[House Hearing, 108 Congress]
[From the U.S. Government Printing 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


                                 ______

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                            WASHINGTON : 2003
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                     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:]

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    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:]

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    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:]

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    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:]

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    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:]

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    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:]

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    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:]

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    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:]

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    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:]

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    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.
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    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.
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    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 
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