[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
HOW TO IMPROVE REGULATORY ACCOUNTING: COSTS, BENEFITS AND IMPACTS OF
FEDERAL REGULATIONS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY POLICY, NATURAL
RESOURCES AND REGULATORY AFFAIRS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MARCH 11, 2003
__________
Serial No. 108-3
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
86-439 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas ------
WILLIAM J. JANKLOW, South Dakota BERNARD SANDERS, Vermont
MARSHA BLACKBURN, Tennessee (Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Randy Kaplan, Senior Counsel/Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs
DOUG OSE, California, Chairman
WILLIAM J. JANKLOW, South Dakota JOHN F. TIERNEY, Massachusetts
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
CHRIS CANNON, Utah DENNIS J. KUCINICH, Ohio
JOHN SULLIVAN, Oklahoma CHRIS VAN HOLLEN, Maryland
NATHAN DEAL, Georgia JIM COOPER, Tennessee
CANDICE S. MILLER, Michigan
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Dan Skopec, Staff Director
Barbara F. Kahlow, Deputy Staff Director
Melanie Tory, Clerk
Alexandra Teitz, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on March 11, 2003................................... 1
Statement of:
Graham, John D., Administrator, Office of Information and
Regulatory Affairs, Office of Management and Budget........ 9
Miller, James C., III, former Director, Office of Management
and Budget, chairman, Capanalysis Group; Robert Hahn,
director, AEI-Brookings Joint Center for Regulatory
Studies; Jim Tozzi, former Deputy Administrator, Office of
Information and Regulatory Affairs, Office of Management
and Budget, advisory board member, Center for Regulatory
Effectiveness; Lisa Heinzerling, professor of law,
Georgetown University Law Center; and Rabbi Daniel J.
Swartz, executive director, Children's Environmental Health
Network.................................................... 41
Letters, statements, etc., submitted for the record by:
Graham, John D., Administrator, Office of Information and
Regulatory Affairs, Office of Management and Budget:
Information concerning ranking regulatory investments in
public health.......................................... 25
Prepared statement of.................................... 11
Hahn, Robert, director, AEI-Brookings Joint Center for
Regulatory Studies, prepared statement of.................. 51
Heinzerling, Lisa, professor of law, Georgetown University
Law Center:
Information concerning measuring criteria................ 142
Prepared statement of.................................... 93
Miller, James C., III, former Director, Office of Management
and Budget, chairman, Capanalysis Group, prepared statement
of......................................................... 44
Ose, Hon. Doug, a Representative in Congress from the State
of California, prepared statement of....................... 3
Swartz, Rabbi Daniel J., executive director, Children's
Environmental Health Network:
Information concerning measuring criteria................ 140
Prepared statement of.................................... 119
Tozzi, Jim, former Deputy Administrator, Office of
Information and Regulatory Affairs, Office of Management
and Budget, advisory board member, Center for Regulatory
Effectiveness:
Information concerning the Regulatory Cost Accounting Act
of 1980................................................ 72
Prepared statement of.................................... 85
HOW TO IMPROVE REGULATORY ACCOUNTING: COSTS, BENEFITS AND IMPACTS OF
FEDERAL REGULATIONS
----------
TUESDAY, MARCH 11, 2003
House of Representatives,
Subcommittee on Energy Policy, Natural Resources
and Regulatory Affairs,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2154, Rayburn House Office Building, Hon. Doug Ose
(chairman of the subcommittee) presiding.
Present: Representatives Ose, Janklow, Miller, Tierney and
Cooper.
Staff present: Dan Skopec, staff director; Barbara Kahlow,
deputy staff director; Melanie Tory, clerk; Yier Shi, press
secretary; Alexandra Teitz, minority counsel; and Jean Gosa,
minority assistant clerk.
Mr. Ose. Good afternoon. Welcome to today's hearing on the
Subcommittee on Energy Policy, Natural Resources and Regulatory
Affairs. I am pleased to be here with my colleagues at this
hearing.
In fall of 2001, the Small Business Administration released
a report which estimated that, in the year 2000, Americans
spent $843 billion to comply with Federal regulations. This
report concluded that if every household received a bill for an
equal share, each would have owed $8,164. The report also found
that in the business sector, those hit hardest by Federal
regulations are small businesses. It stated firms employing
fewer than 20 employees face an annual regulatory burden of
$6,975 per employee, a burden nearly 60 percent above that
facing a firm employing over 500 employees. Regulations add to
business costs and decreased capital available for investment.
In September 2002, another study entitled, ``Compliance
Costs of Federal Workplace Regulations: Survey Results for U.S.
Manufacturers,'' revealed that, in 2000, manufacturers spent an
average of $2.2 million per firm, or $1,700 per employee, just
to comply with Federal workplace regulations.
Because of congressional concern about the increasing costs
and incompletely estimated benefits of Federal rules and
paperwork, in 1996, Congress required the Office of Management
and Budget, which we're going to refer to from now on as OMB,
to submit its first regulatory accounting report. In 1998,
Congress changed the annual report's due date to coincide with
the President's budget. Congress established a simultaneous
deadline so that Congress and the public could be given an
opportunity to simultaneously review both the on-budget and
off-budget costs associated with each Federal agency imposing
regulatory or paperwork burdens on the public.
In 2000, Congress made this a permanent annual reporting
requirement. The law requires OMB to estimate the total annual
costs and benefits for all Federal rules and paperwork in the
aggregate, by agency, by agency program, and by major rule, and
to include an associated report on the impacts of Federal rules
and paperwork on certain groups, such as small business.
Today, we will examine OMB's draft sixth annual regulatory
accounting report, which was published on February 3, 2003, the
same day as release of the President's budget. In addition, we
will discuss how to improve compliance with the statutory
requirements for an accounting statement by agency and by
agency program and for an associated report on impacts.
Data by agency and by agency program are important for the
public to know the aggregate costs and benefits associated with
each agency and each major regulatory program. For example,
what are the aggregate costs and benefits of the requirements
imposed by the Environmental Protection Agency or the Labor
Department's Occupational Health and Safety Administration? Is
there an alternative approach for EPA or OSHA to more
effectively, with less burden on the public and less cost to
the public, accomplish an intended objective?
From September 1997 to February 2003, OMB issued five final
and one draft regulatory accounting reports. All six failed to
meet some or all of the statutorily-required content
requirements. For example, all six were not presented as an
accounting statement, and the February 2003 did not include the
associated report on impacts. However, OMB has progressively
made improvements, such as adding agency-level detail for eight
agencies in March 2002 and adding agency program-level detail
for seven major regulatory programs in February 2003.
For OMB's Information Collection Budget and for the
President's budget, OMB tasks agencies annually with preparing
paperwork and budgetary estimates respectively for each agency,
bureau and program. OMB uses the Information Collection Budget
to manage the burden of Federal paperwork imposed on the
public. In contrast, for Federal regulations, OMB does not
similarly task agencies annually with preparing cost-benefit
estimates for the agency as a whole and for each of the
agency's major regulatory programs.
After our March 2002 hearing, I recommended that OMB issue
annual regulatory accounting bulletins to require agency,
bureau and program estimates. This would assist OMB in
preparing more complete annual regulatory accounting
statements. To date, OMB has not done so.
I'm going to enter the rest of my statement in the record.
I do want to welcome our witnesses. I look forward to their
testimony. My time has expired.
[The prepared statement of Hon. Doug Ose follows:]
[GRAPHIC] [TIFF OMITTED] T6439.001
[GRAPHIC] [TIFF OMITTED] T6439.002
[GRAPHIC] [TIFF OMITTED] T6439.003
[GRAPHIC] [TIFF OMITTED] T6439.004
Mr. Ose. I'd like to recognize the gentleman from
Massachusetts for the purpose of an opening statement for 5
minutes.
Mr. Tierney. Thank you, Mr. Chairman.
Dr. Graham, thank you for joining us again. I apologize
that I have to leave after the opening statement. Certainly it
is no disrespect, and I know that you've been kind enough and
gracious enough to make yourself and your staff available
whenever we need to talk to you, and I appreciate that.
Mr. Chairman, I want to thank you for holding today's
hearing. Over the past several decades, the United States has
made great strides in protecting public health and the
environment. Workplaces are safer than those of our parents.
Most of our children are growing up with cleaner air, safer
drinking water and safer products. Laws, such as the Clean Air
Act, the Safe Drinking Water Act and the Occupational Health
and Safety Act, have made this progress possible.
But, the day-to-day improvements in all these areas are due
to implementing regulations issued by government agencies.
While the Clean Water Act calls for fishable and drinkable
waters, it's the EPA's regulations that have cleaned up our
rivers by requiring each facility to limit its pollution
discharges.
Over the years, regulated industries have waged an ongoing
battle against government mandates to protect health, safety
and the environment. The public overwhelmingly supports strong
regulatory protections in these areas. As a consequence,
they're more rarely compelled to mount a frontal assault on
popular laws, such as the Clean Air Act. Instead, industry is
increasingly focused on subtly influencing the regulatory
process. This background is critical context for understanding
innocent-sounding regulatory reform proposals.
But, we hear today that the White House Office of
Information and Regulatory Affairs improves the efficiency of
government by stringently analyzing and reviewing regulations
and assessing the overall burdens that regulations impose on
society. Unquestionably, there is room for improvement in
regulation, but, for many advocates of stringent regulatory
review, the real underlying goal of such reviews is not better
regulation, but less regulation. Many of the same corporations
that have spent millions of dollars to lobby Congress and
Federal agencies against regulatory requirements fund some of
the institutions we will hear from today.
My constituents want to know the government is acting
wisely on their behalf. They want to protect the environment,
but they don't want to shut down industry. They are willing to
pay a bit more for products so their children won't get asthma.
They want a safe workplace, but they don't want their employer
to go out of business. These are the tradeoffs that regulation
requires, and the regulatory agencies make these tradeoffs
every day using information provided by every interested party.
What my constituents don't want is a disguised and
systematic assault on regulations that protect public health
and the environment.
So, Mr. Chairman, I look forward to receiving the testimony
from the witnesses on this issue. We'll read it, and my staff,
of course, will be here throughout the hearing. And, I ask
unanimous consent to include relevant materials in the record.
Mr. Ose. Without objection.
Mr. Tierney. Thank you.
Mr. Ose. The gentleman from South Dakota for the purposes
of an opening statement for 5 minutes.
Mr. Janklow. Thank you very much, Mr. Chairman. I'm going
to be extremely brief. As a new Member of Congress, and a new
member of this committee, I look forward to working under your
leadership on a bipartisan basis to look at these kinds of
issues.
I find it absolutely incredible that this country could be
spending approximately $850 billion a year through its various
business entities and organizations to comply with Federal
mandates and Federal rules with respect to, basically for all
practical purposes, bookkeeping.
This is unbelievable. This is one of the reasons that we
find ourselves continuously in a more uncompetitive atmosphere.
There isn't any question that it is not an issue of a clean
environment. I have five grandchildren. They drink the water.
They bathe in it. Their food is cooked in it.
We need a safe workplace for everyone. There isn't any
question about that. But, the real question is to do what we
need to get done in the environmental sense, to do what we need
to get done in the safe working area sense, to do what we need
to get done in the regulatory sense, does it really take
approximately $850 billion a year for people to comply? Is
there not a more efficient, more effective way that it can be
done? Is there not a more reasonable, productive way that it
can be done without having incurred this type of expense?
If, after thorough, honest examination, we reach the
conclusion, all of us, that it can't be done any better, then
we ought to continue to do it this way, but, if the truth is
that there is a more efficient, more effective, more productive
way to do it, and at the same time accomplish the goals and
objectives that we set for ourselves as a society, then we're
honor-bound and duty-bound to try and find that way and get it
implemented as quickly as possible.
So, I look forward to the enlightenment we'll get from
these witnesses, the discussion under your leadership, Mr.
Chairman, so that we can move forward on this to try and see if
there isn't a better way to deal with the regulatory
environment that our society has to deal with. Thank you.
Mr. Ose. I thank the gentleman, and look forward, as our
new vice chairman----
Mr. Janklow. Thank you.
Mr. Ose [continuing]. To your efforts here.
I also want to welcome the gentlelady from Michigan,
Candice Miller. Do you have a statement you would like to make?
Mrs. Miller of Michigan. I do not, Mr. Chairman.
Mr. Ose. OK. We're grateful for your attendance and
participation in this subcommittee.
Now, for the benefit of the witnesses, we're going to--I
just want to make sure we go through the ground rules here
carefully. We have received your written testimony. We've read
it. If we haven't read it, it's not your fault, but somebody
else's.
We're going to be very attentive to the 5-minute rule here
so that we can get to Member questions. If there are more
Member questions than can be accommodated within the 5-minute
rule, we'll have a second round of questions. I am going to be
very attentive to the 5-minute rule, and the gavel is going to
be right next to me. So, I want to make sure everybody
understands that going in.
Again, we do appreciate you submitting your testimony in
writing beforehand. It has been read. Trust me. I read it. I
read it again this morning.
The other thing here is that we, as a matter of course,
swear in all of our witnesses. So our first panel, Dr. Graham,
if you would please rise.
[Witness sworn.]
Mr. Ose. Let the record show that the witness answered in
the affirmative.
Dr. Graham joins us. He is the Director of the OIRA--excuse
me, the Administrator. I stand corrected. He has been here
numerous times to visit with us, both in committee and over the
phone. We're always grateful for his input.
Dr. Graham, thank you for coming. You're recognized for 5
minutes.
STATEMENT OF JOHN D. GRAHAM, ADMINISTRATOR, OFFICE OF
INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND
BUDGET
Dr. Graham. Thank you, Mr. Chairman. I look forward to the
opportunity to discuss our annual report to the Congress on the
costs and benefits of Federal regulation. We have, as you know,
a draft report open for public comment now, and I want to just
highlight a few of the key features of that report.
For the first time, as you note, Mr. Chairman, this report
was released at the same time as the administration's budget.
We did this, as you know, in substantial measure upon your
request. We agree with you that this will help appropriators do
their work of tailoring budgetary evaluations to performance of
programs, and certainly costs and benefits are an important
element in the performance of programs.
Second of all, for the first time this report covers the
entire past 10 years of Federal regulatory activity. We have,
in fact, looked at over 50 major rules during this period, and
there is good news in this report. The benefits of these major
rules are estimated in the range of $135 billion per year, with
an upper bound maybe as high as $218 billion, while the costs
are in the range of $38 to $44 billion. Keep in mind that these
figures don't include the nonquantified benefits and costs of
these regulations.
Why does this year's report offer some good news compared
to previous reports? The answer is found in a third feature of
the report. For the first time, we have broken down the
performance of these regulations not just by agency, but by the
program within each agency, and it turns out there is one
particular program in the Federal Government that is
responsible for the majority of all the benefits accounted for
by all regulations in the Federal Government, and that is the
Clean Air Program of EPA's Office of Air and Radiation. And,
indeed, if you take this one program out of the statistics, the
remaining programs have a much more questionable balance of
benefits and costs. They do exceed the cost, but not by very
much.
Now, it turns out that we are actually trying to expand the
authority and resources for this particular program. As you
know, in his State of the Union Address, President Bush asked
for Congress to pass the Clear Skies Initiative, and this would
accomplish a 70 percent reduction in power plant pollution over
the next 15 years. And, this is accomplished not through
traditional command-and-control, litigation-oriented
regulation. It is accomplished through market-based cap and
trade programs, such as those accomplished in the Clean Air Act
Amendments of 1990. This is what we mean by more efficient and
innovative regulatory approaches.
Finally, for the first time OMB guidelines on regulatory
analysis and accounting have been made available for public
comment. We have previously gotten expert review and
interagency review, but this is the first time we are asking
anyone who wants to offer comments on how we can improve the
way we analyze regulations and review the analyses of agencies.
In these guidelines, we recognize that the value of these
benefit and cost numbers is only as good as the quality of the
science and analysis that underpins them, and hence we
encourage people to participate in the process of improving
these guidelines.
Mr. Chairman, I've looked forward to working with you and
other members of the subcommittee to continue improvements in
the report. I heard your opening statement. We realize we don't
have an A grade at the present time, but we would like to argue
that we are in a trend-line of improvement. Thank you very
much.
Mr. Ose. Thank you, Dr. Graham. We are cognizant of the
improvement that has been made. So we're grateful for that.
[The prepared statement of Dr. Graham follows:]
[GRAPHIC] [TIFF OMITTED] T6439.005
[GRAPHIC] [TIFF OMITTED] T6439.006
[GRAPHIC] [TIFF OMITTED] T6439.007
[GRAPHIC] [TIFF OMITTED] T6439.008
[GRAPHIC] [TIFF OMITTED] T6439.009
[GRAPHIC] [TIFF OMITTED] T6439.010
[GRAPHIC] [TIFF OMITTED] T6439.011
Mr. Ose. We're going to go to questions. Appreciate the
brevity of your comments, given the testimony you've submitted.
I'm going to claim my time first.
The law requires OMB to include in its annual accounting
statement data separately for each agency and for each agency
regulatory program. The February 3rd draft report seems to be
missing data on many agencies and most agency regulatory
programs. If you'll look over here on the screen and on the
stand, the ones in red are the salient or the related programs
that we're talking about there.
At last year's hearing on March 12th and in two letters to
OMB since then, one on March 27th of last year and one on
January 3rd of this year, I asked if OMB would issue an annual
OMB bulletin to the agencies which would require agency
estimates of aggregate and new regulatory burden as it does in
annual OMB bulletins to the agencies for aggregate and new
paperwork burden. To date, I'm not aware of OMB having done so,
and we do have some legislation to attempt to address that.
But, my question is there must be some reason why OMB has
not done that, if that is the case, and I'd like to know why.
That is the first part of the question. Without agency input,
how does OMB expect to include a complete aggregate agency-by-
agency and agency program detail in its subsequent annual
regulatory accounting reports?
Dr. Graham. Mr. Chairman, we have looked at all major
regulations of all of the agencies for the last 10 years. There
are no missing agencies. There are no missing major rules, to
the best of our knowledge. We differ on whether the nonmajor
rules should somehow be attempted to be quantified and included
in this calculation, and before you seek the legislation that
you have referred to, we urge you to consult with people in the
agencies and make sure that such information even exists. As
you know, the requirement for a cost-benefit analysis only
applies to the economically significant or major rules that are
included in the report. So, we could pass a piece of
legislation and ask for this information, but it's not obvious
that it is there for the agencies to provide, and I can assure
you that we at OMB don't have that information, and we aren't
in a position to provide it to you, sir.
Mr. Ose. You'll note that we haven't dropped the
legislation yet, so that consultation will take place before we
do so.
Dr. Graham. Yes.
Mr. Ose. And I want to make sure everybody understands, in
terms of a major rule, just for the edification, that is the
$100 million threshold?
Dr. Graham. Yes. For the--there are lawyers in the room, so
I guess I have to be very careful about this, but there's a
subtle distinction between major rule and an economically
significant rule, and I could not explain that to you in
detail, but both of them have as an important component, this
$100 million per year threshold of economic impact. And, we
have tried to identify all of the major rules for the last 10
years that meet that threshold and have at least some
quantification of benefits and costs, and those are included in
this year's report.
Mr. Ose. All right. Thank you.
My next question is rather lengthy. I'm going to go ahead
and yield time to my good friend from South Dakota for the
purpose of questioning.
Mr. Janklow. Dr. Graham, I believe your testimony was that
the costs for $135 to about $218 billion in benefit under the
rules you have examined were from $38 to $44 billion; is that
correct?
Dr. Graham. Correct.
Mr. Janklow. And, you said you've looked at all of the
basic rules, the major rules that have a big cost impact within
the government; is that correct?
Dr. Graham. Well, that have had a big cost impact and for
which agencies have estimated costs.
Mr. Janklow. OK. How do you square that number with the
$845 billion number that the Small Business Administration had
for compliance?
Dr. Graham. Yeah. I think the effort in the Small Business
Administration report is to look at all of the costs of all
regulations, not just major regulations, and all of the
transfer costs in the Federal budget that are stimulated by
regulation. So that is really a different kind of number.
Our focus here is on regulations that impact the private
sector and State and local governments. We don't include in our
numbers regulations that are primarily budgetary impact
regulations.
Mr. Janklow. All right. So it's not apples to apples.
Dr. Graham. It's not apples to apples.
Mr. Janklow. Sir, in doing the analysis that you and your
agency do, have you been able to find any areas of suggestion
that you think can be done as well, more efficiently, more
productively or in a better cost-wise manner? I mean, the name
of the game is are the rules and regulations that are required
the cheapest possible cost? Where are we doing it wrong?
Dr. Graham. Well, I think the classic example is the one I
mentioned in my opening statement. We currently have a clean
air regulatory system that requires electric utilities to run
through highly elaborate permitting processes and be subject to
litigation every time they make a renovation or a repair on
their facility.
Instead of that, the President has proposed a market-based
training program with a cap on national emissions, and that
will achieve pollution reductions at much lower costs than the
current regulatory system that we have.
Mr. Janklow. OK. Let's just take that as a given for a
moment, put it on the shelf. What else can bring about a
savings in these megabillions?
Dr. Graham. Well, in last year's report, which was
published in December of last year, we described the process
that we have under way to review 316 regulations and guidance
documents that were nominated by the public to be looked at for
purposes of your question. Are there ways that these
regulations could be modified or in some cases rescinded or in
some cases strengthened in order to overall improve public
benefit? And, we're all now meeting with each of the major
agencies that is responsible for these rules, and it is quite a
substantial undertaking.
In this document, which I think your staff has a copy of,
is the appendix to that report, and it has 316 examples of
rules or guidance documents nominated by the public.
Mr. Janklow. How many of those would you say are, if I can
use the phrase, politically explosive?
Dr. Graham. I suspect you and the chairman or the
subcommittee are probably a better barometer of that than I am,
but we're looking through each one of them on the merits, costs
and benefits and working with the agencies to make choices.
Mr. Janklow. I'll just end this round with this, sir, but I
guess what I'm trying to get at is I realize the political
sensitivity in this area where we're treading. I think we all
understand that. Are there any things that we can do better
that we could find some unanimity on?
Dr. Graham. Well, I don't know the answer to that question,
and quite frankly, we're not pursuing the process of regulatory
reform from that particular perspective. We're looking at each
of these for the purposes of whether we think you can make a
benefit-cost case for a smarter regulation or in some cases no
regulation at all, and, if we can make that case, you've
noticed, I'm sure, that we're willing to take a little
controversy in order to accomplish that. And, that is the way
we feel about it in this administration.
Mr. Janklow. Thank you.
Mr. Ose. I thank the gentleman.
Dr. Graham, if I could go back to followup on my first
question. The discussion we had there talked about a 10-year
time period from 1992 to 2002 relative to the major rules that
were the subject of that. However, there is a question about
rules issued, say, since February 1981 when President Reagan
issued Executive Order 12291.
Now, the report here does not include any of that period
from February 1981 to October 1992, and I'm trying to figure
out if OMB has taken any steps to include the available data
for the still active major rules that were issued in that
period and, beyond that, any estimates for still active major
rules issued before 1981.
Now, I understand that is a heck of a question because of
the complexity of calculating that, but I'm just curious as to
the status of your efforts in those two areas.
Dr. Graham. We have not, Mr. Chairman.
Mr. Ose. OK. Are there any plans to?
Dr. Graham. Well, to be candid with you, Mr. Chairman, we
are not convinced that the costs and benefit information that
was estimated prior to the development of those regulations in
1985 or 1975 is really a very good quality scientific indicator
of what the costs and benefits of those regulations are today,
and hence what we have put out for public comment is a proposal
that we will present this information to the public on a 10-
year rolling basis. So, each year, we will tell you for the 10
previous years what those major rules, costs and benefits are.
But as a rough surrogate, we would argue that, if it is older
than 10 years old, we can't really use the information that was
generated and have that much confidence in it. And, we're
taking public comment and peer review on that position as we
speak.
Mr. Ose. OK. One of the interesting things in every
testimony here speaks directly to your point there, and that is
the quality of the assumptions underlying every agency
submittal to you, you know, is it hard or is it somewhat
malleable? And, that is something that I kind of sit in my
office and think about, and I can't even imagine the challenge
that you have, but I know that we're making progress.
The other question I'd like to ask is that the law requires
OMB to submit an analysis of impacts of Federal regulation on
State, local and tribal government. Now, does OMB have any
estimates of the impact of Federal rules and paperwork imposed
on State and local governments by the following agencies: EPA
and Health and Human Services; specifically within EPA, the
Office of Water; and specifically in Health and Human Services
for CMS, which was formerly HCFA.
And, the question really delves into wouldn't such data
help in analyzing the opportunities for either prioritization
of efforts within those agencies or the sunsetting, if you
will, of such rules that perhaps their time has passed, so to
speak?
Dr. Graham. Just briefly, we have information on any of the
major rules that were enacted by those agencies; however, the
summary tables that are in the report only address those
programs for which there were three or more major rules. If
there were less than three, we said as an admittedly arbitrary
cut point, we didn't think it was necessarily fair to represent
that agency's performance based upon a sample of two or one.
Now, I want to get back to your earlier point, because we
have some indirect evidence on whether old regulations are
really a major concern of the public.
Mr. Ose. All right.
Dr. Graham. This document was generated when 1,700
Americans responded to the President's personal request--as
well as our Federal Register notice--for nomination of specific
regulations and paperwork requirements and guidance documents
that they felt did not have benefits that justified their costs
or that could have stronger benefits if they were amended.
It's interesting, when you look through these 316, only a
very small fraction of them are older rules or guidance
documents. A very strong fraction of them are those that have
been enacted within the last 10 years, and, in most cases the
commenters are not asking for these to be repealed, and that
makes sense when you look at some of our cost-benefit
information which says a lot of these rules are pretty
sensible. They do have benefits that seem to outweigh their
costs.
What commenters are looking for is modifications of these
rules to make them more practical, more feasible, or to have
less cost for the same benefit. And, I think it's very
important for the focus of this subcommittee's effort to see
that the agenda here is to make the regulatory system smarter
and to incrementally reduce the cost while maintaining the
benefits or increase benefits while maintaining the costs.
There is no demand that we're aware of for wholesale
elimination of specific older regulatory programs.
Mr. Ose. The gentleman from South Dakota.
Mr. Janklow. Thank you, Mr. Chairman.
Sir, could you tell me, the comment period is open until
April 3rd. At this point how many comments have you received;
do you know?
Dr. Graham. I don't know, but quite frankly, what we find,
our experience is that people use that full comment period, and
most of our comments come in toward the end of that period.
Mr. Janklow. It's like a term paper? You get it done----
Dr. Graham. Sort of like us trying to get our report done
for release with the Federal budget. It's got the same spirit
to it.
Mr. Janklow. And, I notice, sir, also on page 6 of your
documentation, you talk about the concern of the
administration--the rightful concern the administration has on
unfunded mandates. Have you ever undertaken an analysis as to
the unfunded mandates that are shifted onto State and local
governments and what the real fiscal impact is nationwide? Now,
that is something, I think, that can be done with real
definity, if I can use the word that way, because State and
local governments know what they spend on an annual basis to
fulfill mandated programs, and so taking their percentage share
of it would be relatively easy.
Has anybody ever done that, I mean, areas with respect to
the Clean Water Act, this whole TMDL set of rules that they
have with EPA? States, governments, local governments have
spent huge quantities of money complying to find out that the
National Academy of Sciences in a report issued a little over a
year ago said that is not the best science to utilize with
respect to the streams and the creeks and the rivers in the
country. And, so has anybody ever looked at that particular
issue, unfunded mandates' cost to State and local governments?
Dr. Graham. You're raising, I think, an excellent question,
and I have to say I'm not fully satisfied with where we are at
OMB in our current ability to quantify all of those unfunded
mandates and attribute them to specific agencies and to
specific agency programs.
In the final report last year, which we released, we do
describe in some detail qualitatively all of the rules--major
rules that we were able to identify that did involve an
unfunded mandate, and we also looked closely at how well
agencies are doing their job of consulting with Governors and
mayors before they engage in this practice of an unfunded
mandate.
But, I think that it's fair to say, we have a lot more work
to do in that area, and it's something that I think that
encouragement from you would only be helpful, sir.
Mr. Janklow. What about the area of mandates on the Federal
Government? Have you ever looked at that? I mean, certain
studies and analyses, regulatory fulfillment that the Federal
Government does with respect to itself, have you ever looked--
are those costs reflected in the costs that you've set forward
in your reports?
Dr. Graham. If those regulations--even if they are
affecting the Federal Government itself, if they are a major
regulation as defined in the discussion we had earlier with the
chairman, they should be included in that report. But,
budgetary costs per se, as I mentioned, would typically be
analyzed and dealt with predominantly on the budget side of
OMB.
Mr. Janklow. But, if that happens, we'll never know the
real cost.
Dr. Graham. Because you're saying it's not--it is included
in the budget--in the appropriation as part of the budget
process----
Mr. Janklow. Right, but it's hidden--there you can't find
it. I mean, it's not on an item, it's not on a line.
Dr. Graham. Well, I think it would be an excellent idea to
have a more specific accounting within agencies of both how
much the agencies are spending on rulemaking activities
themselves and how much in Federal budgetary dollars are
induced by that.
Mr. Janklow. I'm familiar--for example, on the Missouri
River with the Army Corps of Engineers, they've been working
about 16 or 17 years on rewriting a master manual that should
have been done 15 years ago. I believe they spent--at this
point they reported over $23 million, and they're not done.
That's in compliance with requirements that they have in the
way they carry out their mission.
There just has to be a better way. If we're smart enough to
screw it up that badly, we ought to be smart enough to figure
out how to straighten it out. We don't even take incremental
steps to straighten it out, but we just have people like me
that complain about it. The net result is nothing is being
done, but money is being spent.
What does it take to fix problems like this? In your
estimation, sir, what does it take to fix--I mean, obviously
we've reached the point of almost gridlock in America with
respect to every major issue. What's it going to take to fix
these little areas? Maybe if we fix the little stuff, we can
head to the big stuff later.
Dr. Graham. Well, I think--I don't know the answer to your
question, and I don't know the specifics, quite frankly, of the
example that you're referring to with the Army Corps of
Engineers. And, I'd like to learn more about it, because we are
in dialog with all the agencies, including the Corps, about
specific steps that we can take at OMB to insist upon a more
efficient and deliberative process. We agree with the
observations that oftentimes this process of developing
analyses and doing rulemakings is often too slow, and we need
to work on making the rulemaking process itself more efficient,
less costly, more timely, at the same time that it's competent
and open to the public.
Mr. Janklow. Can you do what you just said within the
framework of the existing authority?
Mr. Ose. Your time is expired. We'll go around and come
back.
I want to note that we have been joined by the gentleman
from Tennessee Mr. Cooper, who has requested either a couple
minutes to gather himself or would like to proceed.
Mr. Cooper. I think I'm ready.
Mr. Ose. OK. The gentleman is recognized for 5 minutes.
Mr. Cooper. I'm interested, Mr. Chairman, in actuarial
assumptions leading to valuation of human life. It's my
impression that EPA, OIRA differ, in that OIRA assumes that
everybody who dies prematurely only had 5 more years to live,
is that correct; whereas, EPA prefers an estimate that assumes
that everyone has 15 more years to live. Is that correct, or am
I being given bad information?
Dr. Graham. I don't think it's accurate, sir. I don't think
it's accurate. I think that you're referring to the way in
which EPA is developing their benefit estimates for reducing
the human health harm from exposure to air pollution. What EPA
has done is they have presented one set of estimates that uses
what's called the lives-saved approach, and then they presented
an alternative set of estimates that used the life-year-saved
approach. And, I believe the 5-year number that you're
referring to is correct with respect to the life-year-saved
approach. I'm not aware that they have estimated a number of
life-year-saved for the lives-saved approach, because by its
inherent nature, it measures the benefits in terms of number of
lives saved.
Mr. Cooper. What is the best study or comparison that would
compare those two approaches so that the average Member of
Congress could understand that?
Dr. Graham. Boy, that is a great question.
Mr. Cooper. It may be impossible to----
Dr. Graham. I'll recogitate on that, but I'll send you a
few things.
Mr. Cooper. That would be helpful.
Dr. Graham. Yes.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T6439.012
[GRAPHIC] [TIFF OMITTED] T6439.013
[GRAPHIC] [TIFF OMITTED] T6439.014
[GRAPHIC] [TIFF OMITTED] T6439.015
[GRAPHIC] [TIFF OMITTED] T6439.016
[GRAPHIC] [TIFF OMITTED] T6439.017
[GRAPHIC] [TIFF OMITTED] T6439.018
[GRAPHIC] [TIFF OMITTED] T6439.019
[GRAPHIC] [TIFF OMITTED] T6439.020
[GRAPHIC] [TIFF OMITTED] T6439.021
Mr. Cooper. It's my understanding that OIRA was heavily
involved in developing the benefits analyses for the
administration's Clear Skies proposal.
Dr. Graham. Correct.
Mr. Cooper. And, I assume if you worked on the benefits,
you also worked on the costs, or just the benefits?
Dr. Graham. Both.
Mr. Cooper. I have been told that the assumptions
underlying the modeling for that assume that it's less
important to save the lives of elderly people because they have
less long to live than it would be to save the lives of young
people. Is that a fair characterization of what was done?
Dr. Graham. No. I don't think so. Actually, if you look
closely at the benefit estimates that are in what I refer to as
the alternative estimate in my answer to the previous question,
the life-year-saved approach, they assume that each year of
life after age 70 is valued at $250,000 of savings, a rather
substantial investment. And, for each year of life saved for
those under age 70, it's at roughly $163,000.
So once you're in the life-year-saved approach, you face
the difficult and sensitive issue of how do you value each of
those years of life within the life span, and that is the
approach that EPA used in the alternative estimate.
Mr. Cooper. Perhaps I need to review that document that I
was requesting earlier, but it's my impression that the
administration's Clear Skies proposal assumes that lives of
people who are younger than 70 years of age are worth about
$3.7 million each, whereas lives over age 70 are worth
considerably less.
Dr. Graham. Actually, the administration's Clear Skies
proposal presented two sets of estimates. One assumed that all
lives saved are equally valuable at roughly $6 or $7 million
per life saved, and then the alternative estimate used the
life-year approach, and it assumed that, for senior citizens,
because they have relatively few life years remaining, that the
valuation of each of their remaining life years is greater than
for those younger than age 70.
Mr. Cooper. I thank you.
I have no more questions, Mr. Chairman. Thank you.
Mr. Ose. I thank the gentleman.
I want to go back to something that Governor Janklow
brought up, if I could, Dr. Graham. He was asking about whether
or not any consultation has been done between State and local
interest groups or the National Governors Association. I was
unclear on the answer relative to the impact on Federal rules
and the paperwork imposed on State and local and tribal
governments.
So, the question directly is, has any contact been made
with State or local governments or tribal groups regarding the
impact of Federal rules and paperwork imposed on them?
Dr. Graham. Our final report, our 2002 report, describes
for a variety of the agencies the activities of consultation
that are being undertaken, and I don't have the specific groups
at my fingertips right now, but there is a substantial amount
of consultation described in that report.
Mr. Ose. Is that by regulation or by agency or both?
Dr. Graham. I think it's done by regulation. They describe
a variety of different regulations and what the different
approaches are to consulting State and local officials. Is it
the Governor's office? Is it the State agency? Is it the
legislature and so forth?
Mr. Ose. OK. And--but there hasn't been any--again, those
are individual rules. It hasn't been an agency kind of
approach, if you will? You have to take the individual rules
and aggregate them to get the agency information?
Dr. Graham. Right. And quite frankly, there's variability
within agencies on how well they exercise that responsibility.
I would be reluctant to generalize across a whole agency.
Mr. Ose. We go back to that--about the quality of the
information--or the assumptions underlying the conclusions.
The next question I have has to do with the manner in which
this information is delivered. This year the accounting
statement with great appreciation came out at the same time as
the President's budget. It came out in the Federal Register.
What is the likelihood of pairing it with the President's
budget? Is there any positive or negative to be gained by
putting the other accounting statement with the President's
budget, or is there something to be gained by leaving it
separate? I'm curious about that particular question.
Dr. Graham. I think it's a good question, and I think,
quite frankly, the utility of that to Members of Congress and
the appropriators is something that I think we would be
interested in their judgment on that question.
The one cautionary remark I would make is, we have released
our draft report in the Federal Register at the same time as
the budget. It is not our final report. It has not been peer
reviewed. It has not been subject to public comment. And,
consequently, we would be a little reluctant to put a document
like that in the budget documents themselves.
Mr. Ose. Because of its draft nature?
Dr. Graham. Yes.
Now, the statute requires that we get peer review, public
comment and interagency review before we go final, and, if you
back up to allow the appropriate time for that activity, as a
practical matter, we would probably have to trail a year to put
this in the Federal budget documents.
Mr. Ose. I don't want to go that way.
Dr. Graham. So, I think that there are some practical
problems with that idea.
Mr. Ose. All right. I appreciate the feedback.
The other thing you've been struggling with, which I just
find amazing, and Governor Janklow brought this up earlier, is
that when the agencies submit to you their information,
sometimes it comes in with what I'm going to call a hodgepodge
of standards and timeframes and what have you. Do you support
or do you not support a requirement that this regulatory
accounting statement use the same 7-year timeframe from agency
to agency to agency?
Dr. Graham. The 7-year timeframe, as I understand it, comes
from the tradition on the budget side of how they present
information, and that is not currently the way in which we
develop and present information for regulatory costs and
benefits.
For example, if you were to put a new piece of pollution
control equipment on a heavy diesel-powered truck, we would
estimate the costs and benefits over the expected lifetime of
the truck. OK? And, we would not want to cut that off after 7
years, and not count the operating costs that are higher after
7 years or the benefits that are gained after 7 years.
Now, one possibility would be to somehow collapse all that
information into the 7-year period, but then you have an
arbitrary allocation of that to the 7 years.
Mr. Ose. Or you end up discounting the future value of it.
Dr. Graham. What we do currently is we discount all of
those future costs and benefits to their present value, but we
express those as an annualized value, like a mortgage payment,
over that horizon of the investment. So, it's not clear to us
how this 7-year exercise would be accomplished in this case,
but we're open to a suggestion on whether that would really be
useful.
Mr. Ose. I want to come back to this, but my time is
expired.
The gentleman from South Dakota.
Mr. Janklow. Thank you very much, Mr. Chairman.
Dr. Graham, OMB currently uses what they call an
information collection budget; is that correct?
Dr. Graham. Yes, sir.
Mr. Janklow. And, managing the paperwork that needs to get
done, do you support a pilot test to do regulatory budgeting to
see if this would help OMB and the other agencies rank their
risks and establish the priorities, make the choices they have
to make?
Dr. Graham. Well, let me start with the premise of the
question. While we do have what's called an information
collection budget, it is not one where either we or Congress
imposes on each agency a limited amount of paperwork that
they're allowed to do, and then they can choose which paperwork
burdens to impose and which not to impose. We review each
paperwork burden request based upon its rationale, without any
cap on the total amount. Congress has not imposed a cap. We at
OMB don't feel we have the authority to impose that cap. We do
have the responsibility to review each request on its own
merits.
But having admittedly quibbled with the premise of your
question a little bit, I want to get to the heart of the
question, which is would it be a good idea to do a pilot
project of some form to experiment with the idea of the
regulatory budget? And I do think that there would be some
significant advantages to such a pilot.
Mr. Janklow. Do you have the legal authority to do that
now?
Dr. Graham. I'd have to confer with counsel on that
subject, as I'm not certain about it.
But, the point I would like to make is that I think that,
in order to give the concept of a regulatory budget a fair
experiment that is going to give a good indication of what it
would actually be like if it were done more substantially, I
think it should be done on a very modest basis, probably within
a particular agency, and one where we think we have readily
available information to operationalize the comparison of
risks, the number of lives saved and different programs and so
forth. Something like the National Highway Traffic Safety
Administration might be an example of that, with responsibility
for the safety of the highways, the safety of automobiles and
so forth.
Mr. Janklow. Sir, absent that, is there a better way to do
it than we're doing it? In your opinion, is there a better way
to do it than we're doing it?
Dr. Graham. Well, I think we have a lot of work we can do
better at analyzing the specific regulatory packages that are
submitted to it. We don't for a minute want to suggest that
we're doing all we can at the present time. We realize we have
to work harder at what we're doing.
Mr. Janklow. How do we fix that? How do we get you to work
harder?
Dr. Graham. Well, I think that these hearings are helpful.
As evidenced today, what happened this year compared to last
year is clear evidence that we do try to be responsive to what
the subcommittee feels is critical, and we definitely work in
that direction.
But I think, in reaction to your question, I think that it
is a constructive idea. We would have to sit down and work out
the operational details of how such a pilot might be launched,
whether it requires legislation, whether it doesn't require
legislation. But we're open to that. We think that's a
constructive idea.
Mr. Janklow. Thank you.
Thank you, Mr. Chairman.
Mr. Ose. The gentleman from Tennessee.
Mr. Cooper. Thank you, Mr. Chairman.
I'd like to return to the value of human life question.
It's my impression from reading the newspaper that the
government's smallpox inoculation program has adopted
procedures from an old Policeman's Compensation Act that values
a life at about $260,000 each. You know, say you died as a
result of having the inoculation. The government's liability
would be limited to that amount.
There are other examples of government attempts to value
human life, and you might turn toward an environmental
regulation that said you had to clean up all the dirt in the
brownfields and spend hundreds of millions of dollars doing it
so that, if you ate the dirt, you wouldn't get sick, and you
could impute a value, many millions of dollars, to a human life
saved in that instance.
Is there any study that you're aware of that looks across
government agencies to see how different agencies treat the
value of human life? For example, the compensation fund in New
York City for victims of September 11th. The administrator of
that fund is trying to figure out how much to pay each
beneficiary for their family, and part of that calculation is
their earnings potential over an estimated future life span,
and that calculation, you know, varies widely between
individuals. Janitors get paid less than investment bankers.
Are you aware of any consistent effort for the government to
look at these different valuations or approaches, because it's
human beings involved in every case?
Dr. Graham. It's something that we're concerned about at
OMB, that different agencies--when they do cost-benefit
analysis or even when they do compensation programs of various
sorts--have differences in what types of numbers they're using,
and we're not always fully clear on what the rationale is for
why the numbers are different in one agency than they are in
another agency.
One of the reasons we're encouraging the public and
academic experts and others to participate in the process of
OMB's new regulatory analysis guidelines is because that issue
is on the table, whether there should be some consistency
across agencies or whether we should be allowing agencies to do
different things in different situations. So, now is a time for
that comment, because those guidelines are now open.
Mr. Cooper. How long will the comment period last?
Dr. Graham. I think it runs--is it early April, I believe
Mr. Chairman noted at the beginning of the hearing.
Mr. Cooper. I think there's a professor at Harvard Law
School who is quite an outspoken researcher in this area, and
it's a very controversial area. He's been denounced when he
makes public appearances for even raising the topic. But, I
don't know if he submitted a comment yet. I may--at least one
of the experts that I'm aware of in the field as we try to go
through this thing. I take it you didn't meet him while you
were at Harvard?
Dr. Graham. Is this Professor Viscusi?
Mr. Cooper. Yes.
Dr. Graham. Yes. We are expecting comments, and we are in
communication with him.
Mr. Cooper. Well, I hope he will weigh in with the debate.
I thank the Chair.
Mr. Ose. I thank the gentleman.
Dr. Graham, the purpose of this when we set out was to try
and find a way whereby Congress took an active role each year
in how the regulatory burden that is placed on the American
public by virtue of our actions gets allocated. Is it too high?
Is it too low? Is it just right? Where do we want more, where
do we want less and what have you? Now, that leads me to ask,
as I did with Dr. Miller in an op-ed last year, whether or not
it's appropriate to develop a--what I refer to as a regulatory
appropriations process. Now, that would necessarily mean that
we quantify the burden, we quantify the benefit, we quantify
the cost, and then to make a decision, a conscious decision as
we do in the fiscal appropriations process, as to whether or
not we want to place this burden in exchange for the benefit on
the American public. And, it would mirror, if you will, the
appropriations process for a fiscal side almost exactly.
What is your view of the utility of such a regulatory
appropriations process?
Dr. Graham. I can only start by saying that I think the
question you just asked is closely related to the question
about the pilot project on the idea of a regulatory
appropriation or a regulatory budget. I guess my starting point
would be, while there is some good conceptual writing in the
literature on the merits of this idea, and there are people on
the panel who will follow me who know these issues certainly
better than I do, my instincts are that we should lead with
pilot project development of experience rather than jumping
directly in. And, there are some concerns about that kind of
idea that we need to get addressed.
For example, we feel strongly that not only the costs of
regulation should be considered, but the benefits of regulation
should be considered, and how exactly that would emerge in this
process of a regulatory appropriation. And, we understand on
the budget side that they look primarily at the budgetary
allocation, but maybe they don't always look as carefully as
they need to at certain types of benefit issues. So, it's
something we're very sensitive to and think it's important to
keep track of.
So, I guess you'd say in a cautionary way we're optimistic
about the idea, but we'd like to proceed incrementally.
Mr. Ose. I think that's what brings home to me the
importance of the work that you do. When you interact with the
different agencies and the like, asking them to, in effect,
measure their costs and benefits of this and that program and
submit them for a regulatory accounting purpose, it then will
allow those of us who have the duty, if you will, to allocate
resources and make decisions to prioritize A, B, C, if we can
save 100 lives here or we can save--or remove 35 tons of carbon
monoxide there and so forth and so on.
The question I have is then--kind of to pile on--is a
little bit broader in the sense that are you making progress
with the different agencies in terms of standardizing the
format under which they report to you so that apples are apples
and oranges are oranges, and that the decisionmakers' use of
this information leads to, frankly, good decisions? So my
question is, is that happening? Are we making progress?
Dr. Graham. Well, I'm sure we could do better, but the
guidelines which are now open for comment are the instrument by
which OMB lays out its expectations for what agencies will
supply to us in the analytic process. But, just to support the
general premise and line of thinking that is behind your
question, we're hearing a lot in the news today about concerns
about the safety of sport utility vehicles, of light trucks and
so forth. It would be useful to know how many lives could be
saved through different approaches through improving the safety
of sport utility vehicles. Some of these ideas are very
expensive, but some are very basic things like people should
wear safety belts, we should enforce safety belt laws. It turns
out 70 to 80 percent of the people killed in SUV rollover
crashes were not wearing safety belts. So, before we get into
very grandiose schemes for how we're going to address that
problem, it would be useful, I think, to look at the more basic
and straightforward approaches.
Mr. Ose. My time has expired. The gentleman from South
Dakota. The gentleman has no further questions. The gentleman
from Tennessee.
Mr. Cooper. I have no further questions, Mr. Chairman.
Mr. Ose. The gentleman has no further questions. I want to
thank you for coming. We are going to leave the record open in
the event there are written submittals and we appreciate your
timely response to them. That will be for a period of 10 days
from today. As always, it's great to have you come visit with
us to see us making marked progress, in other words, measurable
progress forward in correlating the benefits with the costs of
regulation. These standards that we're going to use that are
out for comment right now, I think this is at the heart of our
next leap forward, and I encourage your pursuit of that. I
appreciate your coming.
Dr. Graham. Thank you, Mr. Chairman.
Mr. Ose. We're going to take a 5-minute recess to allow the
second panel to come forward.
[Recess.]
Mr. Ose. We're going to reconvene. This is the second panel
of today's hearing. As we reviewed in the first panel, first I
want to welcome the witnesses today for joining us. We
appreciate your taking the time to come down and testify. There
are five of you. Each of you have submitted significant
statements. Those statements, I mean, I've read them. Trust me,
I've read them. The staff has read them. We have had the
opportunity to review them. We appreciate your submitting them.
However, given the length of some of them, we're going to
constrain your summaries of them to 5 minutes each, and we'll
just move from my left to right as it relates to that. Then
we'll go to questions from Members.
Now, as indicated in the earlier panel, we routinely swear
in our witnesses here. So if all five would rise.
[Witnesses sworn.]
Mr. Ose. Let the record show that the witnesses answered in
the affirmative. Today on the second panel are Dr. James C.
Miller III, who is the former Director of OMB and now with
CapAnalysis group. Dr. Robert Hahn who is the director of the
AEI-Brookings Joint Center for Regulatory Studies. Dr. Jim
Tozzi who is a former Deputy Administrator for the OIRA over at
OMB and an advisory board member for the Center for Regulatory
Effectiveness. We have Lisa Heinzerling--am I saying that
correctly?
Ms. Heinzerling. Yes.
Mr. Ose. OK. Who is a professor of law at Georgetown and
Rabbi Daniel J. Swartz who is the executive director at
Children's Environmental Health Network.
Thank you all for coming. Dr. Miller, you are going to be
first for 5 minutes.
STATEMENTS OF JAMES C. MILLER III, FORMER DIRECTOR, OFFICE OF
MANAGEMENT AND BUDGET, CHAIRMAN, CAPANALYSIS GROUP; ROBERT
HAHN, DIRECTOR, AEI-BROOKINGS JOINT CENTER FOR REGULATORY
STUDIES; JIM TOZZI, FORMER DEPUTY ADMINISTRATOR, OFFICE OF
INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND
BUDGET, ADVISORY BOARD MEMBER, CENTER FOR REGULATORY
EFFECTIVENESS; LISA HEINZERLING, PROFESSOR OF LAW, GEORGETOWN
UNIVERSITY LAW CENTER; AND RABBI DANIEL J. SWARTZ, EXECUTIVE
DIRECTOR, CHILDREN'S ENVIRONMENTAL HEALTH NETWORK
Dr. Miller. Thank you, Mr. Chairman. I have the report and
thank you for admitting that into the record.
[Note.--The information can be found at www.omb.gov and is
on file with the subcommittee.]
Dr. Miller. I'll try to be very brief. I will make the
point that the OMB report this year is of better quality than
last year. There are some deficiencies. It's a draft report
rather than a final report. There are a lot of inconsistencies
in the data that are presented. By and large, though, I make
the same point I made last year. This I think is attributable
to the agencies not responding with the template that OMB has
requested. OMB might be more aggressive in insisting on the
agencies providing the information in a consistent fashion, and
perhaps that will be the case next year. Technically, I think
the work is quite good. The draft guidelines incorporate some
of the best, I think, very high-quality standards. I think
that's very important.
Second, the vast majority of the information that reaches
OMB for this report comes from the agencies. Now, I know the
agencies realize that there are biases in the information they
receive. People who advocate regulations tend to overstate the
benefits. People who oppose regulations tend to overstate the
costs. But, by and large, the raison d'etre of the agencies is
to issue regulations. So, if there is a bias, I think the bias
is that they tend to overstate benefits and understate costs.
Third, independent agencies don't report their information
under the Executive orders. I remember very vividly talking
with then-Vice President George Herbert Walker Bush about this,
and he made the decision not to extend President Reagan's
Executive Order 12291 to the so-called independent agencies.
I would urge you to consider extending this requirement and
the requirements of regulatory reporting statutes to the so-
called independent agencies. Few of them really do the benefit-
cost analysis to support the rules and those that do tend to
fall short, in my judgment, of the kind of standard that OMB
outlines in its guidelines.
Fourth, there are a lot of cases where regulatory agencies
are explicitly forbidden to follow the kind of analysis that we
all are looking for. That is to say, sometimes Congress says no
matter what the cost, you must do it this way. Sometimes it
says you must follow some kind of engineering standards rather
than performance standards. These really raise cost--or in the
alternative, with the same costs you could realize
substantially greater benefits.
I really urge you to have OMB do a study of this or to
initiate a study some other way in order to find out the nature
of this.
Finally, even if the OMB report were perfect, you still
don't have a process for evaluating regulations, applying
restraints on costs, and prioritizing. OMB does a good job, I
think, but they can only go so far, and I really think Congress
should have a regulatory appropriations process--the idea we--
Mr. Chairman, you and I--wrote about last year.
So I urge you to talk with your colleagues about that. I
urge you and your colleagues to urge the agencies to respond to
OMB more completely and in a more expeditious manner, and a
more complete manner, and in a manner that's more consistent
across agencies and regulations.
And, by the way, I want to respond to your question. I
think OMB should issue this report, a final version, at the
same time the budget comes out. It ought to be a regulatory
budget.
Twenty years ago, when I was OIRA Director and Jim Tozzi
was Deputy Director of OIRA, we talked about having a
regulatory budget. We didn't get it done, but surely somebody
can get it done, and if you put the pressure on OMB and the
agencies, I think you can do it. I think you would have a much
better handle on total regulation. The administration can do it
on its own if it wants to take the initiative, and I would
encourage you and encourage other people in the administration,
such as John Snow, the Secretary of Treasury to work with on
this. Snow is an economist, very well-trained, thoughtful guy,
and he could lead an effort in this regard. Thank you, Mr.
Chairman.
Mr. Ose. Thank you, Dr. Miller.
[The prepared statement of Dr. Miller follows:]
[GRAPHIC] [TIFF OMITTED] T6439.022
[GRAPHIC] [TIFF OMITTED] T6439.023
[GRAPHIC] [TIFF OMITTED] T6439.024
[GRAPHIC] [TIFF OMITTED] T6439.025
[GRAPHIC] [TIFF OMITTED] T6439.026
Mr. Ose. Dr. Hahn for 5 minutes.
Dr. Hahn. Thank you, Mr. Chairman. My testimony was jointly
written with Dr. Robert Litan of the Brookings Institution, and
we ask that the written remarks be submitted into the record.
Mr. Ose. Without objection.
Dr. Hahn. Coming to testify here is an honor, but it
reminds me a little bit of what Yogi Berra said some time ago
that this feels like deja vu all over again. I've been studying
regulation and the cost and benefits of regulation for over a
quarter of a century now. My sense is that the debates over
regulatory policy have often been highly partisan and ill-
informed, and I think that it's important to look for
mechanisms to try to depoliticize the process.
Too often, legislators and agencies find it in their
interest to highlight the benefits of regulation without also
noting the costs. We believe it's important to highlight both
and that the public has a right to know how and why regulations
are implemented. One of the things that economists generally
agree on is that there is significant waste in the current
regulatory system. This work is supported by the AEI-Brookings
Joint Center, including a recent analysis of the rule on
corporate average fuel economy, which is not found to pass a
benefit-cost test.
And, in addition, Dr. Graham has also done some work when
he was at Harvard that suggests we could get a lot more bang
for our regulatory buck.
In the testimony that you have, we offer 10
recommendations, 5 directed at OMB and 5 directed at Congress
for improving regulatory accountability and transparency. I
want to focus on three of them right now.
The first, and Dr. Miller touched on this, is that we think
it's really important in the analysis that's done for
regulations to put a good summary in front of it. So someone
like you, who is very busy, can look at it very quickly and see
what the agency says about costs, benefits, and whether this
regulation passes a benefit-cost test?
So, we argue very strongly for a template, a kind of
standardized summary table that would give you a very good idea
of what's contained in that 300 or 400-page document.
Second, we believe that OMB should publish available
estimates on the cost and benefits of regulations from
independent agencies; but we also, in line with the
recommendation made by Dr. Miller, would go further and request
that independent agencies provide annual assessments of the
costs and benefits of each of their major regulations.
Why do I say that? Well, if you read the newspaper, you
probably are aware of the fact that the FCC had a fairly
controversial decision recently about the extent to which the
regional Bell operating companies should be regulated, the
extent to which they should share their broadband services and
the local loop. I think that having the FCC do an analysis of
that multi-million, if not billion, dollar issue would be good
in terms of helping the commissioners make a reasonable
decision and good in terms of making the process more
transparent.
Finally, I'd like to suggest that Congress should create a
congressional office of regulatory analysis, or at least a
separate agency outside of the executive branch, to
independently assess important regulatory activity occurring at
all Federal regulatory agencies.
I can see that I'm running out of time; so I'm not going to
make a lengthy case for this, but I merely want to note that
there was an opportunity to do this in the 106th Congress. It
would have cost $500 million for a pilot project that would
have resided at GAO. My colleague and I thought that was an
incredible bargain given the upside potential associated with
this investment. One of the problems that OIRA has is that it
can't always be honest about what it thinks politically because
it has to tow the administration line. This agency could do
that. Let me conclude, because I see that I'm out of time.
Thank you.
Mr. Ose. Thank you Dr. Hahn.
[The prepared statement of Dr. Hahn follows:]
[GRAPHIC] [TIFF OMITTED] T6439.027
[GRAPHIC] [TIFF OMITTED] T6439.028
[GRAPHIC] [TIFF OMITTED] T6439.029
[GRAPHIC] [TIFF OMITTED] T6439.030
[GRAPHIC] [TIFF OMITTED] T6439.031
[GRAPHIC] [TIFF OMITTED] T6439.032
[GRAPHIC] [TIFF OMITTED] T6439.033
[GRAPHIC] [TIFF OMITTED] T6439.034
[GRAPHIC] [TIFF OMITTED] T6439.035
[GRAPHIC] [TIFF OMITTED] T6439.036
[GRAPHIC] [TIFF OMITTED] T6439.037
[GRAPHIC] [TIFF OMITTED] T6439.038
[GRAPHIC] [TIFF OMITTED] T6439.039
[GRAPHIC] [TIFF OMITTED] T6439.040
[GRAPHIC] [TIFF OMITTED] T6439.041
[GRAPHIC] [TIFF OMITTED] T6439.042
[GRAPHIC] [TIFF OMITTED] T6439.043
[GRAPHIC] [TIFF OMITTED] T6439.044
[GRAPHIC] [TIFF OMITTED] T6439.045
[GRAPHIC] [TIFF OMITTED] T6439.046
Mr. Ose. Dr. Jim Tozzi for 5 minutes.
Dr. Tozzi. Thank you, Mr. Chairman and distinguished
members of the committee. I'm very pleased to appear here
today, first of all, because of the leadership this committee
has given historically to OMB's regulatory office. Without this
committee and its movement under the Paperwork Act, there would
not be any regulatory office at OMB, and the more things change
in Washington, the more they stay the same because I still see
Congressman Brooks looking down at me after 35 years.
I'm here to speak on a very specific issue, and the issue
is on a regulatory budget. Notwithstanding my pleasant
personality, I was asked because of only one thing. I developed
the first regulatory budget when I was the Assistant Director
of OMB, and I was appointed by President Carter at that time,
and we developed a regulatory budget for EPA. The numbers, the
facts and data are here. It's been given to your committee's
staff, and it's also on the Center's Web site. I think it's
real numbers, real regs, real process, and it's there.
Mr. Ose. Would you like us to make it a part of the record?
Dr. Tozzi. Yes, sir please.
Mr. Ose. Without objection.
[Note.--The information can be found at www.thecre.com and
is on file with the subcommittee.]
Dr. Tozzi. Now, we could go over all the details of that
but I don't think this is the right time. Basically, when we
looked at the regulatory budget, one of the important things
that we had to do was get adequate cost information, and so
being younger and more, what would you call, idealistic, we
drafted a Regulatory Cost Accounting Act of 1980. I would like
that introduced in the record if the Chair----
Mr. Ose. Without objection.
Dr. Tozzi. And, a section-by-section analysis of the
regulatory cost accounting----
Mr. Ose. Hearing no objection, that will be done.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T6439.047
[GRAPHIC] [TIFF OMITTED] T6439.048
[GRAPHIC] [TIFF OMITTED] T6439.049
[GRAPHIC] [TIFF OMITTED] T6439.050
[GRAPHIC] [TIFF OMITTED] T6439.051
[GRAPHIC] [TIFF OMITTED] T6439.052
[GRAPHIC] [TIFF OMITTED] T6439.053
[GRAPHIC] [TIFF OMITTED] T6439.054
[GRAPHIC] [TIFF OMITTED] T6439.055
[GRAPHIC] [TIFF OMITTED] T6439.056
[GRAPHIC] [TIFF OMITTED] T6439.057
[GRAPHIC] [TIFF OMITTED] T6439.058
Dr. Tozzi. And, Mr. Chairman, as most Tozzi-proposed
legislation, it didn't get out of the administration, but in
any event, it was subjected to interagency review and it set up
a regulatory cost accounting system governmentwide. I must say,
it was opposed across the board by virtually all agencies,
including some of my colleagues at OMB; so it was not a winner.
But, where are we now? I'll get to the bottom line. We
could say there's a lot of problems with the concept of
regulatory budget, but by and large, we still don't have a way,
even if we look at individual regs, of looking at their total
cost to society and they're--I would suggest Dr. Miller's and
Dr. Hahn's and Dr. Graham's and any other doctors who
testified, view on the fact that's the right way to go.
But let me say that there's one thing, before we invent a
new wheel, we have a regulatory budget right now without
numbers, and it's this thing called the Unified Agenda of
Federal Regulations. It comes out every 6 months. Your
committee was the leadership in requiring all the agencies to
do it. It has every major regulation issued by the government,
and, if you want to start the work on a pilot study, I would
look at converting this document into a regulatory budget.
President Reagan signed Executive Order No. 12498 that took the
first steps toward a regulatory budget where OMB reviewed all
the regs before they went out and debated them with the
agencies. Many of these regs are costed out, so all you have to
do is start putting numbers on it and develop some algorithms.
Finally, in terms of regulations, if Dr. Hahn would yield 1
minute of his time that he didn't use, I have two
recommendations. The first recommendation is----
Mr. Ose. Dr. Tozzi, Dr. Hahn used all of his time, so I'm
sorry----
Dr. Tozzi. Oh, I'm sorry. Mr. Chairman, I notice your
mathematical ability and I will never question it again. I have
60--68 seconds.
What I would recommend is two things. When I was at OMB we
had 100 staff. They're down to 50. So if you're going to lay
any new requirement, I know this committee's not in favor of
unfunded mandates, and so, if you lay this requirement on them,
it's an unfunded mandate without increasing their staffing.
Second, if you're going to move toward a regulatory budget,
I would make a rebutable presumption in favor of moving this
document into a regulatory budget before I started a brand new
reporting system. Thank you.
Mr. Ose. Thank you, Dr. Tozzi.
[The prepared statement of Dr. Tozzi follows:]
[GRAPHIC] [TIFF OMITTED] T6439.059
[GRAPHIC] [TIFF OMITTED] T6439.060
[GRAPHIC] [TIFF OMITTED] T6439.061
[GRAPHIC] [TIFF OMITTED] T6439.062
[GRAPHIC] [TIFF OMITTED] T6439.063
[GRAPHIC] [TIFF OMITTED] T6439.064
Mr. Ose. Ms. Heinzerling, you are recognized for 5 minutes.
Ms. Heinzerling. Thank you. I have four points I'd like to
make today. First, OMB's demand that agency rules pass OMB's
test of cost-benefit analysis violates many existing laws.
Second, if the assumptions embodied in OMB's current style of
cost-benefit analysis were put to a vote in Congress, I believe
they would fail. Third, as Dr. Graham indicated this afternoon,
clean air regulation represents one of the best regulatory
bargains around, even according to the strict terms of cost
benefit analysis. Yet, OMB has mysteriously singled out this
kind of regulation for particularly penetrating scrutiny, and
even for deregulatory action.
Fourth, OMB's intention expressed in this draft report and
in interviews recounted in an article in the New York Times
this morning, to subject even more of the values we hold dear,
including privacy and freedom itself, to cost-benefit analysis
is a project doomed to failure, and it is one that flouts our
country's founding commitment to adhere to certain basic
principles regardless of the monetary tradeoffs that might be
involved in adhering to them. This commitment is indeed a basic
premise of the Bill of Rights itself.
First, most Federal laws do not require, and many do not
even allow agencies to use OMB-style cost-benefit analysis in
developing regulatory policy. In its new guidelines for cost-
benefit analysis, however, OMB appears to encourage, or even to
require, agencies to circumvent statutory directives when they
conflict with OMB's cost-benefit agenda. These guidelines
effectively put OMB rather than Congress in charge of defining
the scope of agency authority. This is not OMB's role under the
law.
Second, the assumptions embodied in OMB's current style of
cost-benefit analysis would not, I believe, be enacted into law
if they were put to a vote in this body. I limit myself to one
example. In recent cost-benefit analyses, as discussed already
this afternoon, OMB has estimated the value of life based on an
assumption that the elderly are worth less than younger people.
They start with an assumption that the elderly are worth $2.3
million and younger people are worth $3.7 million. Is it
unreasonable to believe this assumption would fail to be
enacted into law if considered by this body? I think not.
Third, the positive cost-benefit profile of clean air
regulations should make it the darling of today's OMB. That it
is not, that it has been subject to deregulatory activity, and
to especially heightened scrutiny without the corresponding
cost-benefit analysis that is applied to regulatory actions,
reveals, in my opinion, the political bias that lies at the
heart of OMB's oversight activities.
Fourth, and finally, in an administration in which life,
health, and the environment all have been given a price, albeit
a heavily discounted one, I suppose it should not surprise us
that it is now proposed that privacy and freedom itself also be
given a dollar value. The explanation, as I understand it, is
that, if privacy and freedom are not stated in monetary terms,
if they are not given a price, then they will not count for
anything when they are threatened. It seems to me just the
opposite is the case. Once we say that
privacy and freedom have a precise and finite monetary price,
once we allow them to be traded away for money, then we have
cheapened these values deeply and perhaps irremediably. Thank
you.
Mr. Ose. Thank you, Ms. Heinzerling.
[The prepared statement of Ms. Heinzerling follows:]
[GRAPHIC] [TIFF OMITTED] T6439.065
[GRAPHIC] [TIFF OMITTED] T6439.066
[GRAPHIC] [TIFF OMITTED] T6439.067
[GRAPHIC] [TIFF OMITTED] T6439.068
[GRAPHIC] [TIFF OMITTED] T6439.069
[GRAPHIC] [TIFF OMITTED] T6439.070
[GRAPHIC] [TIFF OMITTED] T6439.071
[GRAPHIC] [TIFF OMITTED] T6439.072
[GRAPHIC] [TIFF OMITTED] T6439.073
[GRAPHIC] [TIFF OMITTED] T6439.074
[GRAPHIC] [TIFF OMITTED] T6439.075
[GRAPHIC] [TIFF OMITTED] T6439.076
[GRAPHIC] [TIFF OMITTED] T6439.077
[GRAPHIC] [TIFF OMITTED] T6439.078
[GRAPHIC] [TIFF OMITTED] T6439.079
[GRAPHIC] [TIFF OMITTED] T6439.080
[GRAPHIC] [TIFF OMITTED] T6439.081
[GRAPHIC] [TIFF OMITTED] T6439.082
[GRAPHIC] [TIFF OMITTED] T6439.083
[GRAPHIC] [TIFF OMITTED] T6439.084
[GRAPHIC] [TIFF OMITTED] T6439.085
[GRAPHIC] [TIFF OMITTED] T6439.086
[GRAPHIC] [TIFF OMITTED] T6439.087
[GRAPHIC] [TIFF OMITTED] T6439.088
Mr. Ose. Rabbi Swartz for 5 minutes.
Rabbi Swartz. Thank you. I'm grateful for your interest in
this issue and the opportunity to share our ideas with you. The
Children's Environmental Health Network is a nonpartisan
multidisciplinary national organization whose mission is to
protect children from the environmental health hazards they
face in the womb and during their growing years.
First, some context for our concerns. How are children
different?
Because of normal childhood behaviors in the natural course
of human development, children are often at greater risk from
environmental contaminants. They eat, breathe and drink more
than adults, taking in greater exposures per pound that may
affect their rapidly growing bodies. That is why an exposure
that for an adult has no effect may, for a child, cause life-
long harm, as witness lead poisoning. Regulatory accounting has
failed to adequately capture costs and benefits to children
from health and other regulations, in part because of a lack of
recognition of these differences.
Additional problems arise, however, due to some of the
assumptions commonly used in cost-benefit analysis, including
removing, or at least reducing the visibility of any benefit
that could not be monetized. For example, OMB noted about EPA's
nonroad rule, that EPA also lists a variety of other benefit
categories which it was not able to monetize, ranging from
infant mortality to damage to urban ornamental plants. I would
say that preventing infant deaths is quite important, but,
since EPA didn't monetize that benefit, it doesn't count.
Next, ignoring the constraints children operate under:
depending on adults for their protection, not making their own
choices or aware of the consequences of their actions and
without the resources available to adults. These problems are
compounded because children of color, or living in lower income
communities often face disproportionate environmental health
risks, while most cost-benefit analyses assume equal
distribution of all costs and benefits across society.
This latest guidance compounds these and several other
problems in a variety of ways. I'd like to just review two now:
an increasing reliance on monetizing, and a rigid adherence to
discounting. I'm not arguing against quantification per se,
which cannot only be valuable but is possible without resorting
to the often artificial, assumption ridden and far from
transparent process of translating health or quality of life to
dollar figures.
Instead, I'm asking, is putting a dollar value on a
concept, a value, or a person, particularly a child, either
useful or more fundamentally in consonance with basic American
values?
As our President noted last Thursday evening, how do you
measure the benefit of freedom or the immeasurable cost of lost
lives, how to measure the value of a parent's love or the
religious value that we place on having healthy children?
Children's high value to parents is borne out by economic
research. For example, one recent paper found that parents have
a significantly higher willingness to pay to avoid acute
illnesses affecting children than those affecting adults.
Now to discounting. In this guidance OMB acknowledges that
its practice of discounting benefits in the future has been
questioned, in part because such discounting greatly reduces
health benefits to children. Let me give you one example of
this from last year's budget documents. For us noneconomists,
it would seem that, when we prevent the death of a 3-year-old
child with a life expectancy of 78 years, that we would have
saved 75 life years, while preventing the death of a 40-year-
old saves 39 years. With OMB's discount, however, the 40-year-
old saves approximately 13.3 discounted life years. And, the 3-
year-old? Approximately 14.3 discounted life years. OMB says,
and we agree, ``special ethical considerations arise when
comparing benefits and costs across generations.'' But then it
limits such considerations to the same fine print as that which
has not been fully monetized.
Finally, this guidance also assumes that overestimated
benefits are a greater concern than overestimated costs. This
is not supported by real world data, which show that the actual
costs of regulations are frequently below the preregulation
estimate while the benefits from such regulatory decisions as
removing lead from gasoline are more than an order of magnitude
higher than predicted.
Finally, we agree with OMB when it says, ``when important
benefits and costs cannot be expressed in monetary units, then
it is less useful, and it can even be misleading.'' Our hope is
that OMB will change its guidance to put this important
observation into effect.
Mr. Ose. Thank you, Rabbi Swartz.
[The prepared statement of Rabbi Swartz follows:]
[GRAPHIC] [TIFF OMITTED] T6439.089
[GRAPHIC] [TIFF OMITTED] T6439.090
[GRAPHIC] [TIFF OMITTED] T6439.091
[GRAPHIC] [TIFF OMITTED] T6439.092
[GRAPHIC] [TIFF OMITTED] T6439.093
[GRAPHIC] [TIFF OMITTED] T6439.094
[GRAPHIC] [TIFF OMITTED] T6439.095
[GRAPHIC] [TIFF OMITTED] T6439.096
[GRAPHIC] [TIFF OMITTED] T6439.097
[GRAPHIC] [TIFF OMITTED] T6439.098
[GRAPHIC] [TIFF OMITTED] T6439.099
[GRAPHIC] [TIFF OMITTED] T6439.100
[GRAPHIC] [TIFF OMITTED] T6439.101
[GRAPHIC] [TIFF OMITTED] T6439.102
Mr. Ose. Now, as is our practice, we will go to each Member
now for questions, to the extent there are questions that don't
get answered within their respective 5-minute period. We will
have multiple rounds accordingly, as we did with the last
panel. I'm willing to lead off.
For Dr. Miller, Dr. Hahn and Dr. Tozzi. Actually, I think
this is more accurately for Dr. Hahn and Dr. Tozzi. In his
written statement, Dr. Miller supports the need for agency
input into OMB's annual regulatory accounting report. Do you
think the OMB should issue an annual OMB bulletin to the
agencies, which would require agency estimates of aggregate and
new regulatory burden, as it does in annual OMB bulletins to
the agencies for aggregate and new paperwork burden? Dr. Miller
supports the need, in his written statement, for the same
information on aggregate and new regulatory burden. Dr. Hahn,
do you agree with that? Do you think OMB should issue an annual
OMB bulletin to the agencies which would require that?
Dr. Hahn. I don't know the answer to that, Mr. Chairman.
The reason I don't know the answer relates to a fundamental
confusion I've heard in some of the testimony today. We operate
in a world of finite resources. So we have to make difficult
tradeoffs, as Dr. Graham pointed out, among, for example, like
investing in certain SUV safety and the like. By the same
token, if you're at OIRA, and have a fixed number of employees,
you need to consider whether the investment in this new
innovation is going to be cost effective, and I simply don't
know the answer to that without thinking about it further.
Mr. Ose. So, if I understand your question, you don't know
whether or not OMB should issue such a bulletin, which would
require for regulatory burden much what they require for the
paperwork burden?
Dr. Hahn. My gut says yes, it's a good idea, but I would
want to ask Dr. Graham how it would impact other aspects. I
mean, certainly it would be very useful to know much more about
the regulatory burdens than we do now.
Mr. Ose. Dr. Tozzi, what about your position?
Dr. Tozzi. Well, you see I have worked for Dr. Miller a
long time, and every day we'd start a staff meeting he'd
explain that I was the deputy. But, if I could be relieved of
that conflict of interest----
Mr. Ose. By congressional edict you are relieved of that--
--
Dr. Tozzi. Thank you, sir. I want the record to show that.
I think there might be a need for a bulletin, but my question
is, if you take Dr. Miller's approach, the bulletin would look
at measuring aggregate costs across the board, and it would
probably help OMB. My question is, if you arrived--my favorite
thing of turning this into a regulatory budget, but then the
bulletin wouldn't be on total economic costs. There would be a
bulletin and it would be a bulletin that turned this into a
regulatory budget. So I guess in summary, Mr. Chairman, where I
am, I'm in the same church or synagogue, but a different pew.
Mr. Ose. Dr. Miller, any response?
Dr. Miller. I agree with----
Mr. Ose. That was good, Dr. Tozzi.
Dr. Miller. I agree with my colleague, Dr. Tozzi. Actually,
I think what we were just talking about is a template and just
asking the agencies to present the information in a consistent
format, a consistent way. You could better address some of the
questions Ms. Heinzerling had about some of these measures if
they were in a consistent format across the agencies. If you
look at this report, you're struck by the fact that OMB had to
grapple with the fact that many of the reports from the
agencies are inconsistent one to the other. Even within
agencies there are different standards.
Mr. Ose. Your concern is we have apples and apples or
oranges and oranges rather than apples and oranges?
Dr. Miller. Mr. Chairman, I wish I had said it your way.
Mr. Ose. I'm not going to measure or match wits with either
you or Dr. Tozzi, regardless of which church we all attend.
My time has expired. Governor Janklow, for 5 minutes.
Mr. Janklow. Dr. Tozzi and Ms. Heinzerling, could you tell
me, Dr. Tozzi, do you agree with her analysis, the way she
presents it, the factual basis of her analysis?
Dr. Tozzi. Governor, I'd like to go through her analysis a
little bit more, but I do think Professor Heinzerling is asking
the question of what's the limitations of benefit-cost
analysis, and it depends where you sit as to where you stand.
And, I think she's raised some legitimate concerns that's been
raised in the literature for a number of years you can only
push this tool so far.
But, on the other hand, the macro issue that's been around
for years and years, can you ever assign value to a life? And,
the question is--before you get into the details of the
methods, the question is do you want to? And, implicit in most
Federal programs there is a cost, the opportunity cost--there's
a cost associated with saving a life, and, so, the issue is how
you measure it? And I would defer to the professor here,
whether her issues--whether it should be done at all or the
methodology for doing so. I think there is an implicit cost and
the question that's up for debate is how, and the professor may
have a different view on that.
Mr. Janklow. Please.
Ms. Heinzerling. Yes. I don't think cost benefit of the
type that OMB performs should be done, and this doesn't mean
that we have to spend an infinite amount of money to save every
human life. Most Federal regulation of health and safety and
the environment takes economic costs and technological
feasibility into account. It puts a thumb on the scales in
favor of regulation. It tells an agency please protect health,
safety and the environment to the best you can, but don't
bankrupt industries, don't bring them to the brink of failure,
try to limit plant closings, do what you can in the most
efficient way possible. That is the basic framework under which
our health, safety and environmental agencies operate.
In my opinion, that's a very different charge from saying
to them--which you haven't done actually as a body in
Congress--saying to them, we would like you to look at the
amount that individuals have indicated they are willing to pay
for health, safety and the environment, and limit your
interventions to that amount. And, it seems to me very
different, the numbers may be very different, and the whole
enterprise is different when one considers in the first case,
let's do the best we can to protect health and the environment;
and, in the second place, let's limit our interventions to
those the market basically has already produced.
Mr. Janklow. Rabbi Swartz, do you disagree with the subject
completely of a regulatory budget or do you disagree more so
with the procedure that's been followed or suggested?
Rabbi Swartz. I think it's an excellent way to lay out the
choices, and it would be the second. I think that one can total
up costs and benefits in a way that--and here I think, in fact,
trying to put a dollar figure on everything gives you more of
apples and oranges than would some other ways of explicitly
leaving some judgments to lawmakers.
For example, I can see the attraction of wanting to compare
a traumatic head injury to a cancer to asthma and to have one
objective standard that lets you say that so many cases of
traumatic head injury equals so many cases of asthma, but there
isn't. It's not going to be objective. It's going to be
assumption ridden, and so why not instead look at how--what's
the most efficient way to combat asthma, what's the most
efficient way to combat traumatic head injuries, and then let
you, as our elected officials, make the decision about what's
most important for our country.
Mr. Janklow. Dr. Miller, do you think there's another way
to look at the substance as opposed to the procedure in a
regulatory budget? Do you agree with Rabbi Swartz?
Dr. Miller. I really don't. I really don't. Let me address
Professor Heinzerling's initial point that the use of benefit-
cost analysis is unlawful: She is welcome to her opinion, but
it goes against all the evidence. If it is, in fact, unlawful,
someone surely would have sought injunctive relief and no one
has. There have been some important cases, such as whether OMB
can prevent an agency from meeting a congressionally mandated
time table. The Supreme Court held it could not. The Executive
orders all start out with ``in so far as'' permitted by law.
Obviously, if it's not permitted by law, you can't do it. That
point, I think just a red herring.
The other question: I don't want to label Professor
Heinzerling's or Rabbi Swartz' testimony as necessarily fitting
this mold, but so much of what you hear is that you ought not
look at benefits and costs at all. It's like coming up with a
Federal budget and not expecting people to testify and talk
about the relative merits of the various programs.
You in Congress have to make those judgments, and basing
those judgments on information and analysis is surely better
than doing it blindly, and what Dr. Tozzi's been saying, Dr.
Hahn's been saying, things like you ought to work on the
information and make sure you understand it and do the analysis
correctly and make your judgments--it ought to be an informed
decision rather than an uninformed decision, and for the life
of me, I can't understand why someone would argue you ought to
make uninformed decisions rather than informed decisions.
Mr. Janklow. Thank you.
Mr. Ose. The gentleman from Tennessee for 5 minutes.
Mr. Cooper. Thank you, Mr. Chairman. I must admit, I didn't
expect to be interested by this panel, but it has intrigued me.
You read the title of it and you----
Ms. Heinzerling. We're happy to serve.
Mr. Cooper [continuing]. Think, oh, boy, I'd rather be
somewhere else. Let's assume for a moment that this regulatory
budgeting approach is valid. If it is at the regulatory level,
then why isn't it even more important to implement at the
congressional voting level, which none of our colleagues would
countenance? All the regulation is, is an administrative
principle that's within the scope of the statute, but I think
we, as Members, realize that we deal with life and death
issues, war and peace issues, love and affection issues that
are impossible to quantify, and I have the greatest respect for
economists and accountants, and I would love to apply their
principles to what we do, but, if you take a book like Against
the Gods by Peter Bernstein, a study of risk in the world, you
realize that even a prominent Wall Street analyst has concluded
that much of our knowledge is so new that even Wall Street
types are unfamiliar with the quantification techniques.
I'd like to point out one paragraph in Ms. Heinzerling's
testimony, which I think the average American should focus on
if they're looking at this issue. It reads as follows: ``it's
hard to overstate the effect of discounting on benefits that
will accrue to future generations. In the year 2100, the Census
Bureau predicts the population of the United States will be
approximately 571 million people. At OMB's 7 percent discount
rate, saving the entire population of the United States one
century from now becomes equivalent in cost benefit terms to
saving about 658,000 people today. With the magic of a
calculator, over 570 million lives simply disappear.'' You
know, we have to be careful with numbers. The average American
has trouble understanding an interest rate, much less a
discount rate.
We have to have lots of Federal regulations to help people
understand what your mortgage lender is doing to you or other
lenders. So it's important that we focus on these things, and I
would like to ask Dr. Miller and Dr. Tozzi if this is such a
great idea, let's not even think of applying it at the
congressional level, how about the tax expenditure budget
level? Last week we were asked to vote on a tax break for
foreign bettors on U.S. horse races. Another tax break was on
folks who manufacture bow and arrow sets, presumably for
children. I don't think it's in the Pentagon budget. Another
tax break was for those who mix diesel fuel with water, which I
always thought was illegal, but those are three of the things
that we were asked to allow special tax leniency for. Would you
suggest applying cost-benefit analyses to each of those
provisions?
Dr. Tozzi. Sir, it's the--first of all, the idea of a
discount rate and where it fits in a regulatory budget is
probably a tier 11 issue. The idea of putting a regulatory
budget together, just laying out all the regs and their costs
in some orderly way, that is such a job and what we're getting
down to the discounts rate is how you estimate the cost. OK?
And, that is a big issue to the economics profession, I agree,
but in terms of a regulatory budget, look at the budget you
people look at, several trillion dollars.
Has it ever come up to you what the discount rate behind
those programs were? Never. And, we're very capable of spending
money without that number. So I think there's a lot of
technical issues on it, but I don't think we should confuse
resolving what the discount rate is and how you can use that
opposed to the imposition of a regulatory budget. I think it's
way down the line.
Dr. Miller. Congressman Cooper, I do not know of any
responsible academic who argues that you shouldn't apply
discount rate in comparing benefits and costs. That is just
totally beyond the pale, as far as academic research goes. On
your question of defending these, I would apply benefit-cost
analysis to the three issues you raised based--and on your
description they would all fail fast.
Dr. Tozzi. It depends--maybe yes, maybe no. It depends if I
got one.
Mr. Cooper. An honest man. I don't think the question is
whether it's not appropriate, in theory, to apply discount
rates, but no one really knows what a discount rate really is.
I used to be an investment banker. They're all over the lot.
You can manufacture reports to prove almost anything you want.
Ms. Heinzerling has worked for perhaps one of the foremost
jurists in this country, as far as economics, Richard Posner.
You know, I'm not sure about Justice Brennan's qualifications
in that regard. But I think, perhaps, Dr. Miller you should
allow more latitude. I think some of these people are
responsible. I don't think you meant to apply that they're all
irresponsible. And, this is something that we should have a
valid and lively debate on.
I appreciate you gentlemen raising the issue, but I've
never heard a Republican yet say that we should do this for a
tax expenditure budget. In fact, the Reagan view is tax
expenditures don't exist. It's all the people's money.
Dr. Miller. Could I volunteer to be the first?
Mr. Cooper. I will look forward to your column on that
subject.
Dr. Miller. I might write one. But back to the point, you
might disagree over what the discount rate might be, and it
might be different for different starting points, as Dr. Hahn
will probably elaborate. If I misunderstood, I apologize to
Professor Heinzerling, but if I understood the import of what
you read from her testimony, she would reject the notion of a
discount rate--not a question of whether it should be 7 percent
or 4 percent or 3 percent or 6 percent, but reject the notion.
To me it's just flat out nonsensical.
Mr. Ose. The gentleman's time has expired. We'll come
around again. Drs. Miller, Hahn and Tozzi, we had a discussion
in the first panel about the inclusion of the regulatory
accounting statement and its associated report on impacts with
the President's budget at submittal time, and Dr. Miller has
already offered in his comment that can be delivered concurrent
with the President's budget.
Dr. Hahn and Dr. Tozzi, do you think delivering those
pieces of information concurrent with the budget would increase
the overall utility of the information to Congress, or would it
make any difference?
Dr. Tozzi. Well, before I got on the regulatory budget, I
was in the budget business at OMB for a long time, and I think
the budget side of OMB is going to oppose that very, very
heavily and I will tell you why. First of all, if you compare
the accuracy in their mind of the data in the Federal budget
that's up for appropriation, with what will come out of this
system, in this current system, and put the OMB stamp of
approval on it, I think there's going to be a big debate on
that.
So, I think there's going to be a reluctance within the
institution to do that. Second, I think there's going to be an
overall resistance because of the nature of who uses the
budget, and it goes up through the budget shops of all the
agencies, and you're going to have a lot of procedural work to
be done to match two information flows, all the regulatory
people into that budget process. So I can't argue. I agree with
Dr. Miller that in the long run, that if we had a regulatory
budget and the numbers were of sufficient accuracy, I agree
they could be mixed. I think in the short run, I'd rather have
the limited resources again turning this into a regulatory
budget and marry them at a later stage in time with the Federal
budget when the data is of comparable accuracy.
Mr. Ose. Let me come back to that question. Dr. Hahn, do
you share that opinion?
Dr. Hahn. Yes, I basically share that opinion.
Mr. Ose. Going back to your point about the unified agenda
there being the more interesting document, how much time--if
we're not going to pare this regulatory accounting statement
with the President's budget, how much time do you think should
elapse between the submittal of the President's budget and the
issuance of these----
Dr. Tozzi. Well, that's a good question.
Fortunately this comes out every 6 months and so it has a
lot more real time information in it than the President's
budget. It's supposed to be due out in October or April, and
they've been pretty good recently. They've been missing it by a
month. So what you'll see, Mr. Chairman, if they meet these
dates, you'll have a picture of the regulatory state 2 or 3
months before the budget comes out and 2 or 3 months after the
budget comes out.
Now, if at some point in time you wanted to marry these, I
think that could be done, but I don't think that would be the
main problem right now. The main problem is taking the steps
procedurally to turn this into a regulatory budget. I don't
think that 3 months one way or the other, before or after that
system is a big handicap.
Mr. Ose. Chronologically, the President drops his budget
in----
Dr. Tozzi. January/February.
Mr. Ose. Yes, early February. At least the House calendar
moves to adopt the budget by April 15. Now, how do we reconcile
that timeframe? Because it would seem to me that the Budget
Committee would need the regulatory accounting statement in
order to decide how they want to allocate resources.
Dr. Tozzi. Correct, and what I'm suggesting is they're
going to have two documents because between October of 1 year
and April the following year, the changes in total macro costs
could be substantial, I doubt it. And, second, if they would
have enough time to work on the October edition well before
that markup, because if we come out in April with this, it's
too late for them to do it, but I don't think--the numbers have
to bear themselves out. I just don't think with a document this
size, unless there's some really unusual rule which comes out,
October numbers would not be that bad to work on each year
because you'd work with the October budget for the early
markups. By the time you had final markup, you'd have the April
edition.
Mr. Ose. My time has expired. I'm going to come back to
this question.
Governor Janklow.
Mr. Janklow. Rabbi Swartz, last year Susan Dudley, when she
gave testimony before this committee, said, ``Studies reveal
that a reallocation of current spending from lower risk to
higher risk problems could greatly increase the lifesaving
benefits of regulations designed to reduce health and safety
risks and achieve other goals.''
If this is correct, if what she says is correct, isn't
regulatory accounting really essential to better protect public
health and safety?
Rabbi Swartz. The thing that I think is really important to
remember, and I think it was Dr. Tozzi who mentioned this, is
that this is a tool, and it's going to have some use but it's
not going to do your job for you, and for example, in terms of
comparing risks, one piece of information that's very helpful
when you're making decisions about risk is what's the most
frequent risk, but risk for what? Is it risk for being a
fashion catastrophe or a terrorist catastrophe? So, you want to
see the size of the effect, and you also want to see is it a
reversible effect or not? Is it something you can fix easily or
something that's basically irreversible?
Mr. Janklow. But, if we don't know the costs or the
benefits of a regulation, then how do we really know if--we say
we're trying to do, we're doing it in people----
Rabbi Swartz. I'm sorry. I'm not arguing against measuring
costs and benefits. What I'm arguing about is a way that does,
that says that the only thing you measure are dollar values.
Mr. Janklow. Could you make available to us or your
organization--and frankly, I don't know if they're the same
sir, because I don't know you folks that well. Could you make
available to the committee what methodology you don't like
that's being followed or recommended, and what methodology you
suggest should be used for a regulatory accounting approach?
Rabbi Swartz. Sure, and along that line I would--I'm a
little intimidated correcting Dr. Miller's notion of the
economic field, but I know at least six economists who are well
published, well regarded in the field who have written about
the inappropriateness of discount rates under certain
circumstances. I'm not, and I don't think that Professor
Heinzerling is saying you never use discount rates, but
discounting health benefits has some fundamental theoretical
problems. And, you can read those in Richard Howarth at
Dartmouth, or Edward Barbier at the University of Wyoming, or
Jane Hall at Fullerton and----
Mr. Janklow. But I'm also suggesting, sir, if you'd make
available to us what is it that you suggest should be the
measuring criteria.
Rabbi Swartz. Sure. I would be glad to.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T6439.103
Mr. Janklow. Could you do the same thing too, Dr.
Heinzerling, also?
Ms. Heinzerling. Absolutely. Absolutely. I think you'll
find that it's reflected in many of our current laws, the
approach that I'll provide for you. But absolutely I'd like to
do that.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T6439.104
[GRAPHIC] [TIFF OMITTED] T6439.105
[GRAPHIC] [TIFF OMITTED] T6439.106
[GRAPHIC] [TIFF OMITTED] T6439.107
[GRAPHIC] [TIFF OMITTED] T6439.108
[GRAPHIC] [TIFF OMITTED] T6439.109
[GRAPHIC] [TIFF OMITTED] T6439.110
Mr. Janklow. Do you think the current law that we have is
the best we can do?
Ms. Heinzerling. No. I would never say that but I don't
think that cost-benefit analysis is going to improve the ways
in which I think the current system fails. For one thing, the
current system fails to regulate many risks as stringently as I
think should be required. Second, cost-benefit analysis adds to
the informational burdens already borne by the agencies. It's
expensive. It's time consuming. It's contentious, it leads to
litigation. At the end of the day, nobody's satisfied with it,
and so, yes, I think that there are places where we could
improve things.
I think economists have really helped us out in many ways
by pointing out ways in which social goals can be achieved more
cheaply. I think that all of that is all to the good. I don't
think that the system will be improved by reducing everything
to dollars and then discounting them over a period of time.
Mr. Janklow. Thank you. Dr. Hahn you're smiling. Why?
Dr. Hahn. Yes. Professor Stigler, may he rest in peace--he
was a Nobel Laureate in economics said, ``It takes a theory to
beat a theory.'' I think one of the problems with all these
criticisms, you put your finger on it, is they don't really
have a theory that beats the implementation of cost-benefit
analysis in a broad sense. It just defies common sense to say
you shouldn't think about what the costs and benefits are
before you make a decision either individually or socially.
Mr. Janklow. Thank you.
Dr. Miller. Could I just add one point sir? You might ask
the question, can benefit-cost analysis be misapplied? The
answer is, of course. It's done all the time, and that is one
reason some very good people criticize benefit-cost analysis.
I'm not trying to defend all benefit-cost analysis. I have
criticized my share. I have sent some back when I was OIRA
head. The question, though, is whether it is a useful tool; and
the answer is, yes, it is a very useful tool. Broadly defined,
benefit-cost analysis, as Dr. Hahn was suggesting, is what you
think when you make your decision--should I go this way or that
way? And, even if you don't tote up and monetize benefits and
costs, you're revealing that you think this way is better than
that way when you take the former path.
Mr. Ose. The gentleman's time is expired.
The gentleman from Tennessee for 5 minutes and 45 seconds.
Mr. Cooper. I thank the Chair. There are many failings of
government. We all realize that our budgeting process does not
rely on accrual accounting. We don't have a capital budget.
Lots of things that Congress has decided we do not need to have
because we're not like a corporation. We're different. When Dr.
Hahn said it takes a theory to beat a theory, I thought our
theory was the Constitution of the United States and the Bill
of Rights, things like that; essentially human documents that
do not tell, for example--every jury has to rely on cost-
benefit analysis before they issue a verdict. I can't help but
wonder if some liberals might not--should be for this
regulatory budgeting concept, because my guess is the foreign
aid budget of the United States would have to be multiplied 100
or 200-fold, since the fee to keep alive in a foreign country
might take as little as $1 a day; and, yet, we in our country,
our infinite wisdom, choose not to do that. Then the question
of whether their lives are worth less than our lives over here.
To me, I love accounting and economics. I think it's great.
I think we should apply these tools when and if appropriate,
but I'm deeply worried that we might be creating a little bit
of a monster here that--not to preclude any of this analysis,
but to wholesale stop regulations as Dr. Graham seems to have.
It seems to me that maybe we're allowing the tools to control
the master here, especially when so few people in the general
public are equipped at all to deal with these tools.
You know, there are some great economists who proved that
there's no such thing as a hot streak in basketball. Each shot
is independent. But tell that to a sports fan, you know. They
would no more believe you than they would have believed pre-
Galileo that the Earth was round.
You know, we have to work with what we've got here, which
are human beings. And, to me, we need to gradually introduce
these tools when and if appropriate, and then see if we can
improve the wisdom of our decisions as we go along. Is that--
Dr. Hahn.
Dr. Hahn. If I understand you Congressman Cooper, I agree
with you, only you said it more eloquently than I would have.
I'm not suggesting that the results of a cost-benefit analysis
that a good economist does should be decisive in the sense that
it should immediately be implemented.
What I am suggesting is that toting up the benefits and
costs, both those that can be quantified and those that can't
in some systematic fashion, can usefully inform decisionmaking
when we're making multibillion-dollar decisions, as we do in
regulatory agencies every day, not that they would necessarily
be decisive.
Mr. Cooper. We're having a huge fight here now in dynamic
scoring. We can't decide when or if to apply that, and that is
relatively simple in comparison to these decisions. But, that's
the current state of play in Congress right now is--I don't
think we've picked a new head of the Joint Tax committee, have
we? We do have Dr. Hosaka and the CBO, and I'm sure he
delivered a crushing blow to dynamic scoring--this was last
week--when he was expected to deliver a much more favorable
scoring of the President's budget than in fact he turned in.
But, to me it's exciting to contemplate these new tools,
but, they're so primitive, as I think Dr. Bernstein pointed out
in his book. I had no idea as a relatively young economist that
so many of these things were so recently invented. The human
mind has a long way to go before we fully understand a lot of
these things, but, I thank the Chair and yield back the balance
of my time.
Mr. Ose. The gentleman yields back.
Dr. Miller, Hahn and Tozzi, the President's budget comes
out with a 7-year analysis in terms of the impact of its
proposals. It's got the past year, the current year, the budget
year and the 4 following outyears.
Now, the question I have is whether or not it would be
helpful to Congress so that the on-budget and off-budget costs
of that budget--the President's budget--could be evaluated in a
simultaneous or concurrent fashion. Do you think that would be
positive or negative? Dr. Miller.
Dr. Miller. I think it would be positive, but I have said
many, many times I think Congress can get carried away with
looking at the outyears. The aggregate figures for spending and
for revenues, are not very reliable.
Mr. Ose. So we have to recognize that those are
projections, of course.
Dr. Miller. Yes. And the same thing with regulation; though
your question triggers the question of whether they're more
reliable than the fiscal figures. If you're looking at the
deficit figures, they probably have the variance that is much
higher than the variance on major regulations.
Mr. Ose. So, at least for the past year, the current year,
the budget year, it might be useful.
Dr. Miller. Yes.
Mr. Ose. But, as you move out, your variation--I mean,
your----
Dr. Miller. Confidence interval.
Mr. Ose [continuing]. Confidence interval gets higher and
higher and higher.
Dr. Hahn.
Dr. Hahn. I agree with what Dr. Miller said. I think it is
a good idea, given my own belief and what the research of
others suggests, that regulation has a reasonably big impact on
the economy; that you, as our decisionmakers, are given the
kind of information you need to see that. So, I would be for
informing you in that way.
Mr. Ose. Dr. Tozzi.
Dr. Tozzi. Sir, I don't think that data are available. When
we put the budget for President Carter together, the regulatory
budget, what we did was an incremental regulatory budget. We
took the cost of all pending regulations over--that were coming
out, and the problem is the data base has a total cost of the
regs, but we had no idea if you were going to put $1 billion
for a clean air reg, what the expenditures by thousands of
companies were going to be over the ensuing years.
So, I don't think that data are available, and I think the
initial effort on a regulatory budget would be looking at the
incremental total costs imposed by that regulatory menu and
then developing some algorithm of how you set a total on it. I
think trying to spread those macrocosts on a year-by-year basis
are going to be very difficult. I haven't seen any data base
even close to that that will allow us to do it.
Mr. Ose. So, to use Mr. Cooper's word, it's pretty dynamic,
isn't it?
Dr. Tozzi. Dynamic, I think is sort of a yuppie term for
budgeting. I'm not sure what it is.
Mr. Ose. This issue of a pilot test for regulatory
budgeting, Dr. Miller, I'd be curious as to your feedback as to
whether or not it's useful. I don't know which agency or
program you might pick, but in terms of setting up a pilot
program for regulatory budget approach, do you think it would
be useful; which agency do you think you probably want to use
as the template; and what would you expect to achieve?
Dr. Miller. That is a good question. I mean, I would
address one of the larger regulatory agencies, one that has
reasonably good data on benefits and cost, one whose regs tend
to be reasonably homogeneous and comparable, and then maybe
even a component of that. Say, for EPA--might do just the air
part.
The authorizing committee could insist the agencies do that
in cooperation with OMB and talk about the total costs imposed
upon the private sector. They could force the agencies to
address how they might establish priorities and yield more
cost-effective results. That is, everything else equal, for the
cost it imposes upon the private sector, how to get greater
benefits--or alternatively, for the same benefits how to lower
costs; the same kind of things you demand of agencies when you
talk about appropriating money for programs. You ask them to
give you information about how to accomplish the goals most
efficiently.
In response to Mr. Cooper--I'm sorry he's left. What we're
proposing here and discussed before is that Members of Congress
make those determinations. I just think that you ought to be
more informed rather than less informed, and doing a regulatory
budget would be a way of your getting a handle on what the
agency does and force them to be more cost-effective and get
them thinking the right way about this--responding to the
public which pays their salaries.
Mr. Ose. Five minutes is awfully short.
Governor, we're going to go to 10-minute rounds, and you're
going to be first.
Mr. Janklow. I'm going to be very brief, Mr. Chairman. Dr.
Tozzi, back when President Carter was a candidate for
President, coming off his tenure as a Chief Executive of
Georgia, he was a strong proponent and advocate of what they
called in those days zero-based budgeting. Did you ever attempt
to do that during his administration, and was there any success
at all, or what was your--the analysis, if it was tried? And, I
don't know if it was.
Dr. Tozzi. Yes, sir. At that point in time, I was Chief of
the Environment Branch in OMB and I had jurisdiction over EPA's
programs and a couple of other environmental programs. And,
President Carter's zero-based budgeting looked at--there was no
base to any program, and we would rank-order all of the
programs.
And, I will say that was the third or fourth such big
system I helped put in. President Johnson put in PPBS, Planning
Programming Budgeting System. President Carter put in zero-
based budgeting. The Nixon administration put in management by
objective. And you name it and I was there. OK? That is the
reason I----
Mr. Janklow. Have you recorded all of this for the National
Archives?
Dr. Tozzi. Not on the record, sir.
The question is that's why my reluctance to put any big
governmentwide system on cost accounting in. I think the
process of setting a regulatory budget where you put--just
simply put all the regs in an agency in one place, people look
at them and debate the merits of those. They look at individual
things on the entrees and say, hey, are you going to look at
this alternative? What cost information? And, you come up with
an identified menu of what you're going to do, the way to go to
get all the details of how you do the discount rates and
setting up the regulatory budget look--they want a base. They
want to know all the costs of existing programs. I think that
is a humongous exercise that maybe goes the way of some of
these other exercises.
If you look at a regulatory budget, incremental costs that
are going to be put on that or quantified, I think you can do
something; but, I'm reluctant to say you're going to have right
now a regulatory system that looks at all the costs of all the
regs of every Federal Government agency and totals them up. I
think that's a big job and may go the way of those other 15
things I worked on.
Mr. Janklow. Dr. Hahn, you're shaking your head no and
commenting to Dr. Miller. Go ahead.
Dr. Hahn. No. I think most people are talking about doing a
regulatory budget. This is just in response to Dr. Tozzi.
You're talking about at least trying it out with respect to a
pilot program, in response to your question; and also
incrementally, the new regulations, what impact will they have
over time and how do we prioritize them.
Mr. Janklow. Rabbi Swartz, given Dr. Tozzi's explanation of
what he thinks we ought to do, do you disagree with that, and,
if so, why?
Rabbi Swartz. I don't. As Dr. Hahn said to an earlier
question, the key would be to get more information from this
than it adds burden to the various agencies. They do have
limited staffs and limited resources. So I would want to make
sure that the information you get out of it is worth as much to
you as the time that they can't be doing the other parts of
their job. And, I can't make that judgment. I don't have the
expertise to do that. But, that's what I would look at.
Mr. Janklow. That's all I have, Mr. Chairman. Thank you.
Mr. Ose. I think one of the curious things that I hear is
that on a day-to-day-to-day basis, all of us who sit on this
side of the microphone struggle with how to allocate resources.
I mean, Rabbi Swartz, you just said something that I thought
was particularly insightful, and that was that we're not
sitting out at the agencies making the day-to-day decisions
to--is this consultant or is this person going to dedicate
their time to evaluate the cost and the benefits of this
program, or are they going to go implement the system? It's not
our role.
Our role is to decide, all right, we're going to put X
number of resources here, Y number there, and Z number there.
Now, what I'm trying to get to is some year-after-year-
after-year means of tracking what Congress authorizes,
allocates, and appropriates against the benefit that we get as
a country from those authorizations, allocations, and
appropriations, and then somehow or another reconcile that with
the unauthorized or unappropriated burden that we put on the
American--on the United States as a whole.
I think we have, frankly, some difficulty in deciding what
the priorities should be. I mean, that's why we have at least
two different parties. But, I don't think anybody struggles
terribly hard with the need to at least prioritize.
Now, I want to just go through here and understand the
degree to which this tool can be used, this regulatory
accounting tool can be used. I mean, I hear from Dr. Miller
that it is a tool and only a tool. I hear, perhaps, Rabbi
Swartz suggesting that the tool has severe limitations. Would
you care--I mean, Doctor, would you care to--we're going to go
right down the dias here, the table. I want to give you an
opportunity here, before we close, to evaluate the validity of
the information that we might get out of a regulatory
accounting proposal.
Dr. Miller. Oh, I think it could be very useful, and if you
push the agencies to give it a high priority, it would be
reasonably accurate and to the point and will help the quality
of your decisionmaking a lot. Even if you disagree over
priorities, you and your colleagues, you're more likely to come
up with something that makes sense than if you are in the dark
about a lot of these things. So, the more information you have,
the better. The better the analysis, the better your decisions.
And, the point that I have made and you've made before is
compared to all of this intense scrutiny and work that is done
on the appropriations process, which accounts in the
discretionary side for less than the total resources commanded
by regulation, the amount of focus on regulation is de minimis.
Mr. Ose. Dr. Hahn.
Dr. Hahn. I think the regulatory accounting proposal has a
lot of merit. I think we have to take stock of where we are
now. My research and that of others suggests that the
regulatory analyses that the agencies are doing, while quite
variable in quality, are frequently poor and not summarized
very well. And, it's not put into the kinds of statements that
would be useful for you, as you were suggesting. So, I think
moves in that direction would be very constructive.
Mr. Ose. Dr. Tozzi.
Dr. Tozzi. Mr. Chairman, what I am recommending is not that
you propose a regulatory accounting system, I'm recommending
that you start a regulatory budgeting system, which would mean
that you would take this document before me, and as Dr. Miller
said, look at one component of an agency. Here's EPA, which
obviously--because I think they do a pretty good job. There's
100 regulations under development in this document; and the
regulatory budget to me, the first start would be a debate on
two things: Which of those resources--which of those should go
forward, which ones should you put money on to work on; and
second, within a reg, what alternatives should be looked at?
What is its timeframe?
And, there should be a debate on that, and the Congress
would act on this menu. I do not need at this point in time a
massive regulatory accounting system to do that. You could
implement it out of this book. It's a regulatory budget.
Doesn't have numbers in it, but it's the same as a Federal
budget. You could look at that and debate the programs, make a
decision of what goes in this document, and an informed
congressional debate on each of these programs. And, I don't
need the regulatory accounting system to do that right now.
Mr. Ose. Professor Heinzerling.
Ms. Heinzerling. I think part of the premise of your
question is that we would have more information if we had a
regulatory accounting requirement. And, I would just point out
that we have a huge amount of information about regulations
already. We're swimming in information. The agencies are
practically paralyzed by analytical requirements.
And, so the first thing I would ask is, what good would
this regulatory requirement do in comparison to the system that
we already have? I would agree--I don't agree with everything
Dr. Graham says, but, today, I agree very much with something
he said, which is that, if we had such a system, we have to
remember to look at benefits as well, and not just at costs.
And, so the hesitation I would have, in addition to the one I
just stated, is that we would want to be able to look at the
benefits that are gained by these programs and not just the
costs.
And, the other observation I would make is that I think it
seems to me that all of the witnesses here have agreed, even if
they like regulatory accounting or regulatory budgeting, which
are different things, if they like either one or both of those
things, they don't think we should start by imposing this
requirement on all of the agencies at once. And, I just point
out again the mystery here, which is that Dr. Miller suggests
we start with EPA as an example, and yet here again the puzzle
that I opened with remains; which is, if EPA has some of the
biggest regulatory bargains around, why are we starting with
this agency and starting with something that might hobble it
even further?
The last point I'd simply make is that I'm not aware of--
and I'd be happy to see cites. I'm not aware of analysis that
does a cost-benefit analysis on cost-benefit analysis. I think
it would be very interesting to see that.
Mr. Ose. Rabbi Swartz--that was well put.
Rabbi Swartz. I want to second Professor Heinzerling's
point about the sea of information; and certainly in an ideal
world, the more information the better. But, you don't live in
an ideal world. You live in the real world. And, you have
limited staff and limited ability to take stuff in, too. So,
you're going to need summaries, and it makes those summaries
more palatable if they're all in the same format. And, that
requires things to be translated from one kind of information
to another. And, if there is one thing that I know that I'm
more expert in than anybody else on this panel, it's how
controversial translating is. You can gain or lose a lot of
information in the translation, depending on how good the
original information is and how good the translator is.
So there are going to be costs to try to get everything--
every piece of information the same way.
Is it good to have a summary of it? It is great to have a
summary that at least puts things in the columns--here are all
the costs and here are all the benefits--whether they are
tabulated or not. I think that would be very useful. But the
extra tweaking you have to do to be able to get a single number
on each side may cost you more than it gains you.
Mr. Ose. Governor, you have anything you want to add?
Mr. Janklow. No, I don't. Thank you very much to all of
you, and I think your comments at the end are really
appropriate. We just have to figure out how to move forward in
a sensible way, because I don't think anybody questions the
fact there has to be a cost-benefit understanding of what it is
that we do when we're taking money from taxpayers and spending
their money.
Mr. Ose. I thank the gentleman from South Dakota. I want to
express my appreciation to the panel that joined us for our
second session today.
We're going to leave the record open for 10 days in case
there are Members who wish to submit written questions, and we
would appreciate your timely responses to that. I am grateful
for your taking the time today, and I'm sure we'll have at
least another meeting or two on regulatory accounting in the
future. Have a great day. We're adjourned.
[Whereupon, at 4:22 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
follows:]
[GRAPHIC] [TIFF OMITTED] T6439.111
[GRAPHIC] [TIFF OMITTED] T6439.112
[GRAPHIC] [TIFF OMITTED] T6439.113
[GRAPHIC] [TIFF OMITTED] T6439.114
[GRAPHIC] [TIFF OMITTED] T6439.115
[GRAPHIC] [TIFF OMITTED] T6439.118
[GRAPHIC] [TIFF OMITTED] T6439.119
[GRAPHIC] [TIFF OMITTED] T6439.120
[GRAPHIC] [TIFF OMITTED] T6439.121
[GRAPHIC] [TIFF OMITTED] T6439.122
[GRAPHIC] [TIFF OMITTED] T6439.116
[GRAPHIC] [TIFF OMITTED] T6439.117