[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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