    [Senate Hearing 106-180]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 106-180

    S. 59--REGULATORY RIGHT-TO-KNOW ACT OF 1999 AND CONGRESSIONAL OFFICE OF
                        REGULATORY ANALYSIS LEGISLATION

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                       on

                                     S. 59

    TO PROVIDE GOVERNMENTWIDE ACCOUNTING OF REGULATORY COSTS AND BENEFITS,
                             AND FOR OTHER PURPOSES

                                   __________

                                 APRIL 22, 1999

                                   __________

          Printed for the use of the Committee on Governmental Affairs

                         U.S. GOVERNMENT PRINTING OFFICE
    57-553 CC                    WASHINGTON : 1999
    _______________________________________________________________________
    For sale by the Superintendent of Documents, Congressional Sales Office
             U.S. Government Printing Office, Washington, DC 20402

                       COMMITTEE ON GOVERNMENTAL AFFAIRS

                       FRED THOMPSON, Tennessee, Chairman
    WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
    TED STEVENS, Alaska                  CARL LEVIN, Michigan
    SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
    GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
    PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
    THAD COCHRAN, Mississippi            MAX CLELAND, Georgia
    ARLEN SPECTER, Pennsylvania          JOHN EDWARDS, North Carolina
    JUDD GREGG, New Hampshire
                 Hannah S. Sistare, Staff Director and Counsel
                          Paul R. Noe, Senior Counsel
          Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                      Lawrence B. Novey, Minority Counsel
                     Darla D. Cassell, Administrative Clerk

                                C O N T E N T S

                                     ------
    Opening statement:
                                                                       Page
        Senator Thompson.............................................     1
    Prepared statement:
        Senator Voinovich............................................    35

                                   WITNESSES
                            Thursday, April 22, 1999

    Donald R. Arbuckle, Acting Administrator, Office of Information
      and Regulatory Affairs, Office of Management and Budget........     3
    Hon. Steve Saland, State Senator, New York, on behalf of the
      National Conference of State Legislatures......................     4
    Arthur J. Dyer, President, Metal Products Company, on behalf of
      the National Association of Manufacturers......................    14
    Robert E. Litan, Ph.D., Director, Economic Studies at the
      Brookings Institution and Co-Director at the AEI-Brookings
      Joint Center for Regulatory Studies............................    16
    Murray Weidenbaum, Ph.D., Chairman, Center for the Study of
      American Business, Washington University.......................    18
    Sidney A. Shapiro, Visiting Scholar, School of Policy and
      Environmental Affairs, Indiana University......................    20
    Gary D. Bass, Ph.D., Executive Director, OMB Watch...............    21

                         Alphabetical List of Witnesses

    Arbuckle, Donald R.:
        Testimony....................................................     3
        Prepared statement...........................................    55
    Bass, Gary D.:
        Testimony....................................................     2
        Prepared statement...........................................   130
    Dyer, Arthur J.:
        Testimony....................................................    14
        Prepared statement...........................................    82
    Litan, Robert E.:
        Testimony....................................................    16
        Joint prepared statement by Robert W. Hahn and Robert E.
          Litan......................................................    91
    Saland, Hon. Steve:
        Testimony....................................................     4
        Prepared statement...........................................    63
    Shapiro, Sidney A.:
        Testimony....................................................    20
        Prepared statement...........................................   114
    Weidenbaum, Murray:
        Testimony....................................................    18
        Prepared statement...........................................   108

                                    Appendix

    Copy of S. 59....................................................    36
    Copy of S. 1675..................................................    42
    Letter from the National Governors' Association, National
      Conference of State Legislatures, Council of State Governments,
      The U.S. Conference of Mayors, National League of Cities,
      National Association of Counties, and International City/County
      Management Association, dated March 10, 1999...................    53
    GAO report entitled ``Regulatory Accounting, Analysis of OMB's
      Reports on the Costs and Benefits of Federal Regulation,'' GAO/
      GGD-99-59, dated April 1999....................................   142
    The Heritage Foundation, Backgrounder article, entitled
      ``Regulatory Right to Know: Tracking the Costs and Benefits of
      Federal Regulation,'' dated April 20, 1999, by Angela Antonelli   219
    CRS Memorandum, dated April 15, 1999, from Morton Rosenberg,
      Specialist in American Public Law, American Law Division.......   232
    ``Improving Regulatory Accountability,'' by Robert W. Hahn and
      Robert E. Litan, American Enterprise Institute for Public
      Policy Research and The Brookings Institution, 1997............   240
    ``Modernizing Government Regulation: The Need For Action,'' A
      Policy Statement by the Research and Policy Committee of the
      Committee for Economic Development, CED........................   260

    S. 59--REGULATORY RIGHT-TO-KNOW ACT OF 1999 AND CONGRESSIONAL OFFICE OF
                        REGULATORY ANALYSIS LEGISLATION

                                  ----------

                            THURSDAY, APRIL 22, 1999

                                           U.S. Senate,
                             Committee on Governmental Affairs,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:51 a.m., in
    room SD-342, Dirksen Senate Office Building, Hon. Fred
    Thompson, Chairman of the Committee, presiding.
        Present: Senator Thompson.

                 OPENING STATEMENT OF CHAIRMAN THOMPSON

        Chairman Thompson. Let us get started. I appreciate your
    patience this morning. Last night, the leadership asked some of
    us to come together this morning for a little while, so we are
    running a little late this morning and I appreciate our first
    two gentlemen here agreeing to consolidate our panel. Maybe it
    will save a little bit of time.
        We are considering two bills today to increase the
    accountability and transparency of the Federal regulatory
    process, the Regulatory Right-To-Know Act and a proposal for a
    Congressional Office of Regulatory Analysis Act. On January 19,
    I introduced the Regulatory Right-To-Know Act, S. 59, with
    Senator John Breaux, Senator Ted Stevens, and Senator Trent
    Lott. I am pleased that Senators Voinovich, Landrieu, Bond,
    Robb, and Hutchinson have joined us as cosponsors.
        S. 59 would require the Office of Management and Budget to
    submit to Congress an annual report on the costs and benefits
    of regulatory programs. Its purpose is to, first, promote the
    public's right to know the costs and benefits of regulation;
    second, increase the government's accountability; and third, to
    improve the quality of Federal regulatory programs and rules.
        S. 59 continues the efforts of my predecessors on this
    Committee. Regulatory accounting was part of the Roth-Glenn
    regulatory reform bill unanimously reported by the Committee in
    1995, when Senator Roth was our Chairman. In 1996, when Ted
    Stevens became our Chairman, his 1-year regulatory accounting
    amendment on the Omnibus Appropriations Act passed unanimously.
    Senator Roth, as well as Senators Glenn and Levin, supported
    the Stevens amendment. I supported Senator Stevens' efforts
    when it was enacted again in 1997.
        Last year, I sponsored a similar measure, which was
    cosponsored by Senators Lott, Breaux, Robb, and Shelby. It
    passed unanimously and OMB will submit its third regulatory
    accounting report in January of 2000.
        There also is a broad bipartisan coalition in the House
    that supports regulatory accounting, and in March, they
    introduced a more detailed regulatory accounting bill with 17
    Democrats and 14 Republican cosponsors.
        S. 59 will continue the requirement that OMB report to
    Congress on the costs and benefits of regulatory programs. This
    legislation also adds the previous initiatives in several
    different respects.
        I believe the public has the right to know the benefits and
    costs of regulatory programs. By any measure, regulation is a
    major part of the government's business, costing hundreds of
    billions of dollars each year. Sensible regulatory programs
    also provide important benefits to the public and ones that
    they expect and deserve. The government has an obligation to
    think carefully about regulatory priorities, but we are just
    breaking ground now on how to do that. I believe that giving
    the public the opportunity to look over the government's
    shoulder, in effect, will help improve the quality as well as
    accountability of regulatory programs.
        The second issue the Committee will consider today is a
    proposal for a Congressional Office of Regulatory Analysis,
    known as CORA. Last Congress, Senators Shelby and Bond
    introduced S. 1675, to establish such a Congressional office. I
    want to work with them to refine this concept, and testimony
    today on S. 1675 can help us do that.
        I think the CORA bill is about accountability. Congress has
    a responsibility to ensure that the laws it passes are
    implemented effectively, efficiently, and fairly by the
    Executive Branch. To ensure that, we need accurate and reliable
    information.
        S. 1675 would create a Congressional Office of Regulatory
    Analysis to provide Congress an independent analysis of the
    costs and benefits of agency rules. It would help us understand
    the logic of agency regulatory analysis and regulatory outcome.
    It would help us to understand whether agencies are issuing
    regulations that follow the intent of the law.
        S. 1675 also contains a provision for CORA to report on the
    costs and benefits of Federal regulations so that in that
    respect, S. 1675 overlaps with S. 59. S. 1675 also would
    transfer to CORA certain functions now assigned to the General
    Accounting Office and the Congressional Budget Office under the
    Congressional Review Act of 1995. This includes the requirement
    that GAO produce a checklist for major rules showing whether
    the agency complied with current procedural requirements, such
    as Executive Order 12866, the Regulatory Flexibility Act, and
    the Unfunded Mandates Act.
        We have an excellent group of witnesses here today. We will
    hear from the administration, a State Senator, a small business
    owner, scholars, and a public interest group member and I look
    forward to hearing their testimony.
        The full text of everyone's prepared statements that you
    might have will be entered into the record, so I would ask that
    you summarize your testimony, if you would.
        I would like to recognize the first panel of witnesses. We
    are pleased to have with us today Don Arbuckle, the Acting
    Administrator of the Office of Information and Regulatory
    Affairs of the Office of Management and Budget. He will be
    followed by the Hon. Steve Saland, a State Senator from New
    York and is here representing the National Conference of State
    Legislatures.
        Mr. Arbuckle, would you like to begin, please.

       TESTIMONY OF DONALD R. ARBUCKLE,\1\ ACTING ADMINISTRATOR,
        OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF
                         MANAGEMENT AND BUDGET

        Mr. Arbuckle. I would be happy to. Good morning, Mr.
    Chairman. It is a pleasure to be here. Thank you very much for
    permitting me to come up and testify on this legislation.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Arbuckle appears in the Appendix
    on page 55.
    ---------------------------------------------------------------------------
        You invited us to testify on the Regulatory Right-To-Know
    Act of 1999, S. 59, and the Congressional Office of Regulatory
    Analysis Act, which as you point out was S. 1675 in the
    previous Congress. In addition, given recent Subcommittee
    action in the House on H.R. 1074, the counterpart to your bill,
    I hope that the Committee will consider it appropriate for me
    to at least mention this bill, as well.
        Both the Committee and the administration have a common
    interest in making sure that government regulation is
    thoughtful and carefully analyzed before it is promulgated. At
    OIRA, we take this mission seriously. Every day, we are in
    discussion with agencies throughout the government probing the
    justifications and analyses behind their proposals.
        For each of the past 2 years, we have summarized for the
    Congress and the public what is known about the costs and
    benefits of government regulation. We have done so under an
    appropriations rider that the administration supported
    providing for such an annual report. We believe that these
    reports have helped both to improve the quality of regulatory
    analysis and to make clear that we still have much more to do.
        S. 59 would make permanent what Congress has passed as
    riders each of the past 3 years. Unfortunately, it would do so
    in ways that we think could delay or impede the process of
    improving regulation rather than advancing it. Make no mistake,
    we strongly support the general purposes of this legislation.
    It is our daily work. But with the Committee's permission, I
    would like to summarize very briefly why we hope the Committee,
    if it chooses to put this requirement into permanent
    legislation, will do so in a way that follows more closely the
    model Congress has already adopted in the riders.
        First, both S. 59 and H.R. 1074, by requiring extensive
    procedures and detailed cost-benefit analyses of each
    government program and even program element, would, we believe,
    divert attention and resources from our current focus, which is
    making certain that agency decisions make sense. Some of the
    requirements of these bills are beyond the abilities and
    resources of the agencies who perform these analyses and of
    OMB. Some are beyond the current consensus in academia.
        Second, the requirement of the bills that OIRA and OMB make
    policy recommendations concerning elimination and reform of
    government programs appears not to recognize or at least to
    minimize the fact that such proposals are already developed by
    the President's existing policy making procedures. The
    administration has a long record of suggesting changes in
    regulatory policies and procedures when appropriate, for
    example, in the Safe Drinking Water Act amendments, Food and
    Drug Administration modernization, and Food Quality Protection
    Act. All of these required extensive work throughout the
    Executive Branch and throughout the Congress. We are concerned
    about the creation of a separate and additional policy process
    as part of this report.
        In general, then, we are concerned that the new
    requirements of S. 59 and/or H.R. 1074 reflect a belief that
    there is more information available than is the case, that this
    information can be produced by agencies or by OMB without
    significant diversion of resources, and that other
    responsibilities for OIRA can still be met. We are concerned
    that the new provisions will create unreasonable expectations
    which, in turn, will hinder rather than help resolve the many
    methodological and data collection difficulties inherent in
    this task.
        Before completing my testimony, let me comment briefly on
    the Congressional Office of Regulatory Analysis Act, S. 1675.
    As is the tradition, the administration defers to Congress on
    matters of internal organization of the Legislative Branch.
    However, we believe it is important to clarify that we believe
    no Congressional office should be involved in the Executive
    Branch's development of new regulations prior to their formal
    publication.
        Legislation which would directly involve Congress during
    the development of regulations would undermine the candid
    exchange of views within the Executive Branch and could
    jeopardize the careful rulemaking process established through
    the Administrative Procedure Act over the past 50 years.
    Congress has established a workable regulatory review process
    in which it oversees Executive Branch regulatory decisions
    after those decisions are made in accordance with established
    statutory administrative procedures and we believe that this
    process should be maintained.
        That concludes my testimony, Mr. Chairman. Thank you, and I
    look forward to the opportunity to address any questions you
    may have.
        Chairman Thompson. Thank you very much. Senator Saland.

    TESTIMONY OF HON. STEVE SALAND,\1\ STATE SENATOR, NEW YORK, ON
        BEHALF OF THE NATIONAL CONFERENCE OF STATE LEGISLATURES

        Mr. Saland. Thank you, Mr. Chairman. Mr. Chairman, I am
    Senator Steve Saland, and as you noted earlier, a member of the
    New York State Senate, where I chair the Senate Children and
    Families Committee. I appear before you today on behalf of the
    National Conference of State Legislatures and the other six
    organizations of State and local elected officials that
    comprise the Big Seven.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Saland appears in the Appendix on
    page 63.
    ---------------------------------------------------------------------------
        NCSL and the other Big Seven organizations support S. 59,
    the Regulatory Right-To-Know Act of 1999. You have my testimony
    in support of the legislation before you. I will summarize some
    of the key points raised in the testimony and address your
    request of commenting on related legislation that would
    establish a Congressional Office of Regulatory Affairs.
        For several years, NCSL has raised concerns about
    developments in the relations between the Federal and State
    Governments. A decade ago, State legislators were alarmed about
    unfunded Federal mandates. We worked hard with Members of this
    Committee and others in Congress to pass the Unfunded Mandates
    Reform Act. Our more recent concerns focus on preemption of
    State and local authority by the Federal Government and on the
    Federal regulatory process. We believe the combination of
    unfunded mandates, preemption, and an archaic regulatory
    process curtail innovation and responsiveness of State and
    local officials.
        NCSL views the Regulatory Right-To-Know Act as part of a
    package of reforms that, when passed, will largely alleviate
    the problems we have identified with preemption and the
    regulatory process. This Congress held a hearing yesterday on
    the Regulatory Improvement Act, S. 746, that represents yet
    another part of this package. We look forward to working with
    you on the Federal Financial Assistance Management Act and
    ultimately on the bill that would help constrain the propensity
    of Congress to preempt State and local prerogatives.
        The Regulatory Right-To-Know Act contains four important
    elements. The annual accounting statement will offer the power
    of information to State, local, and Federal officials concerned
    with the impact of agency decisions on State and local
    governments. It will give Congress an indispensable oversight
    tool to determine whether agencies have exceeded their
    statutory authority when promulgating rules.
        The cost-benefit analyses required by S. 59 will make
    agency officials more accountable for the programs they are
    implementing. They give the public a much better sense of how
    much funding it takes to provide particular benefits.
        The third element of S. 59 calls for the recommendations
    regarding inefficient or ineffective programs or program rules.
    This, we believe, will streamline the regulatory process and
    ease the cause of considerable tension and frustration for
    State and local officials.
        Finally, we are supportive of the bill's notice and comment
    provision. This element makes the accounting report a dynamic
    document, giving State and local officials a chance to
    highlight their most pressing concerns about proposed Federal
    actions.
        The National Conference of State Legislatures also believes
    that S. 59 could be strengthened by adding the objectives of S.
    1675 from the 105th Congress. That legislation would create a
    Congressional Office of Regulatory Affairs. This would fall
    somewhat into line with the practices that State legislatures
    have adopted in order to enhance regulatory oversight.
        The chart attached to my testimony gives you a general
    summary of some of the actions States have taken to enhance
    regulatory oversight. I believe you will see that we practice
    what we preach. Over the past 20 years, legislatures have
    significantly broadened their program evaluation, rule review,
    program accountability, and fiscal analysis activities. Cost-
    benefit analyses and risk assessments are becoming more
    frequently used devices for program implementation.
        There are a variety of approaches to be found among States.
    They range from advisory committees, such as in New York, to
    committees with veto power, as in Ohio, or both approval and
    veto power, as in Connecticut, or suspension authority, as is
    found in Illinois.
        Each step we take together on the federalism front, whether
    the Unfunded Mandates Reform Act, curtailing preemption, or
    making the regulatory process more accountable, is a step
    toward strengthening the intergovernmental partnership and its
    responsiveness and credibility. It is not an abstract exercise.
    Rather, it is a critical element in assuring the public's
    confidence in our Federal system so finely crafted by our
    Founding Fathers.
        I look forward to working with you in passing S. 59 and the
    other components of our federalism agenda. Thank you for this
    opportunity to appear before you today, and I will be glad to
    respond to your questions, Mr. Chairman.
        Chairman Thompson. Thank you very much. I appreciate your
    being with us here today and giving us additional insight as to
    how it works at the State level.
        Senator, I would ask you first, how does creating a
    Regulatory Right-To-Know Act and a Congressional Office of
    Regulatory Analysis fit with what State legislatures are
    already doing in the world of regulatory oversight? You
    mentioned that briefly, some of them. Could you elaborate on
    that a little bit and give us a little bit better feel as to
    how? It sounds like the States may be a little bit advanced of
    where we are in some respects.
        Mr. Saland. Certainly. Thank you, Mr. Chairman. As you have
    heard, I am sure, the States, according to one of our great
    Supreme Court justices, often are viewed as the laboratories,
    and certainly your home State is probably the granddaddy of
    regulatory reform and many of the States are indebted to the
    particular reforms that Tennessee has led the way on.
        Let me talk generally about the spectrum, if you will, Mr.
    Chairman. We in New York, as I mentioned in my testimony, are
    more in the nature of an advisory system whereby we have a
    bipartisan regulatory commission. We call it an ARRC, our
    Administrative Regulations Review Commission. They review
    regulations and make recommendations. They also are responsible
    for really initiating reform legislation with respect to
    regulations.
        The system works pretty well. We have found that, in
    speaking with the Commission staff, they are satisfied that the
    administration is generally responsive to those things that
    they highlight.
        There are, however, other States that certainly are far
    more proactive, States such as I mentioned in my testimony,
    like the State of Connecticut. In Connecticut, they have the
    right to both, in effect, approve or disapprove of regulations.
    There are certain time periods within which they must act. The
    State of Illinois basically has the ability to suspend a rule
    for 180 days, within which time there must be review of that
    rule and, in effect, the tendering of a replacement or an
    effort to deal with the issues raised by the legislature.
        Chairman Thompson. At what stage do they come in? At what
    stage do they make that review, at what stage in the regulatory
    process?
        Mr. Saland. In some instances, they address existing rules,
    and in some instances, it is the ability to be part of the rule
    preparation process. One of the things that has occurred in
    many of our States is that we have seen, certainly over the
    course of the past 2 decades, a much more proactive response,
    both at the executive level and at the legislative level. We
    have found, and here, if I may cite my experience in New York,
    where our Governor, Governor Pataki, very proactively when he
    took office handed the reins over to the person who is
    currently his budget director, Bob King, a former State
    legislator. He and his staff went about very actively reviewing
    existing regulations and weeding out where, in fact, there was
    duplication, where, in fact, there was a cost-benefit
    relationship that bore no relationship to reality.
        The long and the short of it, Mr. Chairman, is that in the
    entire spectrum, we have some 41 out of 50 States that engage
    in regulatory oversight. In that entire spectrum, there is
    little or nothing that you could not find by way of example of
    paths to travel down as you explore the interaction of
    legislative activity and the rulemaking process.
        I certainly think I could speak for the NCSL in saying, to
    the extent that you would like us to do so, we would be more
    than happy to share with you our experiences. I have attached
    to my testimony, in effect, a compendium of what those 41
    States do, and also, although it is not attached to my
    testimony, the five States which I referred to by way of
    example, we can attach for your edification the particulars of
    how those States handle regulatory oversight.
        Chairman Thompson. I appreciate that very much. I sure
    would.
        Mr. Arbuckle, are you familiar with what is going on in the
    States generally in this regard?
        Mr. Arbuckle. Well, we are familiar with a lot of the
    efforts. I cannot say that I have the depth of knowledge that
    Senator Saland has about this. We have tried very hard to reach
    out to States to make sure that there is this coordination that
    he talked about. As you can imagine, it is a huge endeavor.
    There are a lot of issues that have to be worked and that have
    different effects on different States, but we are definitely
    trying to do that and coordinate.
        Chairman Thompson. I think this is a classic example of the
    laboratories that you are talking about, where, clearly, we are
    moving into somewhat unchartered territory here and no one has
    the precise answer as to, for example, when the legislative
    body should be involved in the process. I would certainly be
    interested in knowing what the experimentation has been at the
    State level.
        Mr. Arbuckle, I understand that is one of your primary
    concerns with the CORA legislation as it has developed. I think
    what has happened is that as the legislation has developed, the
    legislative body has become more involved earlier in the
    process, at perhaps the notice of proposed rulemaking stage.
    You are suggesting that that is too much, too early, and that
    we should wait until when?
        Mr. Arbuckle. Let me clarify that a little bit, Mr.
    Chairman. There are a lot of stages in a rulemaking process
    that takes place sometimes over a long period of time. The two
    most formal stages established by the Administrative Procedure
    Act are the publication of a notice of proposed rulemaking for
    public comment and then, following that, an analysis of the
    comments, and the publication of a final rule.
        I think it would be perfectly appropriate for the Congress
    to be concerned and involved and interested in rulemaking as it
    develops at those two stages. The concerns that we have
    involved our ability to carry out the intra-Executive Branch
    process of deciding and analyzing what the regulation should
    do, without at that point having an intersection with the
    Congressional interests that have provided the statutory duties
    that we are acting off of.
        Chairman Thompson. It sounds like you are saying two
    different things, or saying both ways. On the one hand, that it
    would be appropriate for there to be some Congressional
    involvement early on in the process, perhaps at the proposed
    rulemaking stage, but on the other hand, you would really
    rather not have them there. If there is a role at that stage,
    what would be, in your view, an appropriate role where it would
    not interfere? And you might, if you want to, get into a little
    bit of the detail of the nuts and bolts as to exactly how this
    works, perhaps, and some practical difficulties you see with
    it.
        But if there is a proper role for Congress early on--and,
    of course, you understand the Congressional interest. We talk
    about under CRA, vetoing regulation and all of that. We can
    talk about how that has worked. I do not know that anything has
    been affected by the passage of that law.
        Mr. Arbuckle. Yes.
        Chairman Thompson. So now we are looking and seeing whether
    or not it would make sense to maybe get involved, have some
    technical expertise, just like CBO for budget matters, have
    some technical expertise for regulatory matters to get involved
    earlier in the process, not in order to disrupt or to kill, but
    in order to have some input in order that we might come out
    with better rules. So if there is an appropriate role at that
    first stage, what do you think that would be?
        Mr. Arbuckle. First of all, let me say that, as you
    indicated, this is a groundbreaking type of conversation about
    changing the procedures that have been in place for a long,
    long time. We have had the same discussions within the
    Executive Branch about where the appropriate entry for an
    oversight body like OMB should be in the rulemaking process, a
    process established by law and covered by legal requirements.
        Similar difficulties would arise, I think, across the two
    branches of government arising from Congressional interaction
    at the pre-decisional stage, a point at which agencies are
    trying to decide what exactly it is, they want to do, say, for
    a proposal. Once that decision making process took place,
    however, it seems to me it would be both appropriate and
    particularly useful to have the Congressional interests that
    produced the statutes involved in commenting on the rule and
    helping fashion the rule that would be developed through the
    comment process.
        Chairman Thompson. That does not sound like much of a role
    in the first stage, though, at the proposed rulemaking stage.
    Do you think the analogy to the OMB and the budget process is a
    good one? I am not sure I understand exactly when they come
    into this, and I understand that is not part of your primary
    responsibility, but it just occurred to me. You mentioned OMB.
    Perhaps we could take a look at that and see what they are
    doing, how that has worked in terms of what they do and when
    they do it.
        Mr. Arbuckle. Yes. Well, there, of course, is a long-
    established relationship between OMB and CBO in the creation
    of----
        Chairman Thompson. I meant CBO, I am sorry.
        Mr. Arbuckle. Yes, in the creation of the President's
    budget, which eventually leads to legislation that is passed by
    the Congress where the decision making is made final. It is a
    little bit different in the regulatory process in that the
    grant of Congressional authority has already been made and it
    is the Executive Branch's job, then, to fulfill that. That is
    why we are having a little difficulty here in deciding when
    further involvement by the Congress would be appropriate.
        Chairman Thompson. We have had reports, as you pointed out,
    the last 3 years.
        Mr. Arbuckle. I think 2 years, actually.
        Chairman Thompson. Two years?
        Mr. Arbuckle. And then we have a third one that will be
    due, Mr. Chairman, this February.
        Chairman Thompson. What is it primarily--you kind of ticked
    it off, but what is the primary problem you see? I get the
    impression that you feel that it has worked pretty well and you
    have been able to do for those 2 years, and I assume the third,
    what has been asked of you. What is the primary problem as you
    see this legislation that our additional request would put on
    you?
        Mr. Arbuckle. First of all, let me say again that we think
    that the reports that have come out of the appropriations rider
    have been extremely useful in providing you and the Congress
    and the public with a basic overview of all the regulatory
    activity that is going on in the Executive Branch.
        The problem, as we see it, with S. 59 and S. 1074 is the
    accumulative level of detail. The Stevens Amendment that you
    originally referred to was approximately a dozen lines long,
    17, something like that. The current amendment, the current
    rider that we will be operating off of expands that out, has a
    little bit more detail in it, and is more like 30 lines. Then
    this legislation is again quadruple that, and so on. It is that
    accumulation of detail more than any specific detail itself
    that causes us difficulty and makes us worry, particularly in a
    small office like ours with many responsibilities, about the
    resources we have available to meet these requirements.
        Chairman Thompson. I noticed here, if I have it correctly,
    that under the Stevens Amendment, it required estimate of the
    total annual costs and benefits of programs, including rules
    and paperwork, in the aggregate, first of all. No problem
    there, right? I mean, that is part of your requirement now?
        Mr. Arbuckle. Yes. We have done that.
        Chairman Thompson. And by major rule?
        Mr. Arbuckle. And we have done that by major rule for a
    limited time period.
        Chairman Thompson. All right. I think what we add here is
    by agency and agency program and program element.
        Mr. Arbuckle. Yes.
        Chairman Thompson. And that is where you begin to get a
    problem?
        Mr. Arbuckle. Yes. That is correct.
        Chairman Thompson. Is it because the information is not
    available or because it would take too much time with your
    limited resources, or all of the above? I hope I am not giving
    you any new ideas.
        Mr. Arbuckle. These are excellent answers to your question,
    sir. [Laughter.]
        Chairman Thompson. Is there anything you would like to add
    to that?
        Mr. Arbuckle. Let me comment a little bit about that. There
    are basically two types of information on regulations that we
    have available. One is estimates of programs that are already
    out there, that are already operating, that are already on the
    books, and the other is what cost-benefit analysis as we deal
    with it in our daily work entails, namely is looking at changes
    in programs or new programs and trying to predict the impacts
    that they are going to have, both the costs and benefits. So
    one is looking back to regulations that are already on the
    books. One is looking forward, and that is what agencies and we
    spend most of the time doing.
        In adding detail about programs and program elements, we
    are concerned that the intent is to try to create more data
    that is not regularly being prepared by agencies, which is not
    to say that it might be valuable, but that is not normally
    being prepared on the regulatory programs that are already in
    place and which have been out there in some cases for many
    years and decades. The bills call for two separate types of
    information; there is not now a structure, as there is for
    looking forward, to looking back.
        Chairman Thompson. Well, maybe there needs to be one.
        Mr. Arbuckle. You know, that is a good idea. This is not an
    either/or situation.
        Chairman Thompson. We are talking about hundreds of
    billions of dollars that these things are costing businesses
    and people, families.
        Mr. Arbuckle. Yes.
        Chairman Thompson. A little additional work and expense to
    some of these agencies or even to OMB does not give me that
    much pain in terms of a concept. It needs to make sense, but I
    think that is something that we ought to revisit.
        Mr. Arbuckle. Could I comment on that, Mr. Chairman?
        Chairman Thompson. Yes, go ahead.
        Mr. Arbuckle. I have been at OMB for almost 20 years in
    OIRA working on regulatory review and regulatory improvement.
    In all of the various administrations I have worked for, there
    have been efforts to do what we now call a look-back exercise,
    looking back at the regulations currently in effect.
        Nobody disagrees that it can be done, although there are
    difficulties in doing it. The problem is institutionalizing it
    in a way that keeps it going. In my experience, these have been
    exercises that have been tremendously labor intensive, that
    have involved the whole administration. That is what leads me
    to worry about the resource issue that I mentioned before for
    both ourselves and for the agencies.
        Chairman Thompson. Well, we have got an additional problem
    here, too, I think, Mr. Arbuckle. We asked GAO to review OMB's
    first two regulatory accounting reports and they interviewed
    seven distinguished economists who are experts in cost-benefit
    analysis about your reports and they were generally critical of
    OMB's performance. OMB officials reviewed our final list of
    cost-benefit analysis experts and no objections to those were
    included.
        So would you agree with their analysis? I guess you are
    maybe, you could argue, making your point here in terms of
    additional requirements because it seems to be a real problem
    with really adequately fulfilling what has already been given
    you. Do you agree with GAO's analysis or not?
        Mr. Arbuckle. It is certainly the case that there have been
    critics of the reports, and I would agree that there is much
    more work that we can do. As you mentioned earlier, we are all
    in a sort of a groundbreaking stage here, even if we have been
    doing this through my career at OMB over the last 20 years.
        There is in some cases, a lot of information available, but
    in many cases, very little information available. Trying to put
    that together is difficult--in effect, we need to do a cost-
    benefit analysis of that. Where do we want our agencies'
    resources and OMB's resources to be directed?
        Chairman Thompson. I get the impression sometimes that part
    of the problem is that OMB does not want to give us any more
    information than it has to. At Jack Lew's confirmation hearing,
    I asked him if he would include the costs of tax paperwork in
    the upcoming regulatory accounting report and he said that he
    thought OMB would do that, and when OMB issued its draft
    regulatory accounting report in August 1998, OMB did include
    the massive cost of tax paperwork, which it estimated at $140
    billion annually. Then in OMB's final report, this number
    vanished into thin air.
        Do you know what happened and why OMB cannot report on the
    cost of tax paperwork and other paperwork? I mean, I would
    think it would be a fairly easy task, since OMB already tracks
    the number of burden hours consumed by paperwork each year
    under the Paperwork Reduction Act. As I said, it had come up
    with a number in terms of the draft report, but then, as if we
    would forget that we had asked for it, that it had appeared
    before, when we got to the final report, it was gone. It leaves
    us with the impression that you just do not want to disclose
    any more than you have to. Do you know what happened to that?
        Mr. Arbuckle. First of all, our intent is not to hide
    information from either you or the public. I do not think it is
    quite fair to say it disappeared into thin air. As I recall, in
    the final report, we did note the figure and referred to it in
    the final report, although not in as much detail as we had
    perhaps in the proposed report.
        The Treasury Department and the IRS are engaged in a
    mammoth effort to try to reinvent their program and we felt
    that it was uncertain right now as to what the burden actually
    is and what the appropriate method of measuring it should be.
    It is not as simple as it might seem. As you correctly point
    out, in the information collection budget, which we released
    some time ago, we point out how much burden Treasury imposes on
    the American public. But the Treasury Department is working
    very hard to try to create a methodology that more accurately
    measures that burden.
        Chairman Thompson. I would challenge you to show where that
    $140 billion estimate is in the final report. I do not think it
    is in there. If it is, show it to me and you will have my
    apology.
        Mr. Arbuckle. I will be happy to follow up on that.
        Chairman Thompson. Senator Saland, I appreciate your
    support of S. 59, the core proposal. I want to thank the
    National Conference of State Legislatures and all the ``Big
    Seven'' State and local government organizations for their
    letter of support of S. 59.\1\
    ---------------------------------------------------------------------------
        \1\ The letter dated March 10,1999 appears in the Appendix on page
    53.
    ---------------------------------------------------------------------------
        Can you describe the significance of the Big Seven's
    consensus on this issue and where it fits in relation to the
    other issues that State and local government associations are
    advancing in Congress?
        Mr. Saland. It would be my pleasure, Mr. Chairman. Would
    you be kind enough to indulge me, if I might, if I could just
    revisit a couple of comments that I had made earlier----
        Chairman Thompson. Yes, sir.
        Mr. Saland [continuing]. And unless it would be
    inappropriate, maybe make some comments. I do not want to turn
    this into a debate with Mr. Arbuckle's comments.
        Chairman Thompson. No. We do that up here every once in a
    while.
        Mr. Saland. OK. First, let me say----
        Chairman Thompson. I am sure it is different than the State
    Senate in New York, right?
        Mr. Saland. I never cease to be amazed.
        Chairman Thompson. Everything is done by consensus. No,
    that is good. Interchange of ideas is good.
        Mr. Saland. Your experiences with your administration's
    Budget Office seem strangely parallel to that which we deal
    with our Division of the Budget.
        I would like to, if I might, go back and just point out
    that with our States, generally, if I can do this in terms of
    generalities, from the proposal of regulation, on average,
    there is a 30- to 60-day period within which the appropriate
    committee, regulatory committee, is then able to act. What we
    have found, and I am sure your experience would be the same, is
    that the mere presence of this oversight authority generally
    has an effect on eliminating regulatory excesses and the
    proposing of unreasonable regulations. I would just merely
    submit that what would be the justification of not creating a
    system parallel to the system that you already have created for
    UMRA.
        I am troubled by comments to the effect that the
    administration should be cooperative with the legislature,
    where appropriate. I am troubled by, in effect, picking and
    choosing what you should be held accountable for in terms of
    disclosure. You and I, although I certainly not at the level
    that you have attained, are required to be responsive by way of
    representative government. There is a certain comfort level
    when one does not have to go through that process and there is
    a certain resistance to change regardless of what the process
    may be.
        I would submit to you that there is little or no reason why
    one should assume that if this can be done in a piecemeal
    fashion, once the system is created, certainly with the
    resources at the fingertips of the administration, certainly
    with the technology that the administration and we all have at
    those very same fingertips, once the process is up and running,
    there is no reason why we can assume it is going to be that
    labor intensive nor that difficult.
        Going back to your question, and I am sorry if I went
    astray here, certainly, what you are proposing is most
    harmonious with the Big Seven's approach to the issue of
    federalism. We believe this would be a very key component as
    part and parcel of the Big Seven's approach to federalism, and
    may I point out, and I am sure you are aware and perhaps some
    others may not, it is not that often that the Big Seven comes
    together and coalesces on a particular issue. This happens to
    be one of those issues.
        Chairman Thompson. That is what I was thinking.
        Mr. Saland. We occasionally find ourselves at odds. We are
    speaking with unanimity and one voice on this particular issue.
    It is critical to us at all levels of local and State
    government that we have the ability to know, we have the
    ability to basically plan, we have the ability to understand
    the process that brought these regulations to us.
        Chairman Thompson. Along those lines, I was interested in
    your view of the requirement for an analysis of the cumulative
    direct and indirect impacts of Federal rules on State and local
    government.
        Mr. Saland. It would certainly seem to me that that would
    be critical, absolutely critical to any package that you may
    ultimately enact, Senator. The reality is, is that the
    piecemeal approach really, I do not think, does a heck of a lot
    for anybody. If you are going to be selective, if you are going
    to effectively have the ability to pick and choose what you
    shall disclose, one can not know the overwhelming cost. You in
    your comments made reference to hundreds of billions of
    dollars. There are things that come back to us. If we do not
    know those costs, we have a problem.
        I merely recite to you one of the problems which we have
    had to deal with in recent times, certainly most recently, the
    requirements for Federal standardization of licenses, certainly
    an onerous responsibility that we are going to have to contend
    with and no dollars coming with it. Nobody has basically
    factored in what that expense is, and while I realize that
    effectively is on hold, I am not quite sure when we will be
    required to be responsible.
        Chairman Thompson. Do you have a constitutional requirement
    to balance your budget, the way we do in Tennessee?
        Mr. Saland. Yes, we certainly do. Sometimes, it is very
    artful, I must confess, but they are balanced.
        Chairman Thompson. Thank you very much. We could spend a
    lot of time, all three of us, I am sure, discussing this. I
    want to thank both of you for coming.
        I would like to follow up on some of the things the States
    are doing in a little bit more detail, if we could, and Mr.
    Arbuckle, I appreciate your thoughts. We do not want to
    overburden, and some of this, sometimes I get a little bit
    sensitive to whether or not we are, instead of really changing
    things, we are laying on another layer and then going to forget
    about it and move on. So I am not locked in concrete on the
    details of a lot of this stuff. I do really want to know how it
    works.
        But when we decide how it works, then OMB needs to do its
    job and do what it is supposed to and be responsive to what we
    are trying to do up here, and that is the message that I would
    like for you to go away with.
        Mr. Arbuckle. We will be happy to work with you, sir.
        Chairman Thompson. I appreciate it. Thank you, gentlemen.
        Mr. Saland. Mr. Chairman, you made reference to a letter
    from the Big Seven.
        Chairman Thompson. Yes.
        Mr. Saland. Am I correct in assuming that is the letter of
    March 10 and it is already part of the record? \1\
    ---------------------------------------------------------------------------
        \1\ The letter referred to appears in the Appendix on page 53.
    ---------------------------------------------------------------------------
        Chairman Thompson. I believe that is the one.
        Mr. Saland. Thank you.
        Chairman Thompson. Thank you very much. I appreciate it.
        I would like to turn now to our second and final panel.
    With us today is Arthur J. (Jim) Dyer, a small business owner
    from my home State of Tennessee. It is good to have you with
    us, a friend of mine.
        He will be followed by Dr. Robert Litan from the Brookings
    Institution. Our third witness will be Dr. Murray Weidenbaum,
    the Chairman of the Center for the Study of American Business.
    Professor Sidney Shapiro from Indiana University's School of
    Policy and Environmental Affairs will then testify. The final
    witness today will be Gary Bass, Executive Director of OMB
    Watch.
        I want to thank all of our witnesses today for being with
    us here on this second panel. These are important issues that
    we are confronting and we appreciate all of you for taking the
    time to give us your input on them.
        We will keep the record open, incidentally, for 1 week for
    Members of the Committee to submit written questions and any
    additional statements for the record.
        Mr. Dyer, welcome. It is good to see you again. Would you
    like to start off with any comments you might have.

       TESTIMONY OF ARTHUR J. DYER,\2\ PRESIDENT, METAL PRODUCTS
    COMPANY, ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS

        Mr. Dyer. Thank you. I appreciate the invitation to be
    here, Mr. Chairman. I am Arthur J. Dyer, the President of Metal
    Products Company, a small manufacturing company in McMinnville,
    Tennessee. We are a family-owned business, about 50 years old,
    and today we have almost 100 employees.
    ---------------------------------------------------------------------------
        \2\ The prepared statement of Mr. Dyer appears in the Appendix on
    page 82.
    ---------------------------------------------------------------------------
        I am representing the National Association of Manufacturers
    today. The NAM is the largest industrial trade group in the
    United States and has over 14,000 member companies with
    approximately 10,000 small manufacturers like Metal Products
    Company. The NAM represents 85 percent of the U.S. manufactured
    goods and the members represent also 18 million employees. The
    NAM's mission is to improve the living standards of the
    American worker by shaping a regulatory and legislative
    environment conducive to U.S. economic growth.
        NAM supports both the Regulatory Right-To-Know Act and the
    establishment of a Congressional Office of Regulatory Analysis.
    Both will contribute to improving the regulatory process and
    the efficiency of the regulations themselves. We believe that
    neither will hurt public safety, public health, or the
    environment.
        American manufacturers today cannot simply raise prices to
    improve our bottom line. Given the competition of the global
    economy, we have to look for ways to lower costs constantly.
    Regulations, even good ones, add costs. These regulation
    burdens have accurately been called hidden taxes, and like any
    tax, the American taxpayer should have a right to know that the
    money is being spent wisely.
        My employees and I must constantly look for ways to improve
    our productivity on the shop floor and lower costs, but I would
    be a fool to sit in my office and dictate how a man should run
    his machine on a shop floor. I need to go out and listen to
    that fellow because he is closer to the problem than I am. I do
    not see why government cannot do the same thing.
        I am not anti-government or anti-regulation. My employees
    are important to me. Their children go to the same schools as
    my children. They are on the same ball team. I have employees
    that go to my church and live on my street. It is important to
    me that they are safe in their work environment and I
    appreciate how regulations have improved worker safety.
        I am not anti-environment, either. We live on the banks of
    the Barren Fork River that flows through McMinnville. My
    children canoe and fish and swim in that river. I do not want
    to see it polluted. But I do think that we should concentrate
    on making sure that the regulatory burden is worthwhile and
    that we accurately prioritize our regulatory goals.
        I believe that the legislation that you are proposing would
    go a long way in doing that. S. 59, with the public notice and
    comment provisions, would allow experts outside the peer review
    process to comment on the methodology and perhaps offer better
    ways to analyze the cost-benefit analysis. CORA would serve as
    a natural and, I think, complimentary counterbalance to OIRA
    and the OMB and I think it would be important to have a
    different view when you are analyzing the net benefit of these
    regulations.
        I also think it would be important for CORA to be able to
    propose alternate ways of achieving the regulatory goals. I
    think that there are many ways to do something, and just like
    in our business, we cannot do things the same way that we have
    always done them. We have to keep looking at new ideas and go
    back and look at what we have done for years and maybe see if
    it is still appropriate. I do not see why it would not be
    appropriate for government to look at old regulations and see
    if they are really useful anymore.
        In summation, I believe that American business people truly
    want to do what is right for their employees, their customers,
    and their country. The Congressional Office of Regulatory
    Analysis and the Regulatory Right-To-Know Act would provide all
    Americans, from Members of this Committee down to my employees
    and me, an opportunity to have a more open and honest debate
    based on more objective information about how regulatory
    agencies reach their decisions. We all want to do what is
    right, but in today's competitive global environment, we simply
    cannot afford to waste time and money on the wrong regulatory
    solutions.
        I would be happy to answer any questions you may have.
        Chairman Thompson. Thank you very much. Dr. Litan.

     TESTIMONY OF ROBERT E. LITAN,\1\ PH.D., DIRECTOR OF ECONOMIC
      STUDIES AT THE BROOKINGS INSTITUTION AND CO-DIRECTOR OF THE
           AEI-BROOKINGS JOINT CENTER FOR REGULATORY STUDIES

        Mr. Litan. Thank you. I appreciate being here again today.
    I am especially grateful that you invited me here to be
    reunited with my college debate partner, Professor Shapiro,
    whom I have not seen in 30 years. We are still debating after
    all these years, and it turns out we are now on the opposite
    side.
    ---------------------------------------------------------------------------
        \1\ The joint prepared statement of Mr. Hahn and Mr. Litan appears
    in the Appendix on page 91.
    ---------------------------------------------------------------------------
        I will get right to the bottom line. Both of these bills
    are good legislation and they should be passed, although in our
    written testimony, we have some suggestions for modification.
        The case for S. 59 is simple. Congress and the public
    deserve to know on a regular basis, the same annual basis on
    which the budget is prepared, the estimated impacts of Federal
    regulatory activity, in total, by agency, and by major program.
    OMB has been doing most of this, as we just heard, at the
    behest of Congress for the past 2 years. They should keep on
    doing it.
        Now, in our testimony, we review some of the objections to
    this that we are likely to hear in a few minutes, and I will be
    happy to take those up in Q and A. But the basic message I will
    leave you with at this point is that these objections remind me
    of generals who are fighting the last war. The war over the
    usefulness of benefit-cost analysis is over. The government has
    been doing it for 25 years, although imperfectly.
        The right approach is in S. 59, which sets up a process
    that will make the government do it even better, rather than to
    just simply throw one's hands up and say that analysis cannot
    or should not be done. If anything, there is a need to do more
    cost-benefit analysis of on-budget programs as well as
    regulatory programs.
        Mr. Chairman, I just finished serving as the main writer
    for a report by the President's Commission on Capital Budgeting
    that had bipartisan membership, Republicans and Democrats, and
    one of those recommendations in the report was that all major
    Federal programs, budget programs, should have a cost-benefit
    analysis performed on them. That same logic, it seems to me,
    easily carries over to the regulatory sphere, illustrating
    again strong bipartisan support for this concept.
        The proposed CORA legislation would further improve matters
    by giving Congress in the regulatory sphere what it has long
    had in the budgetary arena, namely a source of independent
    analysis on the impacts of regulatory activity, which, as you
    have noted, are now quite substantial.
        As useful as the regulatory review by OMB is, and with all
    due respect to Mr. Arbuckle and his team, whom I admire and
    once worked with from afar, OMB faces inherent political
    constraints that prevent it from providing Congress and the
    public with totally independent analysis. If you need any
    evidence of this, you do not have to look any further than the
    GAO report which just came out today which documents in
    thorough detail that OMB is constrained because it is part of
    the same administration as are the agencies that are issuing
    the rules that Congress mandated originally ought to be
    written.
        In my few remaining minutes, I will just tick off a few
    suggestions for modification of the proposals. I may not get
    through all of them, but they are in the testimony.
        First, on S. 59, we suggest that OMB ought to be required
    to recommend in its annual report some minimum number of
    regulations or programs that ought to be reformed or
    eliminated. This does not override the current policy making
    process, as implied in Mr. Arbuckle's testimony. In fact, if
    anything, it just simply directs how the policy making process
    should proceed within the administration.
        Second, OMB should be similarly required to identify some
    minimum number of regulations where its assessment of the
    likely impact of regulation substantially differs from that of
    the agency.
        Third, in a similar vein, the bill should require OMB to
    review the regulatory analyses of a selected number of existing
    rules each year. This would help start to develop some
    estimates independent of those of the agencies.
        Fourth, the bill should make clear that the estimates are
    to be stated in monetary terms, to the extent practicable.
        And fifth, the Congress should take into account in setting
    agencies' annual appropriations the degree of agency compliance
    with OMB's guidelines for reporting costs and benefits.
        Let me conclude with a few thoughts on CORA. Briefly, we do
    not believe that CORA should do its own regulatory analyses of
    every rule, as the Shelby-Bond draft would mandate. This simply
    would duplicate what is already going on in the agencies.
    Instead, we think that CORA should perform the same kind of
    broad review of options and analysis that OMB now conducts, but
    CORA will be more independent.
        We also suggest that CORA not review non-major rules and
    that it confine its assessment to major rules and focus also on
    the OMB annual report.
        You raised this question in your Q and A with Mr. Arbuckle
    about when CORA should get involved. We suggest in our
    testimony at the notice of proposed rulemaking stage and that
    the bill ought to encourage CORA to file comments in the
    rulemaking record. It does not have to do it because it is
    always going to put out a final report at the end, but I would
    suggest that if CORA is putting these comments on the record,
    it will become the 800-pound gorilla of commentors.
        The agencies will pay more attention to CORA, it seems to
    me, than probably anybody else, and, in fact, what will happen
    over time is that the agencies will pay so much attention to
    Congress through CORA that it will, I think, eliminate or
    substantially reduce the number of rules that are challenged in
    court. This is because if a rule is issued and CORA basically
    says ``fine'' at the end of the day, it will make it much more
    difficult for those who are challenging rules to actually
    sustain their challenges in court. So if anything, a CORA will
    streamline the regulatory process and at the same time give
    Congress the source of independent analysis that I think you
    need and deserve. Thank you.
        Chairman Thompson. Thank you very much.
        Unfortunately, I have just a few minutes left on a vote
    that is occurring right now. If you will bear with me, let me
    go over and vote just as quickly as I can and then I will
    return and we will continue. Thank you very much.
        [Recess.]
        Chairman Thompson. Mr. Weidenbaum, we are especially
    honored to have you here with us today. Thank you very much,
    and proceed with any statement that you would like to make.

    TESTIMONY OF MURRAY WEIDENBAUM, PH.D.,\1\ CHAIRMAN, CENTER FOR
         THE STUDY OF AMERICAN BUSINESS, WASHINGTON UNIVERSITY

        Mr. Weidenbaum. Thank you, sir. It is a great pleasure to
    be here, Mr. Chairman.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Weidenbaum appears in the
    Appendix on page 108.
    ---------------------------------------------------------------------------
        The legislation you are considering will raise the level of
    public understanding of a very important area of public policy.
    Here is the case for S. 59 in a nutshell. Neither benefits nor
    costs of regulations show up in the totals of Federal spending
    or taxation, but the amounts are very substantial, totaling
    many hundreds of billions of dollars every year. The public has
    a right to know this information on a regular basis. Regulation
    affects so many aspects of our lives, economic factors, such as
    employment, inflation, productivity, and competitiveness, as
    well as social factors, such as the environment, consumer and
    employee safety.
        Some say that data on regulatory benefits and costs are not
    reliable. Let me hit that one right away. As a pioneer in
    developing this information, I am aware of the shortcomings and
    also the progress made. But, Mr. Chairman, criticism is still
    leveled against the data on the gross domestic product, yet the
    government goes on to produce that information and it is used
    for essential decision making in both the public and the
    private sectors.
        If you really want to see shortcomings in the data, look at
    the budget that the Congress acts on. Treasury's projections of
    capital gains taxes and corporate income taxes are often way
    too high or way too low. Similar problems arise on the spending
    side. Estimates can be way off for credit programs, the CCC
    (Commodity Credit Corporation) military procurement, and
    entitlements.
        But whatever the limits, this kind of data is useful, as
    are the data on benefits and costs of regulation. That has
    alerted the public to the huge magnitude of resources involved.
    I see no reason to deprive the public of this vital knowledge.
        And there is a positive feedback effect, as we learned in
    the budget data. By making permanent the temporary requirement
    for an annual regulatory accounting, S. 59, likewise, will
    encourage the Executive Branch to develop a better database.
        Let me hit just a few procedural details. OMB reports, in
    response to the Stevens Amendment, lack the data that we need
    on individual regulatory agencies and programs. Thus, Section
    4(a)(1) in your bill is badly needed. But I think we need to be
    sensitive to the concerns about the load you are imposing, so I
    would say going on to include distributional effects generates
    too large a research burden that would delay the entire effort
    to measure benefits and costs. I urge you to eliminate it.
        Likewise, 4(a)(2) seems to require extensive research on
    the indirect effects of Federal rules. I think, instead,
    estimating costs and benefits should get priority. That is a
    big enough job. Analysis of impacts could rely on studies
    prepared by private researchers.
        On the other hand, there is merit in estimating future
    costs and benefits. Given the burden imposed by S. 59 to
    prepare historical data, I urge you to phase in this
    requirement. Advance warning will give the agencies time to
    develop new methodologies.
        Chairman Thompson. Excuse me. Phase in which requirement?
        Mr. Weidenbaum. Phase in the requirement for making
    forecasts of future benefits and costs. That will take time to
    develop, so perhaps you can phase in the aggregate projections
    in the year 2003, projections by agencies in 2004, estimates by
    program element in 2005.
        Yet Section 7 on peer review, I think, is essential to
    enhance confidence in the data. But peer reviews usually
    involve more than one peer. I urge the Committee to provide for
    two or more. Several public policy research centers have the
    required capability.
        Turning to the companion bill about CORA, an expanded flow
    of regulatory data means that Congress, I think, really needs
    its own staff to analyze the information, but I do not believe
    bills like S. 1675 go far enough. After all, this proposal is
    limited to improving the way agencies write regulations. But
    key decisions on regulation occur earlier. When you all write
    an OSHA Act or a new Clean Air Act. There is an information gap
    here, I suggest that each Congressional Committee when writing
    a regulatory statute should consider the expected benefits and
    costs and that data should be provided by CORA.
        Where do you put CORA? It could be independent. It could be
    part of CBO. There are pluses and minuses on both of that. But
    I think the substance is important. It should focus both on the
    early stage where Congress is writing a new statute and on the
    latest stage where under SBREFA (Small Business Regulatory
    Enforcement Fairness Act) you are reviewing proposed
    regulations.
        Accompanying my formal statement is the CED report on
    modernizing government regulation, which covers that in more
    detail. As you might suspect, I helped to write it.\1\
    ---------------------------------------------------------------------------
        \1\ The report referred to appears in the Appendix on page 260.
    ---------------------------------------------------------------------------
        To summarize quickly, enacting S. 59 and establishing an
    Office of Regulatory Analysis would be important improvements.
    It is gratifying to see the bipartisan nature of these bills
    and of their Congressional supporters. Their enactment would
    raise the information level of deliberations on regulation and
    might even lower the decibel level. Thank you very much.
        Chairman Thompson. Thank you very much. I appreciate it.
        Professor Shapiro.
        Mr. Shapiro. Thank you. When I debated with Bob Litan, I
    usually tried to go second so I could do any necessary
    clarifications that were necessary, and I am happy to play that
    role again.
        Mr. Litan. We were on the same team then.
        Mr. Shapiro. Even more necessary.
        Chairman Thompson. You have to keep in mind, you only have
    a few minutes here.

    TESTIMONY OF SIDNEY A. SHAPIRO,\2\ VISITING SCHOLAR, SCHOOL OF
          POLICY AND ENVIRONMENTAL AFFAIRS, INDIANA UNIVERSITY

        Mr. Shapiro. Bob Litan suggested maybe I and others who
    have reservations about S. 59 are fighting the last war, and I
    do not think that is necessarily the case. Clearly, as he said,
    cost-benefit analysis is here to stay. But the issue is what to
    do with it in light of its real limitations on what economics
    and economic data can teach us. How do we best use the numbers
    in light of the very real limitations we understand and know
    about to make all of us a little smarter in terms of how we do
    regulation?
    ---------------------------------------------------------------------------
        \2\ The prepared statement of Mr. Shapiro appears in the Appendix
    on page 114.
    ---------------------------------------------------------------------------
        Second, most of what we want to know about regulation deals
    with individual rules. Cost-benefit analysis is particularly
    revealing when we go rule-by-rule and look at the particular
    benefits and costs that they may yield. Yet S. 59 is not about
    rule-by-rule cost-benefit analysis. It is about aggregate or
    total costs and benefits, and when those are compiled,
    particularly in light of the real limitations of the data, I
    think it has very little to teach us about the merits of
    particular policy disputes.
        I would also like to mention Dr. Weidenbaum's point about
    the gross national product. During the break, I was getting a
    very interesting economics and historical lecture from him,
    very informative--always good to be a student--about those
    numbers, and as he mentioned in his testimony, there are
    certainly limitations about those numbers, and yet we use it,
    and of course we do.
        But this is a little bit different in two ways. First, as
    you heard from OMB, there is a diversion of resources here. If
    we produce these numbers, we cannot be doing other things. So
    we have to weigh the value of these numbers and what they have
    to say and what we can get out of them versus other things that
    agencies can be doing, particularly their statutory mandates of
    protecting the American public.
        Also, there is the matter of understanding what these
    numbers finally mean. Will the production of regulatory
    accounting teach the American public about costs and benefits
    of regulation? Well, sure, to some extent. But, on the other
    hand, if you only produce numbers, if you only have tables and
    tables of numbers, you lose in a very real sense important
    qualitative information that is also necessary to assess the
    costs and benefits of regulation.
        In that regard, I would point to EPA's Section 812 study,
    which was mandated by Congress. EPA was told to estimate the
    total costs and benefits of the Clean Air Act, and it did so
    and it is continuing to do so, and it produced a very thick
    study its first time out. The study was subject to extensive
    peer review. That is really the way to do regulatory
    accounting, to my mind, because EPA in a qualitative sense as
    well as a quantitative sense was able to describe the costs and
    benefits.
        I would note also from the EPA's study that this type of
    regulatory accounting does not come cheap. The study took 7
    years to complete, cost millions of dollars, and I would guess
    S. 59, which is much more ambitious, would cost even more.
        I would also point out that when EPA went to estimate the
    benefits, because of data limitations, the best they could do
    was estimate that the total benefits were somewhere between
    $5.6 and $49.4 trillion, a huge magnitude. Because of that, we
    really do not learn much about the clean air program, or we
    certainly do not learn as much as focusing on individual
    policies and policy choices.
        In light of these limitations, I would urge some degree of
    modesty is necessary, that we proceed slowly to try to total up
    these costs and benefits, and I would urge second that we need
    to find better ways to mix qualitative and quantitative
    information so that the numbers we produce are accurate and
    helpful representations and pictures of the regulatory process.
        Chairman Thompson. Thank you very much. Dr. Bass.

     TESTIMONY OF GARY D. BASS, PH.D.,\1\ EXECUTIVE DIRECTOR, OMB
                                 WATCH

        Mr. Bass. Thank you, Mr. Chairman. I think one thing that
    might be helpful is if I go back and trace some of the elements
    of the regulatory accounting bill and that might help to
    identify why we oppose both the accounting bill as well as the
    CORA bill.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Bass appears in the Appendix on
    page 130.
    ---------------------------------------------------------------------------
        Going back to the original Stevens rider, as I understand
    it, there were four requirements: An estimate for total annual
    costs and benefits of regulations; an estimate of the costs and
    benefits of rules having an annual impact of $100 million in
    costs or more; a third requirement to do direct and indirect
    impacts on private sector, State and local, and Federal
    Government; and then, fourth, recommendations for reform or
    repeal.
        My understanding of the history is that Senator Stevens,
    who authored it, Senator Roth, Senator Glenn, and Senator Levin
    had a number of exchanges that emphasized that there was no
    need for new research. The idea was to rely on existing
    materials. I pulled out Senator Levin's comments saying the
    amendment simply directs OMB to pull together information that
    it already has on existing Federal regulatory programs and to
    use that to estimate the total annual costs and benefits. He
    said, in fact, that is why he was supporting it.
        And in the next year, when Congress again adopted the
    Stevens language, Mr. Chairman, you reiterated at that time you
    did not expect to increase the workload on OMB, that they could
    rely on existing studies.
        It was after that that OMB published its second report,
    which warns very carefully that, ``We still believe that the
    limitations of these estimates for use in making
    recommendations about reforming or eliminating regulatory
    programs are severe. Aggregate estimates of the costs and
    benefits offer little guidance on how to improve the
    efficiency, effectiveness, or soundness of the existing body of
    regulations.'' That echoes what Professor Shapiro was just
    indicating about the need for doing individual reviews and what
    we heard yesterday in the discussions of S. 746.
        Despite this, the third regulatory accounting rider changed
    dramatically. And by the way, I should mention, I am very
    pleased that today there was a hearing, because there has been
    no previous hearing on this subject.
        In the third rider, I want to point out five changes.
    First, you changed it from an annual process to every 2 years
    instead.
        Second, the total annual costs and benefits requirement
    expanded in a number of ways to cover both rules and paperwork
    and require aggregate estimates by agency, by agency program,
    and by major rule. With these new requirements, you included
    the clause ``to the extent feasible.''
        The third change was under the direct and indirect impacts.
    You dropped ``direct and indirect'' impact and just said look
    at impacts. You also dropped the Federal Government, the
    private sector and added wages and economic growth and tribal
    governments.
        Fourth, you added this notion that OMB is to provide
    guidance to standardize cost-benefit measures.
        And fifth, you had a requirement that the OMB guidance, as
    well as the accounting report, must be subjected to peer
    review.
        Under this bill, you again expand and change significantly
    what was done last year in seven distinct ways. First, you go
    back to making it annual.
        Second, you drop the clause ``to the extent feasible'' when
    doing the annual estimate. Now, that is critical from our
    perspective because, while there are numbers for major rules on
    costs and benefits, there are no cost-benefit analyses done for
    non-major rules. With the language ``to the extent feasible,''
    OMB, and the agencies, did not have to create new research. By
    dropping that, S. 59 requires a whole new set of data. In
    addition, while you mentioned earlier today that under the
    Paperwork Reduction Act there are burden estimates, there are
    not cost-benefit numbers, so the agencies or OMB would be
    required to generate those kinds of numbers anew.
        Also under the annual estimate, you added a new category
    called program elements, which are related components. So there
    is an additional estimate there as well.
        Under the impact section, you have reintroduced direct and
    indirect impacts, even though OMB highlighted the importance
    and mentioned repeatedly that doing indirect impacts is very
    difficult, if not impossible, to do.
        You added back in the private sector to look at, a very
    comprehensive piece.
        And then, unlike the discussion on S. 746, you made a major
    point in this bill to emphasize quantified net benefits. Now,
    OMB points out in its research and its reports that the only
    way to do net benefits is to monetize all factors. You are
    moving more in that direction.
        Fifth, all of this covers the 4 preceding years.
        Sixth, you propose the peer review is to be done by an
    outside entity as though the Federal Government is not
    competent to do it. The GAO report that has been referred to
    today identifies seven leading experts who would be likely peer
    reviewers, all of which have a very conservative viewpoint.
        Most interesting, though, is the seventh point in this
    bill, which is that, unlike public comments which are to be
    considered by OMB, you would require the peer review materials
    to be used by OMB, not just to be considered.
        All of this moves far away from the original intention of
    not generating new research and would clearly grind agencies to
    a halt.
        Let me make three comments about CORA. What you propose is
    to have CORA do in 45 days a regulatory impact analysis, but it
    takes agencies years to do.
        Second, you require CORA to generate regulatory options
    that would achieve the same regulatory goal but at a lower
    cost, which is a completely different standard than what
    agencies must go through. On top of this, it raises serious
    questions about political manipulations and activities.
        Third, the whole office would be highly political in the
    sense that the Director would be appointed by the Majority
    Leader and the Speaker.
        One last comment I want to make about CORA. You referred to
    this as a question earlier: Is this like the budget process? I
    would argue it is not like the budget process. In that case,
    the Executive Branch proposes, you, Congress, dispose. In the
    case of the regulatory process, you generate the law and it
    becomes the Executive Branch's responsibility to implement that
    law or execute it. You have oversight at any point in that
    process, through hearings, through legislation, any approach
    you want. So it is different than the budget process and I
    would not make them identically compared. Thank you.
        Chairman Thompson. All right. Thank you.
        Let us address the question of whether or not this is going
    to require a lot of new resources. You said, Dr. Bass, grinding
    agencies to a halt, and you point out that we have expanded the
    scope of the statutes as we have gone along. The question
    arises, do the agencies have the tools? What tools do they have
    now in order to comply with the statute, were it to become law?
    Are they available now? What kind of burden would be imposed on
    them?
        Dr. Litan, do you have any thoughts on that?
        Mr. Litan. Well, the amount of cost obviously depends on
    the scope of what OMB is asked to do on S. 59. My guess is that
    to faithfully provide the disaggregated estimates, not only
    just the totals but the agency and the program numbers, there
    may be some additional expenditures. I cannot tell you how
    much. Your Committee can ask OMB for them. My view is it is
    money well worth spending. If it is several extra million
    dollars, it is a drop in the bucket compared to hundreds of
    billions of dollars that we impose on the private sector.
        The second thing I would add is that if you have a choice
    in terms of where to spend the money--and don't have sufficient
    funds to spend more money both on a CORA and more analysis at
    OMB--I would give higher priority to creating CORA because you
    are more likely to get greater bang for the buck in terms of
    having another independent estimating body out there. So I
    would give priority to CORA.
        Ideally, of course, I would spend money on both agencies. I
    do not think you are talking huge numbers, maybe $5 or $10
    million. These are rounding errors in the overall size of the
    budget.
        Chairman Thompson. What about, expanding on that a little
    bit, Dr. Weidenbaum, what about the ability of the government?
    This kind of runs into my basic notion that we oftentimes think
    we know more than we really do, that we do not appreciate our
    own limitations and we feel like if we can apply the right
    green eye shade method to a problem, we can figure it out
    forever, and it never works out that way. What about the
    question of whether or not we really do have the tools to make
    these assessments?
        You talk about the progress in terms of cost-benefit
    analysis and how that is the current thinking now, although we
    are still having trouble getting that implemented in terms of
    major rules. But especially in light of the fact that we are
    talking about non-quantifiable costs as well as benefits, is it
    feasible, does it really help us when we roll in the
    quantifiable and the non-quantifiable all in the same number?
    Can we really do that? Does it really mean anything? Is the
    state of the art, as it were, such that we can get something
    that is meaningful to us?
        Mr. Weidenbaum. First of all, I think that we need to be
    sensitive to the serious concerns that have been expressed at
    this hearing about the burden, and as you put it, the
    availability of resources to carry out all this analysis.
    Personally, I think the number one priority should be
    estimating the benefits and costs of Federal Government
    regulation. That is a tall order in itself. All the other,
    frankly, nice-to-know information, the direct, indirect
    impacts, I would put aside for later. It is not that they are
    not important, but you cannot do everything at once.
        But if you devoted 1 one-hundredth of 1 percent of the
    likely total cost imposed by regulation, 1 one-hundredth of 1
    percent of that to analysis, you would have a tremendous pot of
    money, more than is feasible to spend. So we are talking about
    devoting a very relatively minute amount of money.
        Do we have the resources? I think if you focus laser-like
    just on that one point, estimating benefits and costs, and I
    think you are right in here, you do have, contrary to what one
    of the witnesses said, you do specify that you want benefits
    and costs by major rule. That is Section 4(a)(1)(C). The reason
    you need that is that is the bread and butter, that is the
    basic building block for all the other data, whether it is by
    agency or in the aggregate.
        Can it be done? Yes. Are there difficulties? That is why I
    talked about all the difficulties we still debate about the
    gross domestic product, about the balance of payments. You
    know, if the two witnesses, interestingly, to my left, were
    around when the Congress was considering the Budget and
    Accounting Act of 1921 and all your predecessors took them
    seriously, we would not have a modern budget process today. Are
    we in better shape now in dealing with regulation than our
    forbearers were in estimating revenues and all that back in
    1921? I think the answer is yes. We have advanced the state of
    the art.
        I hope that a stripped-down version of S. 59, deferring all
    the nice-to-know but items not directly related to benefits or
    costs of regulation, a stripped-down version be voted on so the
    task can get going right away.
        Chairman Thompson. Let me make sure I understand what your
    recommendations are. First of all, the distributional effects,
    you do not think that is necessary?
        Mr. Weidenbaum. Not at this stage, no.
        Chairman Thompson. Dr. Litan, would you agree with that?
        Mr. Litan. I agree.
        Chairman Thompson. Also, as I understand it, under Section
    4(a), costs and benefits, first in the aggregate, second, by
    agency, agency program and program element, would you leave
    that in?
        Mr. Weidenbaum. Yes, sir.
        Chairman Thompson. Third, by major rule, you indicated you
    would leave that in?
        Mr. Weidenbaum. Yes, sir.
        Chairman Thompson. Then we get to two here, and I take it
    that you would eliminate that, an analysis of direct and
    indirect impacts of Federal rules on State and Federal and
    local government----
        Mr. Weidenbaum. Correct.
        Chairman Thompson [continuing]. The private sector, small
    business, wages, economic growth. Is that what you were----
        Mr. Weidenbaum. In good measure, that is already taken up
    in the estimates of benefits and costs. So I would not have a
    second, in a sense, competitive set of analyses. Focus on
    estimating the benefits and the costs.
        Chairman Thompson. You are getting more speculative there,
    I mean, just to use a lay term. It seems to me like when you
    get into this, you are getting more speculative.
        Mr. Weidenbaum. That would be fine for a narrative section,
    where OMB could pull together a great variety of studies done
    by private researchers on direct and indirect impacts. But OMB
    and the agencies themselves would not be developing this de
    novo.
        Chairman Thompson. Let us turn the page now, at least the
    way my statute is drafted here. Section 4(b), benefits and
    costs, it says, to the extent feasible, the Director shall
    quantify the net benefits and net costs under Section (a)(1).
    How do you view that?
        Mr. Weidenbaum. Well, I interpret that as follows. If in
    the given program the non-quantifiable, the verbal benefits or
    costs are so substantial they overshadow the measurable, then
    it is not feasible to do the net benefit. That says, just
    quantifying is not useful where the non-quantifiable is so
    important. I do not know how you would legislate common sense,
    but my interpretation of this is common sense would go a long
    way.
        Chairman Thompson. Mr. Dyer.
        Mr. Dyer. Well, I would just like to make a comment that I
    know in Washington you are very concerned about the money that
    is spent. You have got to work on your budget. But I am on the
    receiving end of these hidden costs and these burdens, and
    looking at the tremendous costs that our regulations put on our
    economic activity, I am reminded of an expression that we have
    at work. I do not want a dollar waiting on a dime. I think the
    amount of money that we would spend delving into these matters
    a little more would be well spent if it can save some
    unnecessary regulatory burden.
        Chairman Thompson. I appreciate that, too, and I was
    looking at some figures here. One study by the Small Business
    Administration found that in small companies with less than 20
    workers, the annual cost of regulation is about $5,500 per
    worker. By contrast, the SBA study found that the regulatory
    cost for large companies with over 500 workers is about $2,900
    per worker. So this impacts on you guys more than it does
    anybody else, really. That is why I am glad to have you here
    today.
        Mr. Weidenbaum. I am also glad you are citing the work by
    Dr. Tom Hopkins, who is a distinguished adjunct scholar at our
    Center for Study of American Business. We both appreciate your
    plug.
        Chairman Thompson. Glad to do it.
        Mr. Bass. Mr. Chairman, in the spirit of debate, could we
    respond to some of that?
        Chairman Thompson. Yes. I was getting ready to go back to
    you, but just go ahead.
        Mr. Bass. I would like to make five points based on the
    conversations that just happened. One is that, looking at the
    Congressional Budget Office's figures, a cost-benefit analysis
    costs about $570,000 on an average. Just doing some very quick
    math based on a piece of work that was out on the front table
    by Angela Antonelli of the Heritage Foundation, she seems to
    indicate that there are about 4,000 to 5,000 rules per year.
    That means over $2 billion would be spent on doing cost-benefit
    analysis, not including paperwork. That is assuming that all
    rules receive a comprehensive CBA. The point would be that we
    are talking about a sizeable amount of dollars and resources
    for the agencies.
        Second, I am very intrigued by Dr. Weidenbaum's idea of
    retrospective review of rules, in part because we do not have
    an opportunity, as you heard at yesterday's hearings, to
    reassess the kinds of costs that the market takes on in making
    adaptive changes to lower the cost of actually doing a
    regulation, and there was some research that was referenced in
    several of the testimonies to make that point. So I am
    intrigued about the looking back and reassessing costs.
        Third, in terms of the net benefit issue, in the OMB
    report, on Table 3--I just pulled it out--what they do here is
    very interesting. In coming up with net benefits, OMB does not
    include a quantifiable number for lives saved because they say
    that an assessment of net benefit requires subtracting the
    benefits from the costs, which means they have to monetize all
    factors. If we do not monetize, then we cannot get to the net
    benefits.
        The fourth point is if there is a lack of information, as
    several of the panelists have suggested, about major rules,
    about individual rules and about the impact of costs and
    benefits, go to GAO's web site. Already, this information is
    all up there, freely and widely available.
        The last point I would make is about the issue of
    distributional effects. I believe where it is in your bill is
    under the definitions of cost and benefits. I would be
    concerned that in dropping it, there would be nothing that
    addresses equity. And if distributional effects was intended to
    reach that path, one would want to be sure to include something
    that addresses equity concerns along those lines, much like the
    Executive Order 12866 does already.
        Chairman Thompson. Thank you.
        Dr. Shapiro, did you have any comment on that?
        Mr. Shapiro. Thank you, Mr. Chairman. I appreciated your
    comment earlier about inquiring whether we are adding layer
    upon layer here and just how much we will get for the
    additional layers.
        When one goes to total up the costs and benefits, if we had
    individual agency estimates of every cost and benefit of every
    regulation, then I suppose it would be a simple accounting
    function. But much of today's regulations are based on rules
    that were passed 20 years ago, 25 years ago, when, for good or
    bad, we did not do as good a job of estimating the costs and
    benefits.
        So as to that historical data, which still have ongoing
    costs and benefits, we really do not have the costs and
    figures. The academic studies have done their best to estimate
    those, but they are full of tremendous gaps and OMB discusses
    those gaps when it tries to pull together the historical data.
        Now, for the more recent rules, we do have estimates of
    costs and benefits for the major rules, but as Dr. Bass just
    pointed out, not for the minor rules. Even there, however, when
    you ask, do agencies have the tools necessary, it is a tough
    job to estimate individual costs and benefits for any one rule,
    which explains in part the high cost you just heard about of
    $570,000.
        Let me just offer one example. It is often the case that it
    is difficult to come up with precise estimates of risk. How
    much risk are people at because of some ongoing industrial
    activity? I noted earlier the EPA study of the Clean Air Act
    benefits ran from about $5 trillion to $200 trillion because of
    the imprecise nature of the numbers risk assessors give us.
        Chairman Thompson. And they decided the benefits were about
    40 percent of the gross domestic product, I believe, did they
    not?
        Mr. Shapiro. There you go. Someone once tried to put a
    number to this. Unfortunately, this example is now kind of
    dated because of the budget surplus, but an economist once
    explained, or a risk assessor once explained, that these risk
    assessments are so imprecise that if you take the lower bound
    and the upper bound, it is the difference between a cup of
    coffee and paying off the national debt. We simply lack those
    numbers, so we are forced to retreat to qualitative factors.
        Chairman Thompson. But they are out there and you know when
    you are going to put those numbers out. I would say in EPA's
    case, for example, they have received a tremendous amount of
    criticism and even ridicule about some of the numbers they have
    come out with. Is not there a salutary benefit to knowing that
    when you put numbers out, that the best people in the world are
    going to be out there and looking at them and commenting on
    them and so forth? Does that not produce something in the
    mental processes that has benefit?
        Otherwise, you are totally at the mercy--nobody is
    accountable. Nobody really ever has to worry about it. I say
    nobody is accountable, but we all know that there are a lot of
    different ways to hide the ball from an administrative process
    standpoint. Does it not have some good effect to know that you
    are going to have to put it out there and have your peers
    commenting on it?
        Mr. Shapiro. Yes, sir. Absolutely. We should be as smart as
    we can be, and to the extent we have numbers, we ought to look
    at them for what they are worth.
        Chairman Thompson. Going back to yesterday, by the way, how
    do you feel about cost-benefit analysis in general? Yesterday,
    we were talking about cost-benefit analysis for major rules,
    risk assessment, and so forth. I would be interested in how you
    and Dr. Bass feel about that in particular.
        Mr. Shapiro. Agencies do it. They are required by OMB to do
    it and I think that is very salutary. I would point out two
    things, however.
        First, as I just mentioned, agencies have to deal with the
    data they can get within the time frames they have to operate.
    As a result, various agencies have adopted slightly different
    ways of doing cost-benefit analysis because they are forced to
    these different accommodations given their differences in
    situation and availability of data. I think they do the best
    they can. We can always try to do better.
        When you go to aggregate those, as this bill does, you have
    a bit of adding up apples and oranges because we do not have a
    common methodology, and were OMB to impose one, we run up
    against the constraint I just mentioned, which is the
    adaptation.
        Chairman Thompson. Well, that is what they always say. Our
    situation is different. We need to apply our own methodology
    and all that. GAO does an analysis of it and finds that very,
    very often, the Executive Order is ignored, in total or in
    part.
        But my point is, whether or not you agree with the
    legislation or not we were discussing yesterday, the idea that
    they ought to be doing a cost-benefit analysis, consistent with
    the Executive Order, anyway, is a good idea.
        Mr. Shapiro. Yes, sir.
        Chairman Thompson. Do you agree with that, Dr. Bass?
        Mr. Bass. If your bill S. 746 only did that, we would not
    have been having the heavy debate that we were having. I think
    that there is not any question that agencies are currently
    required to do cost-benefit analysis for major rules. They
    should be doing it for those.
        Chairman Thompson. Do you know, do you have an opinion or
    do you know whether or not they are doing a very good job in
    carrying out the Executive Order?
        Mr. Bass. Well, no, I do not have a qualitative sense of
    how that is done. I know that GAO did report that certain major
    rules were not reviewed by OMB. There certainly should be
    greater oversight on the part of Congress to ensure compliance
    with that. The point I was going to make is not just solely
    whether cost-benefit is done, which is an economic tool.
    Regulatory decisions also should be made in the context of a
    number of other factors that an agency should be considering
    that may not be economic in nature.
        Chairman Thompson. What, that would not be either
    quantifiable or non-quantifiable, what in addition to that
    should they be considering?
        Mr. Bass. Oh, I believe that when we start to discuss
    issues around the benefits that are derived from environmental
    protection or from worker protection----
        Chairman Thompson. That is non-quantifiable.
        Mr. Bass. I am sorry. What?
        Chairman Thompson. That is non-quantifiable. I mean, that
    is covered.
        Mr. Bass. I understand that. The question that I was
    referring to, though, is how would you do an economic cost-
    benefit analysis and then derive in S. 59 a discussion about
    net benefits. That would be hard to do on the non-quantifiable
    side. You would ultimately have to monetize that, which is what
    OMB actually did, in order to come up with it.
        Chairman Thompson. S. 59 says to the extent feasible.
        Mr. Bass. Yes.
        Chairman Thompson. Dr. Litan.
        Mr. Litan. Yes. I want to tick off several responses.
    First, on the cost of doing all of this, Gary said, well, 4,000
    rules times $570,000 is $2 billion. In fact, we are probably
    only talking about major rules here and thus 30 or 40 major
    rules a year, so we are down to numbers in the $15 to $20
    million range. This is not a huge amount of money.
        The second thing is both Gary Bass and Sid Shapiro talk
    about the fact that there is all this historical data. We do
    not know a lot of this. Well, that is why in our testimony we
    suggest that your bill require OMB to begin the process of
    going back and looking at some of these rules and redoing some
    of them itself. And you know what? Gary Bass and Sid Shapiro
    may be right. Some of those rules may be a lot cheaper than we
    thought, but you would like to know that. I also will bet you
    some of them are more expensive than we thought.
        Chairman Thompson. This all presupposes you are trying to
    knock something down.
        Mr. Litan. Exactly.
        Chairman Thompson. I mean, the fact of the matter is, all
    these things that we all are for, the benefits greatly outweigh
    the costs. So it really helps your cause, I would say, and
    protective legislation to be doing this, whether or not it is
    meat inspection or children smoking or whatever.
        My problem is that you start trying to add up the costs and
    benefits. You say, well, you cannot do that because you are not
    factoring in the non-quantifiable. You say, OK, we will factor
    that in. They say, well, when you do that, it makes the numbers
    meaningless, so you cannot do that, either. That is kind of the
    objection we get.
        So the idea, I suppose, is to allow the regulator in his
    sole discretion to make those determinations and not have to
    explain why he is doing what he is doing.
        Mr. Litan. Well, we have an example in our testimony of
    how--it was a hypothetical--where you have got, let us say,
    $500 million of cost on a water pollution bill, $400 million of
    benefits, and then you have the non-quantifiable factor that
    this rule may just give you clean lakes and clean rivers, which
    you cannot put a number on, but you go ahead and adopt the rule
    anyhow. What the analysis has done is that it allows you to at
    least implicitly value those non-quantifiables. You know they
    are at least worth at least $100 million in this example. So I
    think the virtue of at least quantifying what you can is that
    it allows you to put a price tag on what you cannot quantify.
        Two more points. Despite all this debate, I do not think we
    are all that far apart. The bottom line of Mr. Shapiro's
    testimony, orally as opposed to written, because I think he was
    more strenuous in his written testimony than his oral
    testimony, is be careful and go slower.
        Mr. Shapiro. I am intimidated by the Chairman.
        Mr. Litan. OK. Well, something works. Oversight works.
        Chairman Thompson. I am just sitting here thinking about
    how many hearings we would have to have to have a hearing for
    every rule.
        Mr. Litan. But in any event, my point is that Mr. Shapiro
    is basically saying, look, be careful, be aware, keep your eyes
    open before going into this. But the reality is that does not
    seem to me an overwhelming objection to doing what you are
    proposing.
        Gary comes along with some very specific word changes, some
    of which I happen to agree with. I think I heard him say, take
    out ``indirect,'' add some words like ``to the extent
    feasible.'' Where the rubber hits the road is on monetization,
    OK?
        Now, the President's Executive Order or OMB's guidance
    already says that agencies should monetize to the extent
    feasible. Your bill does not even do that. In my testimony, I
    suggest you should add such language. You should copy the words
    that are in the Executive Order, and as long as the words ``to
    the extent feasible'' are in there, it seems to me that should
    take care of Gary's objection. Now, I may be pushing him too
    far----
        Chairman Thompson. A lot of people prefer to have the
    Executive Order down to use when it is convenient but not have
    it carried out and not have it be made law where it really
    means anything.
        Mr. Litan. No comment.
        Chairman Thompson. Let us move, if we may, briefly to the
    CORA. Gentlemen, Professor Shapiro and Dr. Bass, do you have
    problems with the concept that the Congress should become more
    involved in the regulatory process in this way? Obviously,
    there is a question as to when, if it gets involved, or when it
    should, to what extent that it should. Questions have been
    raised as to Congress meddling in the administration's
    business, as it were. But, of course, it is all based on the
    laws that Congress passes and we often find that the
    regulations are contrary to what our intent really was and we
    passed legislation that would give us another crack at it.
    There are only so many hearing days in a year.
        What do you think the concept, regardless of how you would
    approach it, the concept of Congress becoming more involved in
    the process in general? Is there any approach that you would
    support in that respect that we are not doing now?
        Mr. Bass. The answer would be yes. I do think, and I am
    mindful of the fact that you just said you have only so many
    days for hearings, but I do believe the oversight process is a
    critical one in order to educate you in the notion of
    developing any needed legislation.
        I also think that the appropriate way to handle the
    regulatory maze, if you will, are through the appropriate
    oversight committees. That is, it is very difficult to deal
    with issues comprehensively. When there is a problem with the
    Clean Air Act, you should deal with the Clean Air Act, and on
    down the line. It is more effective and will be more efficient
    in the long run.
        I also have a bit of a problem with Bob's idea that a
    letter from Congress, or CORA as its substitute, to an agency
    becomes, as you say, the 800-pound gorilla. I think the
    Administrative Procedure Act was established to ensure some
    kind of even ground for everyone in the public to participate
    in the rulemaking. If just by perception Congress' letter has
    greater weight, you have then tilted the whole regulatory
    playing field enormously.
        By the same token, when you just asked the question about
    accountability, ultimately, it is not only Congress that deals
    with it, it is going to be the courts, and the courts are going
    to be guided by the Administrative Procedure Act. So there are
    many factors that have to be woven into all of this.
        Chairman Thompson. But for Congress to weigh in, of course,
    it would be helpful if they had a little more expertise than
    most of us have on some of these arcane rules, and for the
    courts to weigh in, I mean, the horse is way out of the barn
    then and it is very expensive. The question is whether or not
    it would not be better to have a little more input earlier on
    so that we might could avoid some of these problems. We know
    that in many areas, we are coming up with rules that are not
    only putting resources in the wrong places but are actually
    harmful in some respects.
        Mr. Bass. Mr. Chairman, I assume that in order to achieve
    that, you hire staff that are experts. Certainly, Paul Noe
    knows the substance of the regulatory matters inside and out,
    and if he was on the Environment Committee, the staff would
    know the details of the particular legislation that they have
    oversight on.
        Chairman Thompson. Well, he is a man of many talents, but
    he is not a scientist and an expert in every regulatory area
    that could come up.
        Mr. Bass. Fair enough. I do not believe that CORA would
    have that same kind of expertise that you are looking for, and,
    in fact, if you take Bob's numbers that he just did with my
    figure of the CBO cost estimate, you are talking about an
    institution that, at its minimum, would be $32 million a year,
    which is more than what CBO is. We are not talking about
    something that is trivial here.
        Chairman Thompson. Dr. Weidenbaum, you said you thought
    either a new agency or as a part of CBO. Dr. Litan, do you have
    any thoughts about that? Again, part of me says the fewer new
    entities, the better.
        Mr. Weidenbaum. My preference is to----
        Chairman Thompson. But on the other hand, CBO, I am not
    sure that what they are doing now would lend itself that
    readily to what we would be asking them to do here.
        Mr. Weidenbaum. The reason I suggest putting it under CBO--
    but that is not essential, it could be independent----
        Chairman Thompson. That is something we have talked about.
        Mr. Weidenbaum. It uses a lot of the same type of talent. I
    am talking about micro-economists, particularly, people with a
    statistical bent. There would be a lot of mutual support from
    the existing portions of CBO for this new portion. Also, you
    would save an awful lot of overhead. So as a practical matter,
    you put this new organization under CBO, I think you will find
    it getting off to a start earlier than if it had to go through
    the whole motions of setting up a new separate agency in the
    Legislative Branch.
        Chairman Thompson. Dr. Litan, before I get off the subject
    totally, do you have any thoughts on the agencies' compliance
    with the Executive Order?
        Mr. Litan. Only what I read, which is that it is imperfect.
        Chairman Thompson. OK. Dr. Shapiro, do you have on this
    latter point we have been discussing with regard to CORA, first
    the bigger question, and then a preference as to whether, if
    you thought it ought to be done or not, if it was going to be
    done, how and where the responsibility might lie?
        Mr. Shapiro. Thank you. I would refer to the early years of
    OMB and OIRA in the Reagan Administration. That was the first
    administration to take regulatory oversight seriously. It was
    very controversial. It was very controversial for a lot of
    reasons, but one of them was the feeling of outsiders that
    there was a lot of dealing behind the scenes, that people were
    getting special access to the regulatory process through the
    back door of OIRA. Subsequently, OIRA published procedural
    regulations which made them accountable for their process and
    who comes in and who goes out. The Clinton Administration
    strengthened those procedures, so they are even more on the
    record.
        I mention that because we were talking earlier in the
    hearing, was talking earlier about when should Congress
    intervene, and I think the cause of the consternation over
    whether it should be before a notice of proposed rulemaking is
    this very concern. If it is after the notice of proposed
    rulemaking, there is more accountability, it is more open,
    everybody is dealing at the agency. At that point, and
    typically that is when Congress now intervenes to the extent,
    individual Senators or Congressmen want to have a say, and that
    seems to me maybe an important dividing line for that very
    reason.
        The other point I would make, if I may, is this: Some of
    the dissatisfaction about agencies' compliance with the
    Executive Order, I think, deals not with the compliance with
    the Executive Order but with the underlying situation that when
    agencies go to regulate, their statutory missions are often
    tied to different factors than a cost-benefit test. Now, it is
    another whole debate whether we should have regulation as a
    substantive matter, as the mandate tied to a cost-benefit
    test----
        Chairman Thompson. Well, they are not very bashful about
    saying this does not apply to us so we are not going to do it
    and then going on.
        Mr. Shapiro. I understand.
        Chairman Thompson. It is not a real constraint. I do not
    think they are laboring under it in many cases.
        Mr. Shapiro. No, but the extent to which they get involved
    with this data is affected by their mission and their mission
    points them in a somewhat different direction. So they come out
    with results that some of the critics do not like. They point
    to that as a failure of the cost-benefit process, but, in fact,
    the agency is responding to its statutory mission and I do not
    see that as a criticism of the way they do cost-benefit
    analysis. I see that as----
        Chairman Thompson. Part of its statutory mission is to
    follow the President's Executive Orders, I would think, maybe
    not statutory, but there. Yes, sir?
        Mr. Litan. Yes. On CORA, two points. One is, how much would
    it cost? Not a $570,000 analysis again? We are talking about,
    in my framework, a staff that looks like OIRA, like 15 or 20
    people, so cost that out at $1.5 or $2 million. Add some peer
    review panels and so forth. If you are telling CORA not to do
    its own regulatory analysis but, in effect, do the same kind of
    review that OMB is doing, it is not $570,000 a rule. It is
    maybe several million dollars. It is not $32 million.
        Second, where should it be? I say in my testimony my
    preference would be to have it be its own agency. I fear that
    it could sort of get lost and have its influence muted if it
    were part of CBO. I also suggest that you ought to talk to Dr.
    Crippen about this, but I think there is some reservation
    within CBO about putting it there and worry that this would
    compromise its relationships with the agencies. So that is
    something that you will have to assess, I think, in private
    conversation.
        Chairman Thompson. Mr. Dyer, what do you come away with
    from all this? How big a part of this regulatory situation is a
    part of your life and doing business?
        Mr. Dyer. I can tell you, with my experience today, I will
    never order a BLT without wondering what it stands for. I have
    heard enough letters, all right. [Laughter.]
        I think that most business people complain and gripe when
    we are filling out some form from the Commerce Department or
    the Labor Department. It is an aggravation. My business has
    grown. I will be frank. I do not do much of that myself
    anymore, but I pay people that do and it would be a little
    better for my bottom line if I did not have to.
        Many of the regulations do not appear to make sense down at
    my end, and that may be because I am not very bright, I admit
    that, but we rely on trade associations and academic
    institutions to do the analysis. I think that what you are
    proposing would increase our confidence that what we do when we
    could be out playing with our kids is worthwhile. I do not
    believe business begrudges doing what it needs to do to make
    our country better. We just want to make sure that we are not
    spinning our wheels.
        Chairman Thompson. You hear a lot of stories about one-
    size-fits-all rules that just simply have no relevance to an
    individual. They look at it and they get cynical and
    pessimistic and anti-government and anti-regulation and all
    that when we all know there are some things, as you say, you
    have kids that swim and canoe in that same water that we are
    trying to protect.
        Mr. Weidenbaum. Mr. Chairman, could I pick up a theme that
    Professor Shapiro raised?
        Chairman Thompson. Yes, sir.
        Mr. Weidenbaum. That is, the burden of all this regulatory
    review. I think he has got a good point there, which is why I
    think when the Congress finishes writing a bill like S. 59, you
    ought to economize on all the regulatory review mandates that
    you are imposing.
        Chairman Thompson. Do a little cost-benefit analysis, in
    other words?
        Mr. Weidenbaum. Will the benefit-cost analysis pass the
    benefit-cost test? But there is a little hook to my point here.
    What is sauce for the goose is sauce for the gander. If we are
    all so enthusiastic about the agencies doing good benefit-cost
    analysis, I would think that the Congress when it is first
    writing a Clean Air Act or a Clean Water Act could use some of
    that good stuff, as well, perhaps----
        Chairman Thompson. Now you started meddling again.
    [Laughter.]
        Mr. Weidenbaum. Yes, sir. Guilty. But that would deal with
    the problem that a lot of these agencies are catching holy heck
    for things that they have no discretion over. You have tied
    their hands.
        Chairman Thompson. You are absolutely right. The classic
    case is the IRS. We pass these God-awful laws, overreaching,
    broad, and then beat them up for enforcing it. There is no
    question about that.
        So on that happy note, I want to thank you gentlemen. This
    has been an extended version here today, but it has been
    extremely helpful to us. I hope that we can stay in touch with
    each of you as we go along and come up with a good result. So
    thank you very much and we will stand in recess.
        [Whereupon, at 1:05 p.m., the Committee was adjourned.]
                                A P P E N D I X

                                  ----------

                OPENING STATEMENT BY SENATOR GEORGE V. VOINOVICH
        Mr. Chairman, I commend you again for holding these important
    hearings on regulatory reform both yesterday and today.
        Over the years, as a State legislator, a mayor and a governor I
    have become increasingly concerned about the unnecessary and burdensome
    costs that are imposed on our citizens and State local governments
    through Federal laws and regulations.
        Since 1994, I have worked closely with Members of this Committee--
    with you in particular Mr. Chairman--and the State-local government
    coalition to enact common-sense legislation that would result in
    greater protection of public health and the environment while
    alleviating cost burdens on State and local governments and the private
    sector.
        As a nation, we spend vast sums on regulation. A report
    commissioned by the U.S. Small Business Administration estimates that
    regulations cost the economy about $700 billion a year--more than
    $7,000 for the average American household.
        Unfortunately, these cost burdens have not always resulted in
    maximum health or environmental protection. I think it is imperative
    that we take a close look at whether regulations are meeting their
    intended goals and at what costs.
        Yesterday we held a hearing on the Regulatory Improvement Act,
    which will help to ensure that new regulations are based on sound
    science and cost-benefit analysis. I believe the two bills we will
    discuss today help to round out the regulatory reform process. One
    tracks the costs and benefits of existing regulations, while the other
    provides Congress with an independent analysis of the costs and
    benefits for major regulations.
        Mr. Chairman, I am pleased to be a cosponsor of your Regulatory
    Right-to-Know Act, S. 59. this bill would require the Office of
    Management and Budget to submit an annual report to Congress on the
    total costs and benefits of Federal regulations--particularly those
    imposed on State and local governments. It also requires OMB to submit
    any recommendations for reforming wasteful or outdated regulations.
    However, it does not mandate that any regulation or program be
    eliminated because the benefits do not outweigh the costs.
        I commend the bipartisan work that you and Senator Breaux have done
    on this bill. This bill also has the bipartisan support of the Nation's
    governors, mayors, State legislation and county commissioners.
        We will also discuss a bill that was introduced last year that
    would establish the Congressional Office of Regulatory Analysis. The
    purpose of this bill would be to provide Congress with independent
    analyses of new rules to help determine whether a regulation should be
    challenged under the Congressional Review Act.
        I strongly believe that all three bills from our 2 days of hearings
    will make the Federal Government more accountable to the people it
    serves. And they will help to ensure that costs, benefits, and sound
    science have been studied prior to finalizing rules.
        Thank you, Mr. Chairman. I look forward to today's testimony.

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