federal regulations on State and local governments. The 
changes proposed would, we believe, benefit all of our 
taxpayers and constituents.''
    Other organizations have also endorsed the bill, including 
Alliance USA, a coalition of 1,000 business organizations and 
individual companies, American Farm Bureau Federation, 
Americans for Tax Reform, the Business Roundtable, the Chamber 
of Commerce, Citizens for a Sound Economy, the National 
Association of Manufacturers, the National Federation of 
Independent Businesses, and the Small Business Survival 
Committee.
    I believe the public does have a right to open and 
accountable government. OMB's accounting statements and 
associated reports will provide those new tools to help 
Americans participate more fully in government decisionmaking.
    [The prepared statement of Hon. David M. McIntosh follows:]

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    Mr. McIntosh. With that, let me now turn to the ranking 
member of the committee, Mr. Kucinich, and ask, did you have 
any opening statement you would like to make?
    Mr. Kucinich. I do, Mr. Chairman. I thank you.
    Mr. Chairman, thank you very much for holding this hearing 
on H.R. 1074, the Regulatory Right-to-Know Act of 1999. And I 
certainly want to welcome our colleague, Congressman Bliley, 
and I look forward to his testimony, and also to welcome the 
representatives of OMB who are here.
    This bill provides for an annual report on the aggregate 
cost and benefit of Federal regulations, an annual cost-benefit 
analysis for each agency program, program component, and major 
rule, and provides for a myriad of additional estimates and 
reports.
    Typically, more information helps us make better decisions. 
The information required by H.R. 1074 could arguably promote 
the public's right to know about the costs and benefits of 
regulatory programs, and provide for greater accountability by 
the Federal Government, and improve the quality of regulatory 
programs. However, Mr. Chairman, information which is 
inaccurate or which would provide a false sense of confidence 
is not so helpful, and of course we would not want that to 
happen.
    That is why this hearing is so important. We need to be 
sure that there are adequate safeguards in this bill to ensure 
that the resulting analyses are useful. One issue that must be 
addressed is whether it is feasible for OMB to conduct the 
analyses required by H.R. 1074. In both of its annual reports 
on the costs and benefits of regulation, OMB has reiterated 
that there are severe limits to the usefulness of its analysis. 
I am going to be interested to hear what they have to say about 
that today. OMB reports that there are, ``enormous data gaps,'' 
accurate data are ``sparse,'' and agreed upon methods for 
estimates are, ``lacking.''
    OMB warns against using its analyses when making policy 
decisions--that is kind of interesting in itself--and states 
that ``aggregate estimates of the costs and benefits of 
regulation offer little guidance on how to improve the 
efficiency, effectiveness or soundness of the existing body of 
regulation.''
    Now, in order to account for the severe data and 
methodological limitations, OMB has provided a wide range of 
estimated costs and benefits. OMB estimates that annual costs 
for social regulation range from $170 to $230 billion, and 
annual benefits are between $260 billion and $3.5 trillion.
    Fortunately, the range of uncertainty, although it is 
enormous, does not affect the conclusion that regulatory 
benefits outweigh regulatory costs. No matter which number you 
choose within the broad range of estimates, regulations are 
worth more than they cost. However, H.R. 1074 requires a large 
number of new analyses, and the final conclusions of these 
analyses may not always be so clear.
    In addition, we need to investigate whether H.R. 1074 is 
feasible, given budget constraints. Cost-benefit analyses are 
expensive. In March 1997 the Congressional Budget Office found 
that conducting comprehensive cost-benefit analyses or 
regulatory impact analyses for major rules averaged $573,000 
per rule and took an average of 3 years to complete. Thus the 
administration would need about $35 million to analyze the 60 
new major rules that are promulgated each year. H.R. 1074 would 
require a great deal more because it also requires benefit-cost 
analysis of each agency, program, and program component.
    [The information referred to follows:]

    Using a CBO analysis of the cost to the agencies (i.e., not 
a cost to OMB) of 85 major rule RIAs, Mr. Kucinich used a 
$573,000 average cost and applied that average to an estimate 
of 60 Regulatory Impact Analyses (RIAs) per year, which totals 
nearly $35 million. Since agencies have been required to 
perform RIAs since 1981, there is no additional cost for the 
RIAs under H.R. 1074.

    Mr. Kucinich. I also hope this hearing will shed light on 
whether H.R. 1074 has adequate safeguards against bias. OMB and 
others warn that prospective cost-benefit analyses often 
overstate costs because they do not account for technological 
advances and industry's ability to adapt. For example, EPA 
estimated, and we all remember, that it would cost about $600 
per ton to comply with the proposed acid rain controls; 
however, the actual cost today is less than $100 per ton.
    Furthermore, many benefits are described in qualitative 
terms such as lives saved or reduction in illness, not monetary 
terms. Thus aggregate and necessary benefit analyses may fail 
to account for the most important benefits of regulation. I 
would like to explore whether peer review provisions would 
adequately address that problem, Mr. Chairman. It makes no 
sense to require expensive analyses unless we can be secure in 
the objectivity and feasibility of the analysis.
    Mr. Chairman, I thank you again for holding this hearing, 
and all of these hearings that relate to trying to determine 
the effectiveness of what government is doing. I look forward 
to the testimony of the witnesses, and I would like to submit 
for the record documents that address the cost of performing 
the cost-benefit analyses and other related material.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Hon. Dennis J. Kucinich 
follows:]

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    Mr. McIntosh. I appreciate that, Mr. Kucinich. And seeing 
no objection, we will definitely include those in the record, 
because I think you point out an important point that this 
study and the work is not cost-free always, and it needs to be 
done.
    One thing I would note just doing a little bit of math, the 
$35 million is what it would cost the government to study the 
possible impact of $7 billion on the private sector. So we may 
end up saving money in the society if we can do those same 
regulations more efficiently as a result of it.
    Mr. Kucinich. Of course the offsetting cost to look at is 
if we don't do the regulations, the impact on society at large, 
it might be even greater than the cost to the business 
community.
    Mr. McIntosh. I agree. Thank you.
    Let me turn now to the vice chairman of the committee, who 
is a new member of the committee and a new Member of Congress, 
the gentleman from Wisconsin, Mr. Paul Ryan.
    Mr. Ryan. Thank you, Mr. Chairman. Thank you for holding 
this hearing. I thank Chairman Bliley for his leadership on 
this legislation.
    And just before I begin my statement, I would like to add 
to your comment regarding our colleague from Cleveland. I think 
the cost to the agency, to OMB and to OIRA and to our agencies 
to do the analysis, should be compared to the costs that are 
being borne by the taxpayers, by our private sector and the 
economy. That is the lens through which we ought to look at 
these things and view legislation such as this.
    But I would like to just quickly address this issue in the 
bill. The free flow of information is crucial to the 
effectiveness of our democratic institutions, and if we want 
the American people to trust their government and participate 
fully in the democratic process, we must provide them with as 
much information as we can about the reasoning behind our laws 
and regulations. And in particular, citizens have the right to 
know how the actions of the Federal Government will affect 
their lives.
    A good example is the impact of Federal environmental and 
safety regulations on businesses, jobs, and personal behavior. 
Studies show that the rules cost American taxpayers and 
consumers hundreds of billions of dollars each year, and we are 
going to hear from Dr. Hopkins today, who has done tremendous 
work on this subject for years. Our constituents have a right 
to know how much of their hard-earned money is going for 
Federal regulation.
    It is clear that I am not alone in my support for the 
public's right to know. Some of President Clinton's top 
officials are very outspoken advocates of these issues. One is 
Carol Browner, the Administrator of the EPA, and I would like 
to quote Mrs. Browner, who said that the Clinton administration 
believes putting information into the hands of the American 
people is one of the best ways to protect the public health and 
environment.
    I agree. Because I agree, I enthusiastically support H.R. 
1074, the Regulatory Right-to-Know Act. This bipartisan 
legislation is all about putting information in the hands of 
the American people, as well as the representatives here in 
Congress and in the executive branch, who can only gain from 
information about the benefits and costs of Federal regulations 
and information about the impact those regulations have on 
businesses, State and local governments, jobs, wages, prices 
and economic growth.
    Agencies can use this information to begin to focus on 
costs and benefits when making regulatory choice. Information 
like this will be a valuable tool that policymakers, lawmakers, 
and regulators can use to evaluate the benefits and the burden 
of existing rules and the obligations that proposed rules would 
impose. In short, this legislation will ensure more openness, 
more accountability in government. That is what we are here to 
do. That can only be good for building public trust as we pass 
laws and the regulations that implement the laws.
    Thank you, Mr. Chairman.
    Mr. McIntosh. Thank you Mr. Ryan, I appreciate your joining 
us today for the hearing and thank you for that statement.
    I also want to welcome another member of the committee and 
new Member of Congress, Mr. Lee Terry, and do you have a 
statement or anything you would like to put into the record?
    Mr. Terry. Well, I did, but since it is redundant of yours 
and Paul's, I will just attach my statement to yours and say I 
am anxious to hear the testimony of Chairman Bliley and the 
others on the distinguished panel.
    [The prepared statement of Hon. Lee Terry follows:]
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    Mr. McIntosh. We will definitely include it in the record. 
I guarantee you it is welcome to have those additional 
thoughts.
    Let me call forward our first witness, then, who is a 
distinguished leader in this Congress, someone who has worked 
hard in many of these areas where the regulations are as a 
result of Federal legislation, someone who I have always looked 
up to, including before I was a Member of Congress and serving 
on the Competitiveness Council, Chairman Bliley. Chairman 
Bliley, thank you for joining us, and feel free to make any 
remarks and submit anything you would like to for the record.

 STATEMENT OF HON. THOMAS J. BLILEY, JR., A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF VIRGINIA

    Mr. Bliley. Thank you, Mr. Chairman. Thank you for those 
kind words. With your permission, I have a somewhat longer 
written statement that I would like to submit for the record, 
as well as a set of letters of endorsement.
    Mr. McIntosh. Seeing no objection, they will be included in 
the record.
    Mr. Bliley. First of all, the Regulatory Right-to-Know Act 
is a basic step toward a smarter partnership in regulatory 
programs. Specifically, it is an important tool to understand 
the magnitude and impact of the Federal regulatory programs. 
The act will empower all Americans, including State and local 
officials, with new information and opportunities to help them 
participate more fully and improve their government.
    More useful information and public input will help 
regulators make better, more accountable decisions and promote 
greater confidence in the quality of Federal policy and 
regulatory decisions. Better decisions and updated regulatory 
programs will enhance innovation, improve the quality of our 
environment, secure our economic future, and foster a better 
quality of life for American families.
    I believe accountability in our regulatory programs is 
important. When programs are smart, such programs help State 
and local government, businesses and families. When they are 
ill-formed, out of date, or wasteful, such programs hurt 
people. Poor regulatory programs stifle the freedom and 
innovation of our domestic work force. Poor regulatory programs 
create barriers to redevelopment of abandoned urban sites, 
leaving a continuing blight in our neighborhoods. As a former 
mayor, I know that it is true in my own home city of Richmond, 
and I am sure former mayor Kucinich had many areas of Cleveland 
that suffer from this.
    Mr. Kucinich. It is true.
    Mr. Bliley. Poor programs hurt small businesses, schools, 
health care facilities and farms, and these are but a few 
examples.
    You have got a long list of witnesses, so I am going to cut 
this short. What this bill does not do, it does not interfere 
with any regulatory agencies proposing a rule or indeed 
adopting a rule. All it says to the regulators is, ``Mr. 
Regulator, Ms. Regulator, tell us how much it is going to 
cost.'' And then the Congress, which has to appropriate the 
money, and the people who are going to have to comply with the 
rules, get an idea of, you know, how much it is going to cost, 
and is it worth the cost? That is the important thing.
    I mean, you know, obviously the rule is probably a good 
idea or has been proposed to accomplish some good. But is it 
worth the cost? I mean, we make as individuals every day 
decisions of what we buy, what we do, and we weigh the benefit 
versus the time it is going to cost us or the money it is going 
to cost us or both. And I think that is all we want to do here; 
get to the bottom of it and find out what the cost of 
compliance is. Most of them probably will be well worth it, but 
I will give you a classic example.
    I am having a battle with the Coast Guard right now because 
in my city of Richmond we are restoring a canal and are going 
to have hopefully a canal walk and boats like they have in San 
Antonio. This canal was laid out by George Washington and it 
served the very useful function of moving freight and people 
between the western part of Virginia and the eastern part of 
Virginia until about 1850, when the railroads replaced it.
    In the 1940's it was filled in and it has been filled in 
ever since. But now the city is restoring it. It will be about 
2 feet deep or 3 feet deep and about 25 feet wide, and the 
Coast Guard comes along and says it is a navigable waterway. I 
said it has been filled in for 50 years. You know, well, once 
it is a navigable waterway, it is always a navigable waterway.
    Now that is a regulation I think that defies common sense, 
and that is the kind of thing that this accountability will 
uncover. And then maybe the Resources Committee will say, 
``Well, Bliley you are all wet, we think it is a good idea,'' 
and keep it. That is the way the system is designed to work. 
But at least somebody will look at it and have to make that 
judgment. And that is all I have to say, and I rest my case. If 
anybody has a question, I will try to answer it.
    [The prepared statement of Hon. Thomas J. Bliley follows:]

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    Mr. McIntosh. You make a very powerful case. I know the 
Chairman has another appointment and that he was gracious 
enough to come here today. I have no questions for you.
    Mr. Kucinich. I just have two brief questions. And of 
course the Chairman makes a powerful argument, when someone 
would surmise that he is all wet but there is no canal.
    Mr. Bliley. When I built a downtown expressway they tried 
to do the same thing. And the Federal judge said, ``Well, the 
only thing you lacked for a navigable waterway is water.''
    Mr. Kucinich. Mr. Chairman, just for a moment, would this 
bill require agencies or OMB to conduct new studies or analyses 
or to develop new data?
    Mr. Bliley. It should not. All it requires them to do is to 
tell us how much it is going to cost. And I am sure that like 
any piece of legislation, it is not perfect, and I look forward 
to working with the committee and the other body to get it into 
proper shape.
    And I appreciate the fact that you have brought in, Mr. 
Chairman, expert witnesses who are far more knowledgeable on 
the technical details of how this would apply than I am. And as 
a result of that testimony, hopefully we will refine the 
legislation to make sure that we do no harm in passing the bill 
and sending it to the President for his signature.
    Mr. McIntosh. Thank you, Mr. Chairman.
    Mr. Kucinich. I just wanted to establish that the 
chairman's intent was not to get them to conduct new analyses.
    Mr. Bliley. No.
    Mr. McIntosh. And I think the goal here is to marshal the 
data and the agencies. The Executive orders require almost all 
of this to be done as it is. The problem has been making sure 
that it is there and available and published, and the chairman 
has done a great job of leading this effort. And I know he has 
had many battles, not only in Richmond but in the national 
field as well, looking at these regulatory programs.
    So thank you, and we look forward to working with you as we 
carry this bill through the process. Hopefully we can get it 
down to the President and have it become part of the law of the 
land.
    Thank you very much, Mr. Chairman.
    Mr. Bliley. I hope so. Thank you.
    [The information referred to follows:]

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    Mr. McIntosh. Our second panel today is also a government 
official. He is a State Senator from California, Mr. Jim Costa, 
Senator Jim Costa, who is also vice president of the National 
Conference of State Legislatures. Welcome, Senator Costa. I 
appreciate you coming.
    Normally we are asked to swear in witnesses. We have a 
policy of that, but for elected officials, we respect the 
integrity that you bring to your office and so we will skip by 
that. But I didn't want anyone else to be offended on that one.
    Mr. Costa. Thank you very much Mr. Chairman.
    Mr. McIntosh. Mr. Costa, you can submit full testimony and 
summarize it or present whatever you want to us today on this 
issue. And I appreciate you traveling all the way from 
California to come and talk to us about this, and your 
perspective is very important about this.

STATEMENT OF JIM COSTA, SENATOR, CALIFORNIA STATE LEGISLATURE, 
 AND VICE PRESIDENT, NATIONAL CONFERENCE OF STATE LEGISLATURES

    Mr. Costa. Thank you very much, Mr. Chairman. With your 
permission, I would like to do both, submit the written 
testimony and to summarize some of the key points that I think 
are important.
    First of all, Mr. Chairman and members of the subcommittee, 
I am Senator Jim Costa. I am a member of the California Senate, 
where I chair the Senate Committee on Agriculture and Water. I 
am currently serving as the vice president of the National 
Conference of State Legislatures. I appear before you today on 
behalf of not only the National Conference of State 
Legislatures but also the six other organizations of State and 
local officials that comprise the ``big seven'' that are 
supporting H.R. 1074: The National Governors' Association, the 
Conference of State Legislatures, the Council of State 
Governments, the U.S. Conference of Mayors, the National 
Association of Counties, the National League of Cities, along 
with the International City and County Management Association. 
So it is my honor to be here on behalf of all of those 
organizations, wearing many hats this morning.
    As you know, I think that my testimony adds a local 
perspective. It adds the local perspective in terms of where we 
think this legislation is on point, and I would also like to 
describe some steps which we have taken in California to 
accomplish similar goals in H.R. 1074.
    For several years NCSL has raised concerns about the 
developments in relations between Federal and State 
governments. That is our job. A decade ago State legislators 
were alarmed about Federal unfunded mandates. We worked hard 
with members of this subcommittee and others in Congress to 
pass the Unfunded Mandates Reform Act. On a more recent 
concern, we have focused on the preemption of State and local 
authority by the Federal Government and on the Federal 
regulatory process. We believe the combination of the unfunded 
mandates along with preemption, and I would describe an archaic 
regulatory process, in fact curtails innovation and 
responsiveness of State and local government and, therefore, 
State and local officials.
    The National Conference of State Legislatures views the 
Regulatory Right-to-Know Act as a part of the package of 
reforms that, when passed, combined with the others, will 
largely alleviate problems that we have identified with 
preemption and the regulatory process. This subcommittee has 
already approved two other parts of this package, H.R. 409, 
which streamlines the grant application process, and section 5 
of H.R. 350, which makes critical technical corrections to the 
Mandates Reform Act. We look forward to working with the 
subcommittee on the fourth part of the package, a bill that 
would constrain the propensity of Congress to preempt State and 
local prerogatives.
    The Regulatory Right-to-Know Act which is before you, we 
think contains four important elements, and let me list what 
they are: They include the annual accounting statement, the 
cost-benefit analysis, the analysis of duplication, and the 
notice and comment provision.
    Let me quickly state on those four points that on the 
annual accounting statement, we think it will offer an 
important power of information to State, local and Federal 
officials concerned about the impact of agency decisions on 
State and local governments. We think it will also give 
Congress an indispensable oversight tool to determine whether 
or not agencies have exceeded their statutory authority when 
promulgating rules.
    The second area, the cost-benefit analysis required under 
H.R. 1074, will make agency officials, we think more, 
accountable for the programs they are implementing. They give 
the public much more of a sense of how much funding it takes to 
provide a particular benefit, and we had that discussion just a 
moment ago.
    The third element of H.R. 1074 calls for the analysis of 
duplications, inconsistencies, and overlaps in regulations. How 
often have we heard that from our constituents? This, we 
believe, will streamline the regulatory process, ease the cause 
of the considerable tension and frustration for State and local 
officials.
    Finally, we are supportive of the bill's notice and comment 
provision. We think notice and comment is very critical. This 
element makes the accounting report a dynamic document, giving 
State and local officials a chance to highlight their most 
pressing concerns about recent Federal actions.
    I am here today to let you know that State legislators try 
to practice what we preach. For the past 15 years or more--and 
this is my 21st year in the State legislature--State 
legislators have throughout the country wrestled with the same 
problems addressed in the Regulatory Right-to-Know Act. We have 
tried to make the regulatory process more open, accessible and 
accountable.
    In California I can tell you that I have been involved in 
the passage of several bills that take similar approaches to 
H.R. 1074. We have a regulatory review unit in the Department 
of Trade and Commerce that reviews all rules in California. We 
require agencies to report unnecessary and conflicting rules, 
we require that all rules be accompanied by an economic impact 
statement, and we subject all major rules to regulatory 
calendar and sunset provisions.
    I am pleased with the way that these provisions are working 
in California, and obviously there is always room for 
improvement. I am also pleased that this subcommittee is 
attempting to take similar action on the Federal level. I 
believe that the State and Federal Governments have an 
obligation to our constituencies, to make the regulatory 
process more accountable and more responsive to those who are 
regulated, whether they are in the private sector or the public 
sector. Each step we take on the federalism front, whether it 
is the Unfunded Mandates Act, curtailing preemption, or making 
the regulatory process more accountable, is a step toward 
improving the responsiveness and the credibility of government 
which we all seek to attain.
    It is not an abstract exercise, members of this 
subcommittee. Rather, it is a critical element in ensuring the 
public's confidence in our Federal system, confidence that is 
necessary. I look forward to working with you in passing H.R. 
1074 on a bipartisan effort, and the other components of our 
federalism agenda. Thank you.
    [The prepared statement of Mr. Costa follows:]

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    Mr. McIntosh. Senator Costa, I appreciate that. And Andrew, 
go ahead and work the light for me, because I have several 
questions but I don't want to delay our colleagues in having 
them have a chance to question Mr. Costa, too. So I will come 
back at the end if I do not get through in 5 minutes.
    First of all, let me say thank you for your work, really 
the NCSL's work with one of our subsequent witnesses, Mr. 
DeSeve, on the federalism Executive order which I think we were 
able to, after some hearings here and work by OMB, to resolve 
the problems there and get that back on track. But the work of 
the NCSL was very instrumental in that, and I thank you for 
that.
    I have got several questions about this particular bill, 
and what I may do is come back to those in my second round if 
they haven't been covered already, but I wanted to ask you two 
other things while I have got you here.
    You mentioned you have a regulatory calendar and sunset on 
rules. Does that work--we have tried to do that here, and one 
of the concerns was that rules might lapse and that therefore 
the regulatory safeguard for health or safety or the 
environment might be endangered. Have you successfully been 
able to avoid that using the calendaring and sunset provisions 
in California?
    Mr. Costa. Well, we believe so, with the oversight process 
that the legislative body brings to the fore as we produce our 
budget each year. We have an annual budget in California. Those 
rules that are in place never pass unnoticed, and the public 
input is there and it is frequent.
    So I think it has worked well in terms of calendaring it. 
It works both with our legislative calendar as well as with our 
budget calendar.
    Mr. McIntosh. Well, a different subject for a different 
time. But I look forward to talking with you more about that, 
because that is something that we have been trying to move 
forward here in Washington, and your experience out in 
California may be informative to us.
    Mr. Costa. And I would be happy to give you other State 
experiences as well.
    Mr. McIntosh. That would be great. Thank you.
    Specifically about the bill before us today, you mentioned 
in your testimony you thought it was important that there be a 
review of OMB's draft accounting statements for public comment, 
and I was wondering, wanted to extrapolate on that. How will 
that be helpful for the State and local officials in terms of 
the input and the knowledge about the regulatory programs?
    Mr. Costa. Well, let's use most recently the Welfare Reform 
Act that was passed a little over 2 years ago, I guess, now. We 
on the State level, in implementing that, a host of States have 
acted I think very responsibly.
    But when you are making changes in significant Federal-
State programs, I think it is not only helpful but it is 
illuminating to have the State perspective in terms of how 
States are carrying out these Federal mandates and whether or 
not they are being properly funded or not, and whether or not 
the regulations are duplicative of what we have occurring on 
the State level. And so if we have this comment period, I think 
we can hopefully clear the lay of the land, so to speak, so 
that we don't have, you know, more difficulty in terms of 
implementing new law.
    Mr. McIntosh. I take it that it would also be important for 
there to be an appendix in the report reflecting those public 
comments and OMB's analysis of them?
    Mr. Costa. Yes, and let me emphasize that NCSL, along with 
the other big seven, strongly supports the appendix that 
provides us at least once a year to take an assessment, and we 
think that the annual appendix is really very important part of 
this legislation.
    Mr. McIntosh. Great. Let me also ask you, on the impact of 
Federal rules and paperwork, what is the State and local 
elected officials' view of the requirement for an analysis of 
the cumulative not only direct but indirect effects of the 
Federal rules and paperwork on State and local governments?
    Mr. Costa. Simple is better, in a word. But the fact is 
that the less paperwork that we can create, I think the better 
off we all are, both on the Federal as well as on the State and 
the local level.
    I am sure, Congressman, you and your colleagues are like 
myself. When we go to our districts, usually the second or 
third thing on the list of folks that we are meeting with, 
whether they be a county or city government, is, you know, we 
appreciate your help, we appreciate the changes, but can't you 
do this in a way that doesn't require us to rewrite the State 
Constitution?
    And so all of this effort is really to I think try to 
reduce the amount of paperwork, and I think that has to be kept 
in mind.
    Mr. McIntosh. I appreciate that. I am going to now turn to 
my colleagues, as my 5 minutes has lapsed, and we may cover the 
different questions I have. I also want to acknowledge another 
new member of our subcommittee is here, one of my classmates, 
the gentlewoman from Idaho, right?
    Mrs. Helen Chenoweth, who we are welcoming as a new member 
of the subcommittee, and we welcome her perspective.
    Mr. Kucinich, do you have any questions for Senator Costa?
    Mr. Kucinich. I did have a chance to read his testimony. I 
welcome the Senator, having served in the State Senate of Ohio, 
and I appreciate the work that you do. And California being a 
State that has such an impact on this country, I appreciate you 
taking the time to come and testify. Thank you.
    Mr. Costa. Thank you.
    Mr. McIntosh. I am now going to recognize the vice 
chairman, Mr. Ryan, both for questions and also if you would 
take over the Chair. I have got an obligation and I will be 
back in about 10 minutes.
    Mr. Ryan [presiding]. Thank you, Senator Costa. I wanted to 
ask you about some of the overlapping and duplication issues. 
What is the State and local officials' view on the requirement 
for an identification and analysis of overlaps, duplications, 
and potential inconsistencies among Federal regulatory 
processes, including processes across agencies which impact 
State and local governments?
    Mr. Costa. We think it is essential. If this legislation is 
to be comprehensive, you have to take careful assessment and 
examination of where these rules are overlapping, where they 
are duplicative, and where in making that assessment it becomes 
very clear, both at the State and local level, that the rule is 
redundant and therefore unnecessary.
    Mr. Ryan. And going on to the State and local's views, 
recommendations for reform, I wanted to get your assessment on 
the part of the bill which is section 4(a) in the bill, which 
requires OMB to present recommendations to reform inefficient 
and ineffective regulatory programs or program components, 
including the regs affecting State and local government. Have 
you taken a look at that part of the bill, and what is your 
reaction to that?
    Mr. Costa. We are supportive of it.
    Mr. Ryan. Thank you.
    Ms. Chenoweth.
    Mrs. Chenoweth. No questions.
    Mr. Ryan. Well, thank you very much. I appreciate it.
    Mr. Costa. Thank you, and we look forward to working with 
you as the legislation progresses, and thank you for allowing 
us to testify this morning.
    Mr. Ryan. We will now invite our third panel, Mr. Ed 
DeSeve, who is the Deputy Director of the Office of Management 
and Budget.
    [Witness sworn.]
    Mr. Ryan. I just want to say it is nice to see you again, 
Ed. It has been quite a while. We talked when I used to work 
over in the Senate about the District of Columbia provisions of 
the budget reconciliation bill 2 years ago. It is nice to see 
you again.
    Mr. DeSeve. Thank you, I am delighted to be here. I think 
that is a bipartisan success. Mr. Davis--and Mr. Kucinich was a 
part of that, and on your left you have one of the key 
community activists in the District of Columbia who has been 
tremendously supportive of community affairs over the years, so 
I think it is a great success.
    Mr. Ryan. Please proceed.

STATEMENT OF G. EDWARD DeSEVE, DEPUTY DIRECTOR FOR MANAGEMENT, 
                OFFICE OF MANAGEMENT AND BUDGET

    Mr. DeSeve. Good morning. You invited me to discuss H.R. 
1074, the Regulatory Right-to-Know Act of 1999. This bill would 
require the Office of Management and Budget to prepare a report 
on the costs and benefits of Federal regulations, submitted 
annually to Congress, accompanying the Federal budget. H.R. 
1074 would significantly expand and make permanent what 
Congress has passed as appropriation riders over the past 3 
years with administration support.
    First, I would like to discuss the prior legislation and 
how the Office of Information and Regulatory Affairs 
implemented it. Second, I would like to discuss how H.R. 1074 
differs from this prior legislation, and our serious objections 
to many of the changes.
    As drafted, the administration opposes H.R. 1074. Before 
you mark up this bill, we would appreciate the opportunity to 
discuss our serious concerns with you and to suggest possible 
amendments.
    The first two riders which we supported were passed on a 
bipartisan basis. They called upon OIRA to issue an annual 
report containing two categories of cost-benefit information: 
First, aggregate estimates of total annual costs and benefits 
of Federal regulatory programs; and, second, estimates of the 
costs and benefits of major regulations issued during the year. 
Major regulations are defined as those with economic impact of 
over $100 million.
    OIRA followed the guidance provided by the legislative 
history in developing these two reports and compiled the 
information concerning aggregate costs and benefits from 
economic studies prepared by outside experts or agencies. Much 
of the information concerning major rules was based on the 
economic analysis prepared by agencies in the course of each 
rulemaking. Similarly, relying on studies by outside experts 
and agencies, OIRA assessed the impacts on the private sector, 
State and local government, and the Federal Government in 
general terms. At the end of these reports, OIRA published the 
recommendations.
    OIRA views its development of these reports as an 
incremental, iterative process designed to improve the quality 
of economic data. The content of the 1998 report reflected this 
incremental, iterative approach. The report discussed the 
progress that had been made and pointed out the need for 
further improvements in economic analysis. This 1998 report 
refined cost-benefit estimates prepared in the first report and 
those for previously issued regulations in order to build a 
historic data base. The 1998 report also responded to criticism 
of the first report by taking steps to standardize agency 
assumptions, monetize estimates where agencies had only 
quantified them.
    Last year Congress passed a third appropriation rider which 
was broader in scope and more detailed than the first two. I 
have discussed OIRA's plans to implement the 1999 report in my 
statement.
    H.R. 1074 adds considerable detail to what has been enacted 
before. We object to a number of its provisions which I would 
like to summarize. In addition, Mr. Chairman, I would be happy 
to give you a section-by-section analysis in writing for the 
record.
    Mr. Ryan. Without objection.
    Mr. DeSeve. First, provisions in H.R. 1074 appear to 
misunderstand what is possible and potentially useful. H.R. 
1074 could be interpreted to require the compilation of data 
that are not now available. It does so by eliminating the 
qualifying phrase ``to the extent feasible'' from Section 
4(a)(1) and by calling for a quantification of cost-benefit 
analysis where data are not likely to be available.
    H.R. 1074 could further be interpreted, in a way 
inconsistent with previous legislative history, as requiring 
the creation of a large number of new economic analyses that do 
not now exist. We strongly object to having the bill require 
new economic analyses when its purpose, as Senator--I'm going 
to give him a promotion here--as Chairman Bliley indicated, 
that its purpose was to codify the reporting requirements of 
OMB in statute.
    Second, H.R. 1074 calls for macroeconomic analysis and 
legislative recommendations that are not appropriate for this 
report. H.R. 1074 would establish a ponderous institutional 
structure. That is hard for somebody from OMB to say: ponderous 
institutional structure.
    Mr. Ryan. Don't say it very often.
    Mr. DeSeve. We are opposed to that, and we are opposed to 
paperwork as well. H.R. 1074 would establish a ponderous 
institutional structure, given the detailed requirements and 
many procedures and the serious limitations inherent in cost-
benefit analysis. We strongly object to the detail in these 
procedures and believe their cumulative effect will undermine, 
not enhance, the timely development of regulations and of an 
annual report. We see no need to require OIRA to consult with, 
in statute, CEA and CBO. We regularly work on a staff basis 
with them.
    In conclusion, the bill could be interpreted to limit 
OIRA's discretion and flexibility to compile a useful report 
based on academic studies and undertake other initiatives. We 
support public comment on the report, but we do not support the 
notion of peer review. It would be very difficult to determine 
who the peer review selectees should be.
    In summary, we urge you to carefully reconsider the 
complexity of detail, and look forward to working with you as 
you move forward with this legislation. Thank you very much.
    [The prepared statement of Mr. DeSeve follows:]

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    Mr. Ryan. Thank you. Well, I would like to take your 
attention to the part of your testimony--you state OMB's 
objection to a requirement for an analysis of the direct and 
indirect impacts of Federal rules and paperwork on various 
sectors of the economy and various factors, the requirement in 
section 4(a)(2) of the bill, as not appropriate for this 
report.
    What is OMB's view of the value of an impacts analysis for 
State and local governments, the private sector, small 
businesses? Would OMB support a phase-in of the requirement for 
these sectoral impact analyses?
    Mr. DeSeve. We would be happy to work with you to try to 
determine what is possible and what is useful.
    Mr. Ryan. Going to peer review, you just mentioned in your 
testimony and in your verbal testimony your objection to peer 
review. Given the fact that we have peer review in certain 
areas today, since agencies have an incentive to low-ball 
estimates of regulatory costs and exaggerate estimates of 
regulatory benefits, and since OMB has not provided in its 
first two reports to Congress an independent assessment and 
reestimate of agency estimates, wouldn't peer review by expert 
independent organizations be helpful for you? Wouldn't that be 
helpful in correcting agency estimates?
    Mr. DeSeve. Our problem is, in many cases, choosing who the 
peer entities are and then following guidance of a third party 
who is a nongovernmental entity. We prefer to get public 
comment, including those organizations, and from that public 
comment use it to guide the regulatory review process. The 
agencies themselves have taken into account consulting studies 
and scientific data as they have gone forward, and typically 
that information is available to outside bodies.
    We get a very large number of comments. We are now doing a 
review on actually an implementation of a piece of legislation 
for OMB circular A-110. We have gotten over 2,000 comments so 
far, most of which has been individual entity comments. So we 
don't think that peer review is really a good idea because it 
is hard to choose who the peers are. We would have to deselect 
certain groups and select other groups. We think that the 
public comment process gives them a chance to do that. We think 
agencies typically use qualified individuals in developing the 
data over time.
    Mr. Ryan. Well, let me press on that point with you for a 
second longer. Since no comments are on OMB's draft report to 
Congress--provided comments on each part of the draft report, 
and since OMB admits there are methodological problems, 
wouldn't peer review strengthen OMB's final report?
    Mr. DeSeve. We don't think so. We think that the peers 
themselves would be focusing not necessarily on the overall 
nature of economic analysis over the overall nature of the 
process, but rather specific flaws in the legislation that were 
germane to their own points of view. If I were to select the 
peers, you might disagree with me not just on their conclusions 
but also on my process of selection.
    The use of peer review in many situations in scientific 
analysis, I think, is broad and has been used by agencies 
effectively. The National Science Foundation has peer review of 
grants. That is appropriate as necessary in a broad context at 
the agency level.
    But when you set it up at the review level, after the 
agencies have used their judgment to bring in outside experts, 
if I brought in A and B who were known to be of a particular 
point of view, you could easily criticize the objectivity of 
that review.
    Mr. Ryan. Noting your concern about that, about tainting 
the review, you could get peer review from wide ranges of 
views, people from different view points; and it sounds like 
since you are already cognizant of that problem possibly 
occurring couldn't you implement peer review by getting wide-
ranging views?
    Mr. DeSeve. It is certainly possible to do so. The cost of 
that, as well as the time it takes to do so--and you always 
exclude somebody. When you choose a peer, you are always going 
to say, ``Well, I have taken 10 individuals or 10 
organizations; and I have left out 2 or 3 who will have very 
strongly held views on the subject.'' So I am concerned--we 
would love to have public comments. We would like to have any 
of these organizations provide comments. And I assume we are 
also going to have to pay the peers. They are not going to do 
it for free. Now, I have got a situation where I choose a 
contractor. I can essentially sole-source that contractor; I 
suppose I could bid it as well. I am building both time and 
cost into the process which is already a long process of 
regulatory review and economic analysis along the way.
    So we are very encouraging of public comment, but we think 
the approach of public comment and peer review is one that is 
just going to add complexity to the process.
    Mr. Ryan. I hope you rethink that and look at it a little 
further. Winston Churchill said that democracy is the worst 
form of government, except all the other forms of government. 
So it is a sloppy process. But I think that peer review will 
help you do your job, will help you get all of the input that 
you need. And you can go out and get diverse points of view. So 
I hope you rethink that one and take a look at it, and I would 
ask you to make that consideration.
    Mr. DeSeve. We will be happy to talk to the committee about 
it further.
    Mr. Ryan. My time has expired. I turn it over to the 
chairman.
    Mr. McIntosh. Thank you, Mr. Ryan; and thank you for 
chairing in my absence and continuing to do so. Mr. DeSeve, 
first, welcome. I understand that you are moving on from OMB 
and want to wish you the best in the next phase of your career 
and take this moment to thank you for your work on the 
federalism Executive order. You were here before us when it was 
in limbo and that matter was resolved, and I appreciate the 
work that you did on that.
    Mr. DeSeve. Mr. Chairman, I guess I ought to be clear. I 
think there are still ongoing discussions between the big seven 
and the administration to perfect a substitute. I think that is 
still happening--ah-hah, a note from the trenches. That is 
exactly what I thought. The order was withdrawn, which I think 
was your recommendation; and there is continuing conversation 
between the big seven and the administration as to what a 
substitute might look like.
    Mr. McIntosh. So we may still be doing some work on that.
    Mr. DeSeve. That's correct. But I think it is consistent 
with the concerns that you had about not having the Executive 
order in place. It was withdrawn, and at the same time we are 
continuing to negotiate.
    Mr. McIntosh. Good. Good. And we will continue to watch 
that and have our say as well.
    Let me ask you on some of your comments here, it is my 
understanding that in the reports that OMB has prepared there 
has been public comments to that. Was that process for those 
reports beneficial?
    Mr. DeSeve. We believe it was very beneficial, and we would 
like to continue the public comment process in all aspects of 
the report.
    Mr. McIntosh. OK. Good. And picking up a little bit on the 
peer review, although I think you stated your position well, I 
have to say I am skeptical of that, because my experience from 
government--and it is human nature. Nobody wants to have 
somebody looking over their shoulder questioning their work, 
but it is also healthy. And so I would hope that we could, as 
Mr. Ryan asked you, to continue to think about that and find 
ways where maybe you all could find constructive ways of making 
that process work, and we could get the constructive benefit of 
that outside input.
    The overlaps and duplications and inconsistency and your 
comments there you were concerned that what the report would 
end up focusing on in many cases would be statutory problems 
that the agencies have to deal with, where Congress has 
legislated over the years and created requirements that create 
those overlaps and duplications and inconsistencies. And I am 
confident that you are correct that a lot of that problem comes 
from the nature of the process with legislation and different 
committees, but also different times in which bills were 
passed.
    But do you see a role where, perhaps, bringing those to 
focus in one area, even if it ends up pointing out that we 
cannot change it by the regulatory process because we are 
mandated by law to do these inconsistent things or overlapping 
things, that it might then help us be able to sort them out 
here and go to the appropriate committees?
    One of the things that Chairman Bliley mentioned was his 
view was very much that this would help the committees in their 
work as a report on the underlying legislation. And so that 
perhaps we could keep that in there; but allow you all, 
essentially, to focus where it is legislative versus regulatory 
in nature.
    Mr. DeSeve. Our concern here is that we are breaking new 
ground. The economic costs and benefits have been dealt with 
over the last 2 years in riders. Now the 3rd year. As we think 
about having to codify for a historical base of regulations 
duplication and then having to go back and examine where those 
duplications and overlaps exist, it is terra incognito for us. 
It is new territory for us. We are concerned that it is a very 
deep requirement that we haven't thought through before.
    Also in identifying what is an overlap and what is 
redundancy, we are going to have to exercise some judgment. One 
man's overlap may be another man's support in some 
circumstances. So rendering that kind of judgment is something 
that we are concerned about.
    We do, under the Executive order, examine the body of 
regulatory statutes or other regulations surrounding a 
particular new regulation as it comes forward. So if regulation 
A shows up, we do look and examine the other regulations. We 
could certainly, in examining those regulations, indicate the 
other regulations in that family that we examined as we do 
that. That is something that we could do in that regulatory 
process. If you mix that into the cost-benefit report, you get 
an apple and an orange, or at least an apple and a kumquat of 
some sort. You get a blending that, again, adds in a layer of 
complexity.
    So we would like to talk about achieving the purpose of 
making sure that there is an understanding of the other 
regulations that surround this one, without forcing us to use 
either independent judgment of what is an overlap and what is a 
duplication or what is reinforcing. So, again, transparency is 
certainly something that we could do, but then to have an 
analytic judgment requires a much greater level of work on our 
part than simply displaying those overlaps or those 
reinforcements.
    Mr. McIntosh. Well, let me say I think it would be helpful 
to us in Congress for the executive to go ahead and exercise 
some of that judgment; and we may disagree--and certainly the 
committees who have written the different legislation may have 
different opinions--but I think it would be, in general, 
helpful in the process.
    Let me also take a moment to say--and I talked to Chairman 
Bliley after his testimony. He wanted me to mention that his 
goal was not to create a lot of new burdens for you. You have 
identified one that was. And he said he did realize that there 
may be some additional things in the legislation; but he was 
wanting to indicate a willingness to work with everybody in 
making sure that that was not a large additional burden and 
that his view of the legislation was that on the whole, it 
should not be a tremendously new area of burdens for OMB. There 
may technically be some new information that you are being 
requested to provide in this report. So he wanted me to clarify 
the record on that, based on your question to him.
    Mr. Kucinich. Will the gentleman yield? I believe that what 
Mr. Bliley said is that there would be no new analysis.
    Mr. McIntosh. Right. And that is what he is asking me to 
clarify, that there may be a couple of areas the way the 
legislation is drafted that might, in fact, be new. I think Mr. 
DeSeve has pointed out one here.
    Mr. Kucinich. Does Mr. Bliley intend to correct his 
testimony?
    Mr. McIntosh. That is what he asked me to do, correct the 
record. That the intent was that there not be a large new 
burden coming from those and that he wanted to work with you 
and me; that as the legislation went forward, if that was an 
area of concern, that we could work together on it.
    Mr. Kucinich. Well, it is an area of concern. I wish that 
Chairman Bliley could have had a little bit more time so that 
he wasn't feeling rushed and, therefore, gave a one-word answer 
to a question which has enormous import. Because certainly what 
underpins this whole debate is that question about is there 
going to be new analysis. And so I certainly take the Chair at 
his word in relating Mr. Bliley's account, but I do think that 
somehow complicates our deliberations here.
    Mr. McIntosh. What I might do, if it is all right with Mr. 
Kucinich, is ask him if he has further things that he wanted to 
put in the record addressing that in particular.
    Mr. Kucinich. First of all, I would have no objection of 
doing that, provided that we could also put in some additional 
questions so we can carry the debate.
    Mr. McIntosh. Let me know what your questions are and, we 
will make sure that we get the answers for them in the record.
    Mr. Kucinich. I would like to see his statement, and then I 
would add my questions, not my questions first and then his 
statement. That would be too much like Lewis Carroll, and my 
name is Kucinich.
    Mr. McIntosh. We will work with you to make sure any 
concerns you have got based on what is in the record get 
answered so that we can have a complete record on the bill. We 
will work with you on that.
    Mr. Kucinich. I am sure we will work together.
    Mr. McIntosh. My time has expired. I will turn it back to 
Mr. Ryan, who is going to continue chairing the hearing.
    Mr. Ryan. Mr. Kucinich.
    Mr. Kucinich. Thanks very much. I appreciate it.
    Welcome. H.R. 1074 requires a number of new analyses, 
including cost-benefit analyses for each agency program and 
program component, Mr. DeSeve. Another new requirement provides 
that reports cover costs and benefits for 2 previous years for 
the following 4 years. In addition, the bill adds that, to the 
extent feasible, OMB must quantify net benefits and costs for 
each program, major rule, and option discussed in any 
regulatory impact analysis for any major rule.
    So the question comes, does OMB have the resources to 
adequately conduct such analyses?
    Mr. DeSeve. No, sir, not at this time.
    Mr. Kucinich. Why not?
    Mr. DeSeve. The budget process didn't give them to us. This 
is a new set of requirements that were not anticipated 
previously, and we just don't have the money for them. It is 
just not in our budget.
    Mr. Kucinich. OK. And also if you were to have that imposed 
on you, what would be the effect?
    Mr. DeSeve. You have to make a calculation, which I have 
not reviewed, on the cost of $35 million. To give you an order 
of magnitude, that would be an increase in the OMB budget in 
the order of magnitude of 70 percent to the overall OMB budget. 
Our budget is about--roughly $50 million a year. We have 
roughly 512 employees, FTE.
    Mr. Kucinich. Let me turn it around now. It is my 
understanding that most of the analyses is done by agencies and 
not by OMB.
    Mr. DeSeve. And we also rely on third parties who are 
published experts in the area and will tend to bracket their 
opinions. If you have a published expert over here and 
everybody agrees published expert over there, we will show what 
their estimates would do in a particular area, as well as 
relying on the work the agency has done in terms of the 
regulation.
    We try to avoid a centralized bureaucracy that in the first 
instance, de novo, prepares analysis that already has been done 
by the agency. We try to avoid that level of overlap and 
duplication. We do do quality control. We do the review. We do 
coordination of those, but we don't do the initial de novo 
analysis ourselves.
    Mr. Kucinich. Are you familiar with the testimony of Dr. 
Seeker of the EPA Science Advisory Board? He testified before 
the Committee on Science a few days ago.
    Mr. DeSeve. I am not familiar.
    Mr. Kucinich. He stated that the new requirement for cost-
benefit analyses on regulatory programs, ``Will a new program 
in research to address the knowledge gaps which inhibit 
comprehensive cost analyses.'' So the question I have: Do 
agencies currently have the resources needed to provide 
adequate H.R. 1074 analyses?
    Mr. DeSeve. The problem really is--in his case goes beyond 
resources. There doesn't exist a body of work or a body of 
knowledge in each program area, in each program component, that 
would allow an individual to determine the cost and benefit 
with the kind of precision that seems to be called for here. So 
I think what he was suggesting is you would have to have a new 
body of knowledge created, a new data base, a new set of 
experiments over a fairly long period of time. If you are 
talking about a regulation----
    Mr. Kucinich. Otherwise, we wouldn't know what we wouldn't 
know?
    Mr. DeSeve. That is correct. If you are talking about a 
regulation that might affect the health of children when they 
were in middle age, for example, you would have to have a 
longitudinal study over a time period to be able to assess what 
the benefit of that regulation was. We just simply don't know 
that now.
    Mr. Kucinich. You mentioned before when we were talking 
about estimates you really didn't have one. Could you get--I 
know this might do violence to the whole concept of this bill. 
Could you give me an estimate of what this would cost?
    Mr. DeSeve. Would you like to have it peer reviewed? That 
was a joke, I am sorry. I apologize. We will be happy----
    Mr. Kucinich. We take jokes here as long as you don't turn 
them into law.
    Mr. DeSeve. We will be happy to try to prepare such a 
recommendation and get it back to you. I think we can do that 
without increasing our staff.
    Mr. Kucinich. OK. Thanks a lot. Thank you.
    Mr. Ryan. Mrs. Chenoweth.
    Mrs. Chenoweth. Thank you, Mr. Chairman. In your testimony, 
you state that OMB's view that some of the analytical 
requirements of the bill are not doable and that OMB's 
preference really is a guideline from the Congress that says 
``to the extent feasible.'' Isn't such a qualifier an 
invitation for OMB and the agencies to do less than their very 
best in this analysis?
    Mr. DeSeve. That is a good question, Mrs. Chenoweth; and we 
appreciate the fact that Congress has seen fit to give us that 
guidance in the riders that we have had. They have put that 
``to the extent feasible'' in the riders. This bill in this 
particular section removes that.
    The difficulty with feasibility issue here is that you can 
only do what you can do. And this creates an expectation that 
you have the capability or that there exists the body of 
knowledge to do something that is not possible. Albert Einstein 
tried for years to find the unified theory of matter, and at 
the end of his life he realized that it was impossible for 
anyone to find a unified theory of matter. But he spent years 
and years trying to do that.
    We are suggesting that many of the analyses that this bill, 
as it goes into greater detail, would have us do, are simply 
not possible to be done. And we could spend a lot of money 
demonstrating the fact that you can't do what the bill 
requires. If you let us exercise our judgment with public 
comment in how we exercised our judgment with congressional 
oversight in hearings such as today and continuing to try to 
improve the way we do our work over time, if you give us the 
option of trying to use that judgment to determine what is 
currently feasible, and then trust but verify. Verify what we 
have done is an honest effort. Senator Stevens has looked very 
carefully at our reports, as have others. If it is not an 
honest effort, then excoriate us for it; and we would hope the 
public would do the same.
    Mrs. Chenoweth. See, our concern is that which is being 
reflected by our constituents. And our concern, for example, is 
that various budget projections by OMB sometimes are off 
hundreds of millions of dollars and sometimes billions. And so 
we are not asking you to have your staff project into 
Einstein's theories, which are esoteric in large part to some 
of us who are on-the-ground analyzers. But what our 
constituents are asking us is to push to make sure that we 
tighten up the accountability.
    If we don't have language that is very clear and we give 
the agency time to develop and do their best job, which I 
know--I mean, I know the sincerity in which you offer the 
comments, but time has not lent itself to the fact that 
agencies will get better. By nature, they tend to get a little 
more lax; and that is one of the reasons why the language in 
the bill is as it is. And I hope you can join us and appreciate 
the reason why.
    Mr. DeSeve. We do have experience of agency laxity. All of 
our agencies are superior. It is like Lake Wobegon. They are 
all above average. But we do have to, from time to time, remind 
them of the rigor with which they have to do their work; and we 
do try to set those standards and set those patterns for 
agencies where we can.
    Mrs. Chenoweth. Also you stated that OMB's objections to 
various provisions in the bill is we strongly object to having 
H.R. 1074 require new economic analyses when simply intending 
to codify OMB's annual reporting requirement. The intent of the 
bill is not simply to codify an annual reporting requirement, 
but since the additional analysis required are each 
individually important and needed for public understanding of 
the impact. And that is what we need together to get. That is 
our goal. The Federal regulatory programs, what vehicle would 
OMB prefer for imposition of these requirements?
    Mr. DeSeve. Again, I think I would like to stand with 
Chairman Bliley, and he is going to extend his comments; but 
our point is that an enormous amount of analysis is currently 
done by the agencies in the regulatory process. We then take 
that body of data, and we review it at OMB. From time to time, 
we ask for augmentation of that.
    What we don't do is start de novo ourselves, making a new 
analysis based on the facts of the regulation. We don't go out 
and look at the impact of particulate matter in ozone, to take 
one that has been very controversial. We rely on the scientific 
analysis done by EPA. We then look at that, and we get public 
comment on that. We talk to the EPA folks about it. We use our 
judgment in probing that analysis.
    That is the process we think is appropriate. If you create 
a centralized bureaucracy that itself will be doing the 
economic analysis, it will so stymie the work of agencies, 
because it is analysis that will have to be done twice. We 
think the right place to do the analysis, and the people to 
hold accountable, are the people in EPA, the people in the 
energy department, and others who are doing the analysis in the 
first place, rather than having us be required to do it.
    Mrs. Chenoweth. I see my time is up, but I would like to 
work with the Chair in submitting more questions.
    Mr. Ryan. Without objection. Mr. DeSeve, I would like to 
continue on the train of thought you were just on. One of the 
things that I think is very beneficial about OMB is the fact 
that you are the budgeter for the Federal Government; that you, 
Ed DeSeve and the OMB, take the numbers from the Federal 
agencies on spending programs; you analyze the data, you 
analyze what appropriate spending levels, and you actually cut 
spending, and you increase spending, and do your own 
independent analysis about what kind of spending levels we have 
in discretionary spending. You do your own independent review 
of the Federal budget, so to speak, and add your own auditors; 
and your own staff do independent auditing fresh from the 
start. That is a wonderful process that I think helps us inject 
fiscal discipline into our Federal budgeting process. Why not 
do the same thing for our Federal regulatory process?
    One of the greatest things that the OMB has brought to 
enable our Federal budget is some type of fiscal discipline, 
independent analysis by trained economists and budget 
specialists to get that kind of discipline. Why not do the same 
thing for the Federal regulatory process?
    Mr. DeSeve. That is a good question. Let me try to use the 
analogy, and I hope I will do it properly.
    What we try to do at OMB is first get the aggregates right. 
We look at the potential productivity, along with Treasury, of 
the tax system; and we make projections out into the future 
with Treasury about what that might yield. We then, once we 
have done that, look at what the agencies' expenditure requests 
are; and within the context of our agreement with Congress as 
to the balanced budget caps, we ask the agencies to submit 
their budgets. We don't prepare the budgets for them, just as 
we don't prepare economic analysis for rules. We don't look at 
the level of the WIC program or the level of the highway 
program. That is done by the agencies. We then analyze that and 
review it and see, together with Treasury, together with the 
Council of Economic Advisers, under the statutes how that fits.
    We then make independent judgments of our own and pass 
those back to the agencies. The agencies typically erupt and 
reject those judgments, and back and forth we negotiate with 
the agencies based on their budget. The aggregate amount of 
money that will move in any year will not be enormous. I hate 
to characterize it--but it will be a small amount compared to 
the work the agencies have done in preparing their base 
budgets.
    I think the analogy carried forward is that is the way we 
try to do rules. We try to set a general framework, a general 
template. We try to look at all of the general information; and 
then as rules come forward, we work with the agencies who 
prepared the specific analysis to fit those in that framework, 
giving them our best judgment and we fight with them. We sit 
down--it is not hand-to-hand combat, but there is a significant 
amount of tension both with an individual agency and among a 
group of agencies who may have disparate views about a 
regulation.
    Mr. Ryan. I think you just made a perfect point, in that 
the agencies are going to ask for the best funding possible. 
You know, the most funding for WIC or any discretionary 
program, and it is within their interest to push for higher 
funding. You serve as a control over that mechanism, over that 
process. The same, I would think, would work with the 
regulatory process.
    You talk about the regulations being promulgated by the 
agencies which have the same kind of incentive built in, which 
is probably something that goes beyond cost-benefit analysis, 
beyond sound science research. Where we are going to promulgate 
regulations that may be promulgated through a narrower 
viewpoint, OMB can serve as a control to that. And you have 
this give and take. Wouldn't this bill, in my opinion, and peer 
review and accounting, wouldn't that supplement your ability to 
be that independent control over the process?
    And one of the things I did want to ask you about that--and 
that was more of a statement, I know--do you keep a running 
list of problem regulatory provisions reported to OMB by the 
public? I know you mentioned earlier in your testimony that you 
think that the public comment is a wonderful vehicle and 
something that you encourage. Do you keep a running list of 
these things?
    Mr. DeSeve. I would have to ask Mr. Arbuckle because I 
don't keep that list. Do we keep a running list?
    Mr. Arbuckle. Yes.
    Mr. DeSeve. I thought we did. In fact, I think we make them 
available without a FOIA even in many cases.
    Mr. Ryan. It sounds like that would be very, very important 
for you to put in the forefront of your mind so that you know 
the answer to these things.
    Mr. DeSeve. I thought I was right, but I wanted to check 
with the expert back here.
    Mr. Ryan. Well, using this running list, in your 1999 
report to Congress on the cost and benefits of Federal 
regulation, you included few recommendations for reform. Given 
the fact that you are keeping the running list, you are serving 
as the control for regulations, what process did OMB use to 
assemble recommendations for its first and second reports to 
Congress?
    Mr. DeSeve. I guess I would like to go back to my testimony 
and say that in addition to having dialog with people on the 
Hill who had put those riders in place, we ourselves talked 
with the agencies, we consulted experts who had provided other 
background and testimony, and we looked at the public comments 
as we assembled our recommendations. And at end of the day they 
were recommendations of the OIRA staff. I don't believe I have 
left anything out in that process, but let me check. Yeah.
    Mr. Ryan. Do you believe you are going to have more 
recommendations in the forthcoming report?
    Mr. DeSeve. I think I'm trying to make improvements in each 
report. We would be happy to talk to the committee about the 
nature of those recommendations as well.
    Mr. Ryan. And you have a process in place that sort of vets 
the public complaints and the independent analysis?
    Mr. DeSeve. Yes, we do.
    Mr. Ryan. OK. Mr. Chairman?
    Mr. McIntosh. A couple more. I just wanted to followup, Mr. 
DeSeve, on your testimony regarding the impacts of the Federal 
rules on different sectors. And I think the prepared statement 
said that they were not appropriate for this type of report.
    But let's take each of them separately and try to look at 
that more closely. For the State and local governments--and I 
think the statement says generally, nor will OIRA be able, 
except in very general terms, be able to discuss the impacts on 
State and local governments. Since this requirement we heard 
earlier today from the Senator from California is important for 
the State and local government community and they look forward 
to having the appendix with the different comments on those 
particular areas that affect their level of government, 
wouldn't it be better if OMB could prepare the impact analysis 
and perhaps reach out to the State and local representative 
government agencies and work with them to develop a way in 
which that impact analysis could be done that would be 
meaningful to them and let--I think, as I understood it, not 
only to get a heads-up of what will be coming but also what is 
happening and what analysis the government has on why they want 
to impose the different regulatory burdens on the State and 
local governments so that they can then do their jobs in trying 
to comply with those different requirements.
    Mr. DeSeve. I think that what we are concerned about and I 
think you are referring to the same section I am, 4(a)(2), 
which requires an analysis--and this is the expansion that we 
are concerned about--an analysis of ``direct and indirect 
impacts'' without defining indirect impact. I don't know what 
an indirect impact is ``of Federal rules and paperwork on 
Federal, State, local, tribal, private sector, small 
businesses, wage, consumer prices productivity, economic growth 
and distributional effects.''
    If you think of that in terms of matrix, if you were trying 
to do a matrix of that, and if then you put on top of that 
matrix not just by agency, by department, but if you went back 
to 402(a)(1)(B), where it is agency, program, and program 
component, and you delete the reference ``to the extent 
feasible,'' you begin to develop an aggregate process where the 
matrix has agency, program, program component; and then it has 
the categories that we have discussed here, direct and 
indirect, Federal, State, local, and so on. We are concerned 
that the complexity that you bring--essentially there is no 
discretion on our part to try to aggregate some data as we have 
tried in the past--imposes a work burden on us that is undoable 
and doesn't add, particularly, in the value.
    First of all, the agencies have typically gone through a 
process of posting the regulation for comment and have received 
comments from State and local governments, which they take into 
account and we take into account, as the regulation comes 
forward. And we also try to explain the process we use each 
year in analyzing the burden.
    Our problem here is with the complexity of this tool to 
provide a distinction as to the costs and benefits. That is our 
concern.
    Mr. McIntosh. But given that there is a problem--and I 
think we have heard over and over again that the State and 
local governments, in particular, as well as the private 
sector, I think that there is a problem of the cumulative 
impact on much of these regulations--wouldn't it make sense to 
have that type of matrix and disaggregate the analysis to 
figure out, OK, the overall burden is too great; and we are 
hearing that over and over and over again from different 
sectors. Let's figure out where we get the most benefit for the 
cost and where we get the least benefit for the cost.
    And, presumably, some people would argue in some cases you 
get more cost than benefit. And target the effort for reform 
there. But to get to that, I think you need to have that matrix 
that you described so that you can have the disaggregated data 
and the analysis; and then as a policy matter, both in the 
executive branch and in the legislative branch, be able to 
focus the attention on those areas where we could do better 
essentially.
    Mr. DeSeve. Our grave concern is twofold. It is one that we 
literally don't have the resources for that. Mr. Kucinich has 
given us an estimate. We will develop an estimate for what that 
would cost.
    And second, for many of the regulations, the uncertainty of 
the information with which we deal, especially if you try to 
begin disaggregating it down to the lower levels on the 
indirect costs to a tribal government of an air quality 
regulation, if we have no ``to the extent feasible'' language, 
we literally would have to do--again, I realize I am taking 
this to a place that you don't intend; but you see my concern 
about clarity--we would be required, if there was a tribal 
government that was potentially in the air path of a particular 
plant, to analyze the cost and benefit on that tribal 
government of the regulation. They would have a right to expect 
under this legislation that we did that. We just think that 
that is a level of detail that would create grave difficulty 
for us.
    Mr. McIntosh. Given that--and I appreciate your willingness 
to provide that analysis of the cost--would OMB be more 
amenable or willing to consider, perhaps, phasing in those 
requirements?
    Mr. DeSeve. We have indicated a willingness to talk to the 
committee about how the bill might be modified in those 
regards, yes.
    Mr. McIntosh. OK. And then the other thing, would it 
perhaps be helpful if you could be given explicit authority in 
this bill to essentially require the agencies to undertake some 
of that disaggregate analysis so that you are not having to 
create--perhaps they are doing it already. Perhaps they need to 
be directed to use some of their discretionary resources in 
that way--so that we don't have to buildup as large a body at 
OMB?
    Mr. DeSeve. We certainly expect them to do it. In fact, I 
think in the Executive order of the President, we require them 
to do it.
    Mr. McIntosh. And I understand how these things go. They 
have different priorities, and you are telling them we need to 
do these. Perhaps by putting it in the law, we can give OMB a 
little extra muscle in getting those priorities done. Because I 
do think it is helpful, is what it comes down to in the end. 
And the more detailed information, I have found, the better 
able to reach a consensus. Because if we start looking at the 
large picture, then you get battle lines drawn between, well, 
they are trying to attack the environment and we say, you are 
trying to impose too much cost. And if we can get down to some 
detailed areas, then I have found in the past, yes, consensus 
can be developed OK. We can do a better job, to use your 
example, without knowing what would be the tribal impact on air 
regulations; and people may be willing to say we can find a way 
to solve that unusual cost.
    So my view is it would be beneficial, and let's work 
together with you on a way to figure out what the cost would be 
to OMB and if there are ways to reduce that by empowering you 
to have the agencies do the work for you.
    Mr. DeSeve. We are always pleased to work with the 
committee, especially in those areas.
    Mr. McIntosh. Great. Thank you. I have no other questions.
    Mr. Ryan. Thank you very much, Mr. DeSeve.
    Mr. DeSeve. Thank you, Mr. Ryan.
    Mr. Ryan. We will now call our fourth panel. Thomas 
Hopkins, interim dean of College of Business at the Rochester 
Institution of Technology; Angela Antonelli, director of the 
Thomas A. Roe Institute for Economic Studies from the Heritage 
Foundation; Wayne Crews, director of competition and regulatory 
policy from the Competitive Enterprise Institute will be 
joining us, as well as Lisa Heinzerling, professor of law at 
Georgetown University Law Center. We will now turn this over to 
the chairman, the real chairman.
    Mr. McIntosh [presiding]. Thank you, Mr. Ryan. It is also a 
delight to know that the committee is in capable hands when I 
have to step out of the room.
    Welcome to this panel. I appreciate all of you coming. We 
do ask our witnesses to be sworn in, so if you would please 
rise.
    [Witnesses sworn.]
    Mr. McIntosh. Thank you. Let the record reflect that each 
of the witnesses answered in the affirmative.
    Today, we will hear first from Dr. Hopkins, who is the 
interim dean at the College of Business at Rochester Institute 
of Technology. And, Dr. Hopkins, I am familiar with some of 
your early research in the 1980's on the cost of regulation. 
That was one of the first that I saw where someone in the 
academic community tried to tackle the question for us, and so 
I appreciate that and your background and welcome you here 
today before our subcommittee.
    And all the witnesses are welcomed to submit their full 
testimony for the record and I would ask each of you to perhaps 
summarize it for 5 minutes or so, or whatever time you end up 
taking; but we will kind of speed it along that way. Dr. 
Hopkins.

   STATEMENTS OF THOMAS D. HOPKINS, INTERIM DEAN, COLLEGE OF 
BUSINESS, ROCHESTER INSTITUTE OF TECHNOLOGY; ANGELA ANTONELLI, 
  DIRECTOR, THOMAS A. ROE INSTITUTE FOR ECONOMIC STUDIES, THE 
   HERITAGE FOUNDATION; CLYDE WAYNE CREWS, JR., DIRECTOR OF 
   COMPETITION AND REGULATORY POLICY, COMPETITIVE ENTERPRISE 
 INSTITUTE; AND LISA HEINZERLING, PROFESSOR OF LAW, GEORGETOWN 
                     UNIVERSITY LAW CENTER

    Mr. Hopkins. Thank you, Mr. Chairman and members of the 
committee. I am pleased to have this opportunity to present my 
views; and with the chairman's permission, I would like to 
submit my written statement for the record and to simply 
discuss some of its highlights here.
    Mr. McIntosh. Great.
    Mr. Hopkins. I am here to speak in support of the proposed 
Regulatory Right-to-Know Act, which I think would be a major 
step toward meeting the need for accountability and 
transparency in regulatory policy. I commend the Members for 
considering this bill.
    This proposed legislation builds upon Public Law 105-61, 
which directed the Office of Management and Budget to prepare a 
regulatory accounting report with many elements now 
incorporated in H.R. 1074. OMB's resulting report, its second 
such undertaking, was published February 5, 1999. H.R. 1074 
would establish the important principle that a report of this 
nature, with improvements, should be a regular part of the 
annual cycle of government reporting, rather than an ad hoc and 
intermittent exercise.
    The existence of OMB's initial two reports indicates that 
such a task can be accomplished, although considerable 
improvement is needed. The 1998 OMB report overstates benefits 
and sidesteps costs in a way that H.R. 1074 would preclude, 
thanks in part to the peer-review provisions in section 7 of 
the bill.
    Certainly in any consideration of ways to improve 
government operation and effectiveness, spending programs and 
regulatory programs should receive more parallel and balanced 
attention; and H.R. 1074 would foster such possibilities. 
Several years ago, OMB began moving in this direction by 
linking regulatory spending with fiscal spending in the unified 
budget documents. Such practice should be reestablished. 
Indeed, OMB then articulated a strong case for a regulatory 
budget, somewhat comparable to our fiscal budget. H.R. 1074 
would set the stage for just such a budget, and OMB's archives 
provide compelling justification.
    In my view, the single most valuable contribution of H.R. 
1074 appears in section 6(a), which calls for standardization 
of the cost and benefit data which agencies would be required 
to provide. The value of this requirement is further enhanced 
by its applicability to all Federal regulatory agencies and to 
paperwork. Fortunately, section 3's definition, as I read it, 
does not exempt the so-called independent agencies; and section 
4 specifically includes paperwork, much of which, particularly 
tax paperwork, OMB would prefer to exclude. The peer review of 
section 7 would provide much-needed quality assurance.
    Every President since Richard Nixon has issued Executive 
orders directing regulatory agencies to estimate likely benefit 
and cost before adding major new regulations. Regrettably, 
agencies, especially the independent agencies, routinely either 
have ignored such requirements or have provided estimates that 
lack comparability in important respects, such as discounting 
practices. OMB guidance to agencies, while generally sound, has 
not called for common data formats and methods, unlike such 
guidance documents issued by other countries. Agencies are not 
given discretion to utilize varying accounting practices in 
reporting their fiscal outlays, and neither should they in 
reporting regulatory effects.
    In my view, the paramount need is for sound and timely 
estimates of incremental effects of every major new regulation 
and of the most prominent components of each relative to 
alternatives. Armed with such information, it would be far 
easier to avoid inefficient regulatory action. This would be no 
small accomplishment, given the finding of the American 
Enterprise Institute's Robert Hahn that half of all 
environmental, health and safety regulations adopted since 1990 
are producing annual costs that exceed their benefits. This is, 
of course, not inconsistent with OMB's conclusion that net 
benefits of all such regulations as a group are positive. Some 
particular regulations are remarkably efficient, but many are 
quite unproductive. The Federal Government routinely by 
regulation mandates inefficient uses of resources. If we truly 
want to continue shooting ourselves in our feet, collectively, 
I think it only fair that we have a count of the bullet holes. 
This H.R. 1074 would accomplish. The bill's definitions of 
benefit and cost in section 3 are sound and exactly what the 
accounting statement of section 4(a)(1) should be based upon.
    I do not mean to imply that the other provisions of H.R. 
1074 lack merit. Indeed, each would foster progress toward 
better regulatory outcomes. Aggregate measures, in particular, 
would help citizens gauge the overall intrusiveness of 
government mandates relative to taxation. It makes little 
sense, for example, to advocate tax reduction if, as sometimes 
happens, we then get what amounts to an offsetting increase in 
budget requirements. If budget constraints cause the government 
to step back from spending tax revenues on some new initiative, 
it now is all too easy for the same initiative to be 
accomplished through government regulation that forces business 
or state-local government to pick up the tab. A water treatment 
plant can be built either with Federal funds or with federally 
mandated use of local funds, for example, we have no analogous 
constraints or even consistent measures on overall regulatory 
spending.
    I thank you for the opportunity to participate in this 
hearing. H.R. 1074 is a most promising initiative, and I hope 
the committee finds my suggestions constructive and supportive.
    [The prepared statement of Mr. Hopkins follows:]

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    Mr. McIntosh. Thank you, and I look forward to the 
question-answer period to explore some of those suggestions 
with you. Our next witness will be Ms. Antonelli from the 
Heritage Foundation. Thank you and welcome as a fellow former 
alumni of OIRA to both you and Dr. Hopkins in that regard.
    Ms. Antonelli. Thank you, Mr. Chairman. And thank you for 
allowing me to testify on the Regulatory Right-to-Know Act of 
1999. As a member of the public, as an interested citizen, and 
as a former employee of the office that has produced these 
kinds of reports in the past, I have submitted comments to OMB 
on both the first and second annual draft reports before they 
were submitted to Congress; and I believe these reports provide 
important information and must be preserved and enhanced. I 
will present some brief remarks, but ask that my full statement 
be placed in the hearing record.
    Mr. McIntosh. Seeing no objection.
    Ms. Antonelli. I want to applaud you, Mr. Chairman, for 
your continued commitment to making the Federal regulatory 
system, its more than 55 agencies, 125,000 rule writers, and 
$17 billion in annual spending, accountable to the American 
people for the more than 4,000 final rules they produce each 
and every year.
    Since 1995 Congress has taken a number of important steps 
to demand accountability and common sense in how the Federal 
Government regulates and empowers the public to play a more 
informed role in shaping Washington's regulatory priorities. 
Indeed, the Heritage Foundation reported in a report released 
last summer in examining the implementation of the 
Congressional Review Act, we were able to show that more than 
8,625 final rules were issued by Federal agencies in a 24-month 
period; 125 of those rules during that 2-year period alone were 
major rules. That means that at a minimum they cost the economy 
$12.5 billion.
    But as we know, one rule alone, the PM and ozone rule, 
costs significantly more than that, somewhere on the order of 
$60 billion. So if we look at new regulatory taxes imposed on 
the public in just a 2-year period, thanks to the Congressional 
Review Act, we now know that somewhere on the order of $60 
billion to $100 billion in new regulatory taxes were imposed on 
the economy during that time. That is valuable information we 
didn't have before.
    Similarly, in studies that the Heritage has done since 1996 
on the Unfunded Mandates Reform Act, which were subsequently 
confirmed by the Congressional Budget Office, has shown the 
benefits of providing information on the economic impact of 
proposed new mandates. The result of this information, 
confirmed by CBO, has indicated that Congress has saved several 
hundreds of millions of dollars in the costs of mandates that 
it might otherwise have imposed on the public. So this 
information is valuable to the public.
    The Regulatory Right-to-Know Act continues providing the 
public this type of information. It proposes to make permanent 
a report by the White House Office of Management and Budget 
that Congress has asked for in each of the last 3 fiscal years. 
Congress has asked for these reports because the public has a 
right to know about the costs and benefits of Federal 
regulatory programs. It is also entirely reasonable to demand 
that agencies work harder and smarter, not necessarily having 
to spend more money, so that taxpayers don't have to.
    The health of our Nation's economy and even more 
importantly a desire to achieve the highest levels of 
investment in public health, safety, and environmental 
protection demands that Congress empower itself and the public 
with the information analysis about the benefits and 
consequences of Federal regulations and Federal regulatory 
programs.
    As one recent study noted, regulations can become an 
obstacle to achieving the very economic and social well-being 
for which they are intended. Until the Congress and the public 
demand more information and accountability from regulators in 
order to engage them in a debate about regulatory priorities 
and spending the same way we do about the annual Federal 
budget, not much change can or should be expected. A proposal 
like the Regulatory Right-to-Know Act represents an effort to 
bring the costs and benefits of regulation out into the 
sunshine so that the public and its representatives can be 
better informed about the less-than-obvious impacts of 
regulation and do a better job establishing priorities in 
spending.
    Indeed, it brings out into the sunshine the types of value 
judgments that unelected regulators make on behalf of the 
public every day and bring them out into the sunshine so that 
everybody may see the value judgments that these unelected 
regulators make; and these judgments will be held up to the 
critical eye of economic and scientific expertise and best 
practices to ensure that they are not simply judgments based on 
political expediency.
    Environmental consumer groups and others will, like Chicken 
Little, cry that the sky will fall because of this proposal. 
Ironically, they will conveniently argue that the public's 
right to know in this instance, to have more information rather 
than less, actually threatens the public health and well-being. 
Indeed, many of these groups are interested in preserving and 
defending the current system. But what are they really 
defending? Bureaucracies that are accountable to no one, that 
demand and spend resources as if they are unlimited and that 
fail to set priorities.
    And what are the real costs? As a 1994 Harvard University 
study that examined 500 life-saving interventions concluded, we 
could save 60,000 more lives a year if we were able to more 
effectively set priorities to protect the public from the most 
serious risks they face. So the real costs are lives that could 
have been saved but are not because we are denied information 
that helps us to see what must be done versus what it feels 
good to do.
    As Representative Ryan and others have noted, information 
is good and it empowers people; and I strongly believe that a 
more informed democratic process ultimately will give us a 
Nation that can devote more, not less, resources to the types 
of policies that will save lives, improve the quality of our 
lives and environment, and allow us to be more prosperous.
    The Regulatory Right-to-Know Act of 1999 is a good 
proposal; and it builds on a number of important and valuable 
lessons, as Dr. Hopkins has pointed out, that Congress has 
learned more recently through these two reports but also 
through the work of OMB in the past. Some of the elements that 
the Regulatory Right-to-Know Act builds on, as I noted 
previously, it recognizes the importance of aligning regulatory 
spending and priorities with the Federal budget; it recognizes 
that assessments in costs and benefits of individual rules is 
as important, if not more important than, aggregate costs and 
benefits; it recognizes that agencies lack consistency in their 
benefit-cost methods; it recognizes that regulators are 
inherently self-interested, so more independent review is 
essential; it recognizes that OMB and the regulators have the 
responsibility for developing recommendations for regulatory 
reform; and it recognizes that OMB and the regulators are not 
necessarily interested in presenting information to Congress 
and the public in a way that will be useful or helpful, as 
Representative Chenoweth underscored.
    Mr. Chairman, let me just conclude by, again, 
congratulating you and your colleagues on both sides of the 
aisle for understanding the importance of the public's right to 
know more about the benefits and costs of regulation. The 
Regulatory Right-to-Know Act is a good step in the right 
direction because, one, it builds on previous accounting 
statements; two, it makes such accounting statements permanent 
so that Federal regulators start taking it seriously and they 
know they will be held accountable each year by Congress and 
the public; and most importantly, three, it empowers the public 
to more effectively debate regulatory priorities and spending 
in the same way they debate Federal budget priorities and 
spending each year, by linking these two together. I hope 
Congress will continue to build and effectively oversee the 
implementation of this framework in the years to come.
    Thank you, Mr. Chairman, and I would be happy to answer any 
questions.
    [The prepared statement of Ms. Antonelli follows:]

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    Mr. McIntosh. Thank you, Ms. Antonelli. Our third witness 
on this panel is Mr. Wayne Crews who is the director of 
competition and regulatory policy at the Competitive Enterprise 
Institute. And I am familiar, Mr. Crews, with your work for 
many, many years now in terms of analyzing what those costs and 
benefits are in the Federal regulations. Feel free to summarize 
your testimony and share with us a summary of that, and we will 
include the full testimony into the record.
    Mr. Crews. Good morning, Mr. Chairman. Thank you very much 
for the invitation to speak. And these comments are limited to 
5 minutes, so I would ask permission to insert my full comments 
and charts into the record.
    Mr. McIntosh. Seeing no objection.
    Mr. Crews. I appreciate the opportunity to appear today. 
CEI is a nonpartisan, nonprofit public interest group that 
educates journalists, policymakers, and other opinion leaders 
on the free market alternatives to political programs and 
regulations. Among CEI's goals are regulatory process reforms, 
of which the Regulatory Right-to-Know Act is a perfect example, 
as well as reforms in such areas as antitrust and electricity 
reform.
    One key CEI product is the annual report called ``10,000 
Commandments: An Annual Survey of Regulatory Trends.'' The 1999 
edition will be released this week. This report is an effort to 
consolidate the mounds of regulatory data, facts, and figures 
from government and other sources in a simple, straightforward 
fashion. Many of these elements are the very stones and mortar 
whose reporting the Right-to-Know Act would make mandatory and 
official.
    To put the case for the Right-to-Know Act in some 
perspective in my handouts and in my written testimony, figures 
1 and 2 present the information on the costs of regulations and 
the numbers of regulations across the various agencies, the 
numbers of regulations affecting small businesses and State and 
local governments. So I would refer you to that for some 
excerpts.
    In our view, though, too much legislative power is 
delegated to agencies in the first place. That allows Congress 
to simultaneously take credit for popular legislation while 
scapegoating agencies for compliance costs. So rather than 
solely denounce OMB or agencies or scold OMB for failing to 
properly audit regulators, regulatory reform ultimately must 
institute greater congressional accountability, too.
    But even if Congress were required to approve every agency 
regulation, the Right-to-Know Act's disclosure provisions would 
still be essential. The Right-to-Know Act reemphasizes the role 
of central regulatory review and makes permanent--takes 
permanent regulatory disclosure to its next logical level, 
given recent reforms addressing paperwork, unfunded mandates, 
congressional review of regulations, and small business 
regulatory relief.
    A modification of the Right-to-Know Act that would be of 
immense value would be to summarize and assemble the data that 
are already available, but scattered across agencies and in 
reports like the ``Unified Agenda of Federal Regulations,'' 
which is published twice annually and the former regulatory 
program that contained an annual report on Executive Order 
12291 that summarizes considerable data on agency activities.
    Figure 5 in my testimony suggests report card information 
that could be summarized in the annual Federal budget 
including--and this is very simple to gather--numbers of major 
and minor rules by agency; rules featuring and lacking cost 
tallies; major rules reported on by the GAO in its regulatory 
data base; rules with statutory and judicial deadlines; and 
rules impacting small businesses and State and local 
governments.
    A report card would help emphasize that Congress put in 
place many of the statutory deadlines that hinder analysis in 
the first place; and knowing the percentages of rules without 
benefit calculations would alone help reveal whether or not we 
can truly say regulations overall do more harm than good.
    Focusing on regulatory costs alone rather than benefits 
does not mean benefits can be ignored, rather they should 
simply be addressed differently. Congress presumably knows the 
benefits it is seeking when it passes legislation, and it must 
set regulatory priorities on that basis. As a practical matter, 
OMB will probably never come close to reviewing all the agency 
benefit estimates anyway. Cost estimates are a different 
matter.
    The Right-to-Know bill assumes benefit estimates are there 
for review in the first place, but they really won't be until 
legislation mandating cost-benefit analysis and risk assessment 
is enacted. In the 1998 report to Congress, the OMB reviewed 
less than 1 percent of agency final rule documents. Moreover, 
since the OMB monetizes benefit estimates primarily where an 
agency has already quantified them, agencies may learn quickly 
to avoid scrutiny by not quantifying benefits at all. 
Furthermore, the Right-to-Know Act's own calls for inclusion of 
nonquantifiable benefits may invite more yawning canyons like 
OMB's $30 million to $3 trillion net benefit estimate, which 
makes impossible the kind of point estimate for regulatory 
benefits that some commenters on OMB's reports have advocated.
    Relieving agencies of benefit calculation responsibilities 
avoids these problems and leaves agencies free to fully address 
the direct and indirect costs of their regulatory programs. In 
keeping with regulatory cost disclosure, today's $100 million 
major rule threshold which allows $99 million rules to escape 
scrutiny to be lowered to, for example, $25 million, and major 
rules could be broken up into separate categories representing 
increasing costs, as figure six in my written testimony shows. 
That is one example.
    But as long as the Right-to-Know Act does require benefit 
calculations, the OMB must be more willing to criticize agency 
benefit claims. OMB has the experience and the know-how to 
create a benefit yardstick of its own, so to speak. OMB could 
present questionable rules by comparing them to the alternative 
benefits that could be gained if compliance costs went, 
instead, toward hiring policemen or firemen or buying smoke 
detectors or simply buying buckets of white paint to paint 
lines down the center of rural roads.
    Simplifying steps such as producing uncomplicated report 
cards, emphasizing costs, and creating multiple classes of 
major rules could help maximize OMB disclosure and solidify the 
Regulatory
Right-to-Know Act's success. And figure seven in my testimony 
recaps some of those steps and provides thoughts for future 
reforms. And I think the Right-to-Know Act is a great step 
forward, and I appreciate the opportunity to testify. Thank you 
very much.
    [The prepared statement of Mr. Crews follows:]

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    Mr. McIntosh. Thank you Mr. Crews, I appreciate you coming 
today. Our final witness on this panel is Professor Lisa 
Heinzerling, who is from Georgetown University Law School; and 
I appreciate your coming, Professor. You, too, please feel free 
to summarize your testimony; and we will include the entire 
document into the record.
    Ms. Heinzerling. Thank you very much. That is what I would 
like to do.
    H.R. 1074 is called the Regulatory Right-to-Know Act. The 
problem with this name and with this bill is that the public 
will likely know less rather than more about Federal regulation 
if this bill is passed.
    The reason is that the bottom-line estimates of costs and 
benefits required by this bill will necessarily reflect moral 
judgments which many members of the public will not know are 
reflected in the numbers, judgments with which many Americans 
may disagree.
    This problem famously plagues cost-benefits analysis in 
general. It is compounded, I believe, by the mammoth cost-
benefit analysis required by this bill, which will incorporate 
hundreds, if not thousands, of judgments that will be invisible 
to the person who simply reviews the numbers that the bill 
produces.
    I will give just one example here in my oral remarks this 
morning of such a judgment. It concerns the calculations of the 
benefits of Federal rules that are designed to save human 
lives. Specifically, this judgment involves the relative value 
of present and future lives.
    Now, many of you--you may know that Federal rules save 
lives over different time periods. For example, a rule that 
requires air bags in cars may immediately save the life of a 
person who otherwise would have died in a car accident. On the 
other hand, a rule reducing exposures to arsenic may prevent a 
person from being diagnosed with cancer some years after the 
exposures would have occurred.
    A person analyzing the benefits of lifesaving rules must, 
therefore, decide how to treat lives saved in the future as 
compared to lives saved today. In previous reports on the cost 
benefits of Federal regulation, including reports by OMB and by 
private analysts, the estimates of costs and benefits have 
incorporated a technique called discounting, which effectively 
assumes that lives in the future are worth less than those 
saved today. The study cited this morning by Ms. Antonelli, for 
example, the Harvard study cited by her, incorporated the 
technique of discounting in reaching its conclusions.
    Discounting subtracts from future benefits a fixed 
percentage for every year that passes before benefits accrue. 
In my example, it would mean that we should spend less to save 
a person from cancer than from death in an auto accident merely 
due to the passage of time between the harmful event and death.
    In effect, discounting devalues lives saved in the future, 
even, for example, the lives of our own children, compared to 
lives that will be saved today. My own research has found that 
widely circulated estimates of costs per life saved are heavily 
influenced by discounting. Reported regulatory costs have been 
up to 1,000 times higher if one discounts than they are if one 
does not.
    It would surprise me to learn that most members of the 
public are aware of the influencing of discounting on existing 
estimates of benefits. And, therefore, this is just one 
illustration of the way in which estimates of benefits and 
costs that are highly aggregated may mislead the public.
    Highly aggregated estimates like those required by H.R. 
1074 embody hundreds of assumptions like the ones I have 
described. These are assumptions about which ordinary people, 
not experts, likely have opinions and legitimate opinions. 
These assumptions are buried in a cascade of seemingly 
objective numbers in reports like those required by this bill.
    In my own work on cost-benefit analysis, I have found that 
it is necessary to trace factual claims back through four or 
more references before I finally find the original source. And 
unless one does such excavation, the numbers that are reported 
cannot be evaluated; and the numbers themselves threaten to 
become the central concern, rather than the values and the 
assumptions that underlie them.
    In conclusion, therefore, when it comes to numbers, less 
can be more. Thank you very much.
    [The prepared statement Ms. Heinzerling follows:]

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    Mr. McIntosh. Thank you professor. I appreciate your coming 
today. Let me now turn to the question and answer section that 
we want to do on this area. And, first, direct these questions 
to each of the witnesses and perhaps you can give brief yes-or-
no answers if that is possible so we can cover most of the 
territory.
    But the first one is what is your view, positive or 
negative, on peer review by two or more expert organizations 
for the report, and do you think such peer review would improve 
OMB's analysis and their report? If you don't mind, I am just 
going to go down the line starting with Dr. Hopkins and have 
you comment briefly on that.
    Mr. Hopkins. Thank you, Congressman McIntosh. Peer review 
is an established part of the science of regulation, and in my 
own view neither the physical nor the biological sciences are 
vastly less uncertain than economic analysis. I think peer 
review which has proven to be useful in the scientific aspects 
of regulation would also prove to be quite useful in the 
economic aspects of regulation.
    Mr. McIntosh. Thank you. Ms. Antonelli.
    Ms. Antonelli. I echo Dr. Hopkins's statements. I would add 
again that peer review is critical. I think the number of 
organizations that are involved is less important to me than it 
is to ensure that the organizations are truly independent and 
the reviewers have established credentials in regulatory 
analysis, cost-benefit methods, and so on. It is also extremely 
important that there be no conflicts of interest with those who 
are participating as peer reviewers and that any peer-reviewing 
organization ideally does not receive any government money from 
any of the Federal regulatory agencies.
    Mr. McIntosh. Mr. Crews.
    Mr. Crews. I think peer review of the agency analysis is 
important as well. I think the biggest debate you had here 
today is over who is going to pick who does the review, how 
many reviews like that will be done, and whether the review is 
needed on top of the public comment process that already takes 
place.
    I think doing the peer review, once the public comment 
process has taken place and you have a final report, makes a 
lot of sense, even if that peer review doesn't get incorporated 
into that report. What it will really address is the way the 
next year's report is going to look. And that, I think, is very 
important.
    So the peer review does matter a lot. It should be done. 
Getting over the question of who decides who does the peer 
review may be something that you address the way you sometimes 
appoint congressional commissions, you have the minority and 
minority side each appoint, or pick, who you want to do a 
review and have it done that way.
    Mr. McIntosh. Professor Heinzerling.
    Ms. Heinzerling. My view of peer review is negative in this 
context. Peers cannot produce numbers that are not available. 
And a large part of the problem with this bill is that it 
requires the production of numbers that are not available. Or 
if those numbers are produced, then that will mean the 
systematic undercounting of certain benefits. In the 
environmental context, for example, in many cases the benefits 
of rules cannot be quantified. Peers will not aid in the 
development of those data.
    In addition, my opinion is that many of the most 
fundamental questions that underlie these analyses are not 
scientific questions. They are not questions that experts are 
entitled to address.
    Finally, I would say that peer review is most useful when 
it can serve as a credible tie breaker. In the case of OMB's 
most recent report, for example, the estimates for the--net 
benefits of environmental regulation ranged from, I believe, a 
negative $70 billion to a positive $300 trillion, something 
like that. The estimates were incredibly wide ranging, in other 
words. And yet the EPA report on which the high estimate was 
based was peer reviewed. And so that you might end up with a 
situation in which you ask a credible sampling of experts what 
their opinions are and you end up with the same wide range as 
before.
    Mr. McIntosh. My understanding of peer review in the 
scientific context is not that it breaks ties, but it just 
makes sure that the methodology is standard in producing the 
analysis of the data. And I think we should be careful and not 
expect too much from this bill or this report.
    And you are correct, Professor. There are some policy 
judgments that are infused with it. But the idea would be to 
provide data that would then let the policymakers who, perhaps, 
have differing views in Congress and in the executive work on a 
common set of data in making their policy judgments on that.
    Let me ask also the requirement for OMB to include an 
appendix in its report addressing comments from the public and 
the peer reviewers. If we have that, is that something that you 
all would view as valuable? Dr. Hopkins.
    Mr. Hopkins. Yes, I think it would be quite valuable for 
OMB to need to confront and address all serious comments from 
outsiders.
    Mr. McIntosh. Ms. Antonelli.
    Ms. Antonelli. Yes, I think it is absolutely critical that 
this information be provided in an appendix. I think maximizing 
full disclosure is absolutely critical.
    Mr. McIntosh. In your experience, by the way, you indicated 
that you did submit comments. How thoroughly did OMB respond 
and adopt changes in response to those comments?
    Ms. Antonelli. I would say that between the first and 
second annual report, the second report was an improvement over 
the first report. There is still a long way to go. And I think, 
depending on what your expectations are--how much more there is 
for them to do.
    In terms of the comments that I submitted--and I am aware 
of the comments that a lot of other folks have submitted to OMB 
when it issued its draft report--there are a lot of concerns. 
One of the most significant concerns is the degree to which OMB 
exercises any of its own judgments on the numbers that are 
provided by the agencies.
    Other issues get to the types of costs that are included 
and the inclusion of indirect costs, for example. Another 
example is the inclusion of rules by independent agencies, and 
that is an example where a lot of independent agencies don't 
analyze the costs and benefits of their own rules. And that 
would be a nice instance where OMB could probably, given its 
expertise, offer some insight into things like that.
    And then another big issue, controversial issue, with the 
report has been EPA section 812 report, and lots of comments 
with regards to how those benefit estimates were derived. 
Because if you put them in some type of context like the size 
of our economy and our output every year, as OMB even pointed 
out in that report, it is somewhere on the order of--I can't 
remember the exact number--$1.2 trillion in output attributable 
to the Clean Air Act annually. And that is the equivalent of 
saying that every year people decide that 25 percent of their 
personal income is going to be devoted to simply focusing on 
the benefits of clean air. And I think when you put the size of 
that annual benefit estimate into the overall input and then 
break it down into individual households and how much of their 
own income they are devoting to this, it raises a critical eye 
because it really doesn't seem to make a lot of sense. And so 
there are problems with those kinds of benefit estimates that 
got a lot of attention but not a lot of response.
    Another criticism of the report is the extent to which, 
while they say they look at academic and peer-reviewed cost and 
benefit estimates that are out there, in the case of EPA 812, 
the George Mason University, the Reason Foundation, other 
organizations have weighed in heavily along with a lot of other 
people on those very controversial PM and ozone rules. That was 
not acknowledged in the report. So there couldn't be selective 
omission on controversial rulemakings of analysis that is done 
by an independent third-party organization.
    Mr. McIntosh. So what Mr. Crews pointed out, the benefit of 
the public comments is sometimes improvement in the next year's 
report.
    Ms. Antonelli. Absolutely.
    Mr. McIntosh. You saw that, but the specific response in 
the report was lacking in some of these areas?
    Ms. Antonelli. Yes. I think in some instances they were not 
fully responsive to comments. And while the report has been an 
improvement and hopefully the next report will be an 
improvement over this one, there are certainly some issues that 
remain of concern.
    Mr. McIntosh. Great. I will ask unanimous consent to let 
the panel finish answers, and then I will turn to you, Dennis, 
for questions. Mr. Crews.
    Mr. Crews. I will quickly say that the appendix to the 
report is one of the most valuable sections because there we 
learned exactly how OMB responded to earlier comments, what it 
contained in his report, what it intended to do, particularly 
on net benefits or net estimates, for example, or indirect 
costs.
    OMB indicated that it has seen a study from one of the 
commenters on indirect costs of regulations; but that study 
wasn't conclusive, so it was searching further. It was looking 
for more information. And so that means that we can expect in 
the next year's report to see a little bit more information on 
what OMB really thinks about including indirect effects of 
regulations. And so that is one of the key uses of the 
appendix. It lets us know what to expect.
    Mr. McIntosh. Thank you. Professor.
    Ms. Heinzerling. Yes. If numbers like these are going to be 
produced, I think the more that we can know about the 
assumptions and reasoning that underlies them the better.
    Mr. McIntosh. The better. OK. Mr. Kucinich do you have a 
question for this panel?
    Mr. Kucinich. Something occurred to me, Mr. Chairman, and 
that is that I think we are going to need to get further into 
this issue of peer review by organizations. In some way it 
almost seems oxymoronic to speak of organizations doing peer 
review. And would we know who the individuals are making the 
valuations so that we could actually have some accountability? 
Because the only thing that makes peer review work is the 
accountability for the people making the analyses. And if it is 
basically an analyses by the name of an organization, no matter 
now praiseworthy that work or that organization may be, the 
organization is reduced to just being a simple front group.
    And so I am very concerned that we don't diminish the value 
of peer review and through this process come up with a mutation 
of the peer-review process that would not be constructive 
toward being able to analyze the result and to have some kind 
of a dialog about the result.
    I have a question for Professor Heinzerling. And, again, I 
want to thank all the witnesses for testifying today and thank 
you, Professor. Your comments that I have had a chance to read 
help me better understand the serious limitation of using cost-
benefit analyses as required by H.R. 1074. Now, although H.R. 
1074 requires a discussion of the nonquantifiable costs and 
benefits of regulation, as we see here today, many summarize 
the results by citing only the monetary estimates; yet many of 
the most important benefits of regulation cannot be monetized, 
such as saving lives, reducing illnesses, protecting civil 
rights.
    Therefore, I am concerned about the monetary estimates that 
are cited so often that they would greatly underestimate 
regulatory benefits. Do you agree with that?
    Ms. Heinzerling. Yes, I do. In environmental law, which is 
my area of expertise, this problem is particularly acute. In 
many cases, Federal estimates of costs and benefits of Federal 
rules quantify, for example, only the risk of cancer because 
that is the only risk that can be quantified. But in many cases 
the rules prevent many other illnesses--respiratory, 
reproductive, neurological and blood disorders, and so forth--
that cannot be counted and yet, since cancer is the only 
benefit that can be counted, that is the only benefit that is 
counted in the analysis. Then when it comes to trying to place 
a dollar value on those benefits, the problems are even more 
severe.
    So that in many cases you might find a cost-benefit 
analysis that reaches a conclusion that most people would agree 
is absurd on its face. Let me take the example of EPA's cost-
benefit analysis of its lead rule. In that case, if you look at 
the chart showing the costs and benefits of that rule, you 
would have to conclude that rule was primarily beneficial 
because of its effect on cars rather than people. And that is 
because its effects on people are hard to quantify. And so I 
would agree with you that that is a severe limitation of this 
kind of analysis.
    Mr. Kucinich. Well, there are so many different possible 
methodologies and monetary valuations of benefits. I don't know 
how any of us could be surprised that there is different 
estimates for the costs and benefits of regulations.
    Dr. Hopkins has one way of looking at it, OMB has another. 
For example, Dr. Hopkins, you know, I would just be interested 
to know, do you have any idea about what number OMB should use 
in quantifying the monetary value of saving a life?
    Mr. Hopkins. Congressman Kucinich, the OMB itself has in 
its own guidance documents provided a very careful, a very 
thorough, a very intellectually honest discussion of how 
agencies can go about trying to put a dollar value on such 
risk-reduction efforts. And I applaud the work that OMB has 
done in that area. I think that they have been exactly on 
target.
    There are ranges that they have been able to point to, both 
in earlier publications and in current publications, that I 
have no trouble with whatsoever. So I am in no sense putting 
myself up as a proposer of some alternative valuation figure to 
what OMB itself has in its own research.
    If I may----
    Mr. Kucinich. Would you pretty much then agree that that 
should be the matrix for that determination?
    Mr. Hopkins. The matrix?
    Mr. Kucinich. That OMB's determination should be something 
that would be a coordinating principle for someone who is 
determining a value of a human life.
    Mr. Hopkins. I think it makes good sense to have 
coordinating principle, a body of solid, academic-based 
research which OMB is relying upon, have that peer reviewed to 
make sure that they are not overlooking any better data that 
exists; and then I think all agencies should be encouraged to 
go with that. Yes.
    Mr. Kucinich. Thank you, Mr. Chairman.
    Mr. McIntosh. Thank you, Mr. Kucinich. Let me try to 
elucidate that point a little bit and then ask unanimous 
consent that we keep the record open for 10 days. I may have a 
few other questions that we would want to ask the witnesses and 
certainly put in some documents that they have brought with 
them.
    Mr. Condit had a statement that he wanted to include in the 
record, so I ask unanimous consent that it be included in the 
record as well.
    [The prepared statement of Hon. Gary A. Condit follows:]

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    Mr. McIntosh. On this question of human life, it is my 
understanding that the OMB position, which I think Dr. Hopkins 
agrees with, is that we shouldn't try to do that. What we 
should do is ask the question, given that there are various 
programs that affect human life and risk to human life--and 
Professor Heinzerling has pointed out that that spans different 
timeframes as well, if not all in the immediate. How do we 
analyze the use of a given dollar of cost, whether it is in the 
private sector, whether it is government spending, to determine 
have we gotten the most benefit for human life out of that so 
that--all of us can agree you want to treat human life as being 
priceless, but for each incremental dollar that we spend or 
cause to be spent in the regulations, how can we try to judge 
whether we are getting the most out of that dollar in terms of 
benefiting human lives? And that, I think, is the difficulty 
that we are grappling with.
    One of the things that I wanted to ask the professor 
about--and you pointed out concerns about the discounting on 
the life. But you wouldn't disagree that if we reached--
everybody had the same agreement on the moral value that human 
life is priceless, say--and I believe that--but that if we 
could use a cost-effectiveness analysis to maximize the benefit 
to human life, that that would be a helpful tool for 
policymakers to have in making judgments about the 
effectiveness of programs?
    Ms. Heinzerling. Indeed, that is what led to a large amount 
of my own research. I had been impressed by figures on cost per 
life saved that reached into the hundreds of millions, 
sometimes billions, of dollars; and it seemed to me that those 
figures indicated that we could do better, and indeed if those 
were correct, that we could be spending our resources 
differently.
    That research tended to indicate that we should be moving 
our resources to safety regulation, things like Mr. Crews 
mentioned, putting fire extinguishers in airplanes, putting 
smoke alarms in houses and so forth, rather than engaging in 
environmental regulation.
    What I found in this research is that those numbers were, 
in my view, inflated by discounting so that the discounting 
reflects an assumption that future lives are worth less than 
present lives and, therefore, that environmental regulation 
that tends to produce benefits in the remote future will, by 
necessity, be devalued compared to safety regulation which 
produces benefits immediately.
    What I am trying to get at is that I agree with you that 
cost-effectiveness is important. What I am saying is that in 
many cases the numbers on cost-effectiveness embody the same 
conclusions that you are trying to reach when you look at cost-
effectiveness. That is an assumption about where our priorities 
should be. Therefore, to rely on the numbers to get to those 
conclusions is circular.
    Mr. McIntosh. Is your concern that there is any discounting 
or that the discounting doesn't accurately reflect--embodies a 
moral judgment that may not be the same as yours or other 
people's? In other words, should there be no discounting, or 
have they got the wrong discount factor for those future lives?
    Ms. Heinzerling. I think those are two very good questions 
and I think they are separate questions, obviously. My main 
concern is that discounting is not transparent; that many, many 
scholars, I believe, have not known that discounting so heavily 
influences estimates of cost-effectiveness. And so that my 
first concern is that most people don't know about it, and they 
may not agree with it if they did know about it.
    The second concern is with any discounting. And I am 
troubled by a practice that assumes that lives should be 
discounted just like dollars.
    Mr. McIntosh. But another way of looking at it would be if 
we could spend $100 today to save a life today, versus spending 
that same $100 to save a life 10 years from now, if you spent 
it on the life today, that person would have at least 10 
years--I mean, it is difficult because you are trying to 
compare lives. But there is that time--I think we would all 
accept that if you could help somebody today to live longer, 
that that is an important thing; and if you had to choose--now 
some people would argue spend both and maybe that is the more 
appropriate debate we have. But if you have to focus on it--and 
I could see where there would be ample disagreement about how 
much you want to discount it--you may not want to discount it 
that much, the 10 years, knowing that someone, if you did not 
spend that $100, would die in 10 years. That is not all that 
comforting in terms of a policy choice.
    Ms. Heinzerling. Well, first of all, I think that that is 
exactly the kind of discussion that we should be having. And in 
my view, numbers like those required by this bill prevent us 
from having it because they divert attention from this kind of 
discussion to the numbers themselves. That is my view.
    The second point would be that it may be that the nature of 
the risks tends to differ depending on when the risk is going 
to materialize in death, that is, in many cases immediate risks 
are obvious. They are voluntary in some sense, whereas exposure 
to a chemical that will cause cancer in 20 years is not. It is 
not visible, and in many cases it is not voluntary. So to look 
at time alone seems to be misleading.
    Mr. McIntosh. And I agree, and it has been my experience 
that people--and human nature causes you to have more concern 
about an invisible risk, even though it may be less than a 
visible risk because you are used to dealing with it in your 
life as you make decisions. Do you go in an elevator knowing 
that there is some risk that it might malfunction? Well, yes, I 
am used to it. It is visible, versus being exposed to a 
chemical substance that you are not really knowing that you are 
being exposed to because it is in the food that you eat and you 
do not focus on its being there. And that is human nature. The 
risk preferences change based on the familiarity with it, I 
think.
    But let me ask Dr. Hopkins, does OMB's guidance address 
this question on the discounting?
    Mr. Hopkins. I think it is a quite sophisticated discussion 
that has a lot of subtlety to it, recognizing some of these 
important ethical and moral issues. My own view is that it is 
far better to have quantitative analysis that explores various 
alternative assumptions about the proper role of discounting 
and the proper rate of discounting for various kinds of hazards 
than to throw up one's hands and say because there are some 
moral and ethical issues associated with discounting, we are 
not going to do discounting; we are not going to look at 
numbers; we are going to base decisions on guesses or feelings, 
as opposed to any basic data that exist.
    I would also add that I was asked a few years ago by the 
Organization for Economic Cooperation and Development in Paris 
to review the guidance that OECD member governments give their 
regulators on a variety of fronts. And almost every Western 
European and OECD member government believes that discounting 
is a valuable analytical tool, that the kind of benefit cost 
analysis embodied in this bill is very important; and so the 
fact that there are some important moral and philosophical 
questions about discounting is not, in my mind, grounds for 
avoiding it. Certainly, other countries have not felt that it 
is.
    Mr. McIntosh. But if we could make it more transparent so 
that people could clearly see what was going on?
    Mr. Hopkins. Clearly see--that is right.
    Mr. McIntosh. So you wouldn't disagree with the professor's 
statement that we should make it more transparent?
    Mr. Hopkins. We should make it more transparent, but we 
should do it.
    Mr. McIntosh. One thing we essentially came down to doing 
when I was back at the Competitiveness Council, at least, was 
having different things that were easier to compare head to 
head. So where there was a human life involved, you would 
compare the cost-effectiveness to other rules that involved 
that. Where it was simply a cost to the economy and there 
wasn't a safety factor or health factor involved, then you 
could compare more on a quantitative dollars-to-dollars 
analysis.
    Perhaps what the professor's research, in terms of that, or 
question about the judgment on discounting is we should also 
maybe subdivide the human life category and be conscious of 
looking at comparisons of different possible rules that affect 
people immediately, the safety rules coming to mind, and 
compare different rules that address longer-term risks. And 
even within that, I suspect that the quantitative analysis 
would let us say, Gosh, if we focus on this particular 
carcinogen, the cost is a lot less; and we get a lot more 
benefits in 20 years than if we focus on a different carcinogen 
that also could affect people in 20 years.
    And I want to check with the professor. Would that be an 
improvement, in your mind, in terms of how we use this type of 
data?
    Ms. Heinzerling. If I take your question correctly, you are 
assuming a limited pool of money and the question would be 
whether we should regulate one chemical or another and we 
should look at which one is the most harmful, I would agree 
with that.
    Mr. McIntosh. Or even if we have to make priorities in the 
pool of money as to which things we do first to try to address 
it in that way. I think that is a limited one, but even if you 
argued, well, we should spend more, you would still want to 
prioritize what you did first.
    Ms. Heinzerling. Yes, I would look at the quantitative 
risks as well as the nature of the risk.
    Mr. McIntosh. OK. One last question, if I may, and that is 
what are your views of the requirement for an analysis of the 
direct and indirect benefits of Federal rulemaking on the 
various sectors, small business, State and local government, 
private sector, wages consumers, prices and economic growth?
    And, actually, I am going to request that you guys submit 
that in writing after the hearing, if you would. And in 
particular, Professor Hopkins, in your testimony, you noted 
that the requirements are useful but less attainable and that 
oftentimes there is a problem with the system's ability to 
comply. Would you support a phase-in for some of these new 
analytical requirements? Maybe all of you could address that 
too, just the mechanics of getting there, if there are 
suggestions that you would have.
    Mr. Hopkins. Yes, definitely it should be phased in.
    Mr. McIntosh. Thank you. I appreciate your coming, and I 
appreciate the diverse views that we get. And I would ask that 
each of you, if you could, help us with spending some 
additional time on that question; and we may have a couple more 
that I ask all of you to look at for us.
    I think--and was pleased to see that OMB indicated some 
willingness to work with us on these questions and moving 
forward; and so your input there will help us focus with them 
on some of the key ways of trying to get this done.
    Thank you. With that, the committee is adjourned. And I 
appreciate everybody's input today.
    [Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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