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

     HOW TO IMPROVE REGULATORY ACCOUNTING: COSTS, BENEFITS, AND IMPACTS OF
                          FEDERAL REGULATIONS--PART II

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

                                    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

                                 SECOND SESSION

                                   __________

                               FEBRUARY 25, 2004

                                   __________

                               Serial No. 108-159

                                   __________

           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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                         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
    NATHAN DEAL, Georgia                 C.A. ``DUTCH'' RUPPERSBERGER,
    CANDICE S. MILLER, Michigan              Maryland
    TIM MURPHY, Pennsylvania             ELEANOR HOLMES NORTON, District of
    MICHAEL R. TURNER, Ohio                  Columbia
    JOHN R. CARTER, Texas                JIM COOPER, Tennessee
    MARSHA BLACKBURN, Tennessee          ------ ------
    ------ ------                                    ------
    ------ ------                        BERNARD SANDERS, Vermont
                                             (Independent)

                        Melissa Wojciak, Staff Director
           David Marin, Deputy Staff Director/Communications Director
                          Rob Borden, Parliamentarian
                           Teresa Austin, Chief Clerk
              Phil Barnett, Minority Chief of Staff/Chief Counsel

    Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs

                         DOUG OSE, California, Chairman
    CHRISTOPHER SHAYS, Connecticut       JOHN F. TIERNEY, Massachusetts
    JOHN M. McHUGH, New York             TOM LANTOS, California
    CHRIS CANNON, Utah                   PAUL E. KANJORSKI, Pennsylvania
    NATHAN DEAL, Georgia                 DENNIS J. KUCINICH, Ohio
    CANDICE S. MILLER, Michigan          CHRIS VAN HOLLEN, Maryland
    ------ ------                        JIM COOPER, Tennessee
    ------ ------

                                   Ex Officio

    TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                       Barbara F. Kahlow, Staff Director
                             Anthony Grossi, Clerk
                         Krista Boyd, Minority Counsel

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on February 25, 2004................................     1
    Statement of:
        Kovacs, William, vice president, Environment, Technology and
          Regulatory Affairs, U.S. Chamber of Commerce; Susan Dudley,
          director, regulatory studies program, Mercatus Center,
          George Mason University; Richard B. Belzer, president,
          Regulatory Checkbook; Joan Claybrook, president, Public
          Citizen; and Robert R.M. Verchick, Ruby M. Hulen professor
          of law, University of Missouri at Kansas City School of
          Law, Center for Progressive Regulation.....................    47
        Sullivan, Thomas M., Chief Counsel for Advocacy, Small
          Business Administration; and John D. Graham, Administrator,
          Office of Information and Regulatory Affairs, Office of
          Management and Budget......................................    12
    Letters, statements, etc., submitted for the record by:
        Belzer, Richard B., president, Regulatory Checkbook, prepared
          statement of...............................................    73
        Claybrook, Joan, president, Public Citizen, prepared
          statement of...............................................    89
        Dudley, Susan, director, regulatory studies program, Mercatus
          Center, George Mason University, prepared statement of.....    65
        Graham, John D., Administrator, Office of Information and
          Regulatory Affairs, Office of Management and Budget,
          prepared statement of......................................    28
        Kovacs, William, vice president, Environment, Technology and
          Regulatory Affairs, U.S. Chamber of Commerce, prepared
          statement of...............................................    50
        Ose, Hon. Doug, a Representative in Congress from the State
          of California, prepared statement of.......................     4
        Sullivan, Thomas M., Chief Counsel for Advocacy, Small
          Business Administration, prepared statement of.............    14
        Tierney, Hon. John F., a Representative in Congress from the
          State of Massachusetts, prepared statement of..............    35
        Verchick, Robert R.M., Ruby M. Hulen professor of law,
          University of Missouri at Kansas City School of Law, Center
          for Progressive Regulation, prepared statement of..........   111

     HOW TO IMPROVE REGULATORY ACCOUNTING: COSTS, BENEFITS, AND IMPACTS OF
                          FEDERAL REGULATIONS--PART II

                                  ----------

                          WEDNESDAY, FEBRUARY 25, 2004

                      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 10 a.m., in
    room 2247, Rayburn House Office Building, Hon. Doug Ose
    (chairman of the subcommittee) presiding.
        Present: Representatives Ose, Schrock, and Tierney.
        Staff present: Barbara F. Kahlow, staff director; Anthony
    Grossi, clerk; Megan Taormino, press secretary; Krista Boyd,
    counsel; and Jean Gosa, minority assistant clerk.
        Mr. Ose. I call to order today's hearing on the
    Subcommittee on Energy Policy, Natural Resources and Regulatory
    Affairs. The subject of today's hearing is, ``How to Improve
    Regulatory Accounting: Costs, Benefits, and Impacts of Federal
    Regulations--Part II.''
        In the fall of 2001, the Small Business Administration
    estimated that, in the year 2000, Americans spent $843 billion
    to comply with Federal regulations. SBA's report concluded,
    ``Had 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. The report 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.'' It is clear that
    regulations add to business costs and decrease capital
    available for investment and job creation.
        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 [OMB], to submit its first regulatory accounting
    report. In 1998, Congress changed the report's due date to
    coincide with the President's budget so that Congress and the
    public could simultaneously review both the on-budget and off-
    budget costs associated with each Federal agency imposing
    burdens on the public. In the year 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 seventh annual
    regulatory accounting report, which was released on February
    13, 2004, which is 11 days after the statutory deadline of
    release with the President's budget. Unfortunately, this late
    submission prevented the congressional subcommittees from
    submitting fully informed recommendations for this year's
    budget resolution. We will again discuss how to improve
    compliance with the substantive statutory requirements.
        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 U.S. Department of Agriculture and the Labor
    Department's Occupational Health and Safety Administration? Is
    there an alternative approach for USDA or OSHA to more
    effectively, with less burden on and cost to the public,
    accomplish their intended objectives?
        To date, OMB has issued six final and one draft regulatory
    accounting reports. All seven did not meet some or all of the
    statutorily required content requirements. 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. Its just-issued draft report includes a
    thoughtful discussion of how Federal regulations affect the
    manufacturing sector. In addition, on September 17, 2003, OMB
    issued a new OMB Circular A-4 to standardize future agency
    cost-benefit analyses.
        For the President's fiscal budget and OMB's Information
    Collection Budget, OMB tasks agencies annually with submitting
    budgetary and paperwork estimates, respectively, for each
    agency bureau and program. In contrast, for Federal
    regulations, OMB does not similarly task agencies annually with
    submitting cost-benefit estimates for each agency bureau and
    regulatory program. On June 11, 2003, I introduced the
    Paperwork and Regulatory Improvements Act, H.R. 2432. Section 6
    of this bipartisan bill includes requirements to improve
    regulatory accounting, such as: requiring agencies to submit
    information, where available, for OMB's annual regulatory
    accounting statements; requiring the annual regulatory
    accounting statement and associated report to be submitted ``as
    part of'' the President's budget, compared to ``with'' the
    President's budget; and requiring OMB to conduct a multi-agency
    study of regulatory budgeting.
        Presently, the huge off-budget expenditures, which truly
    are hidden taxes to comply with Federal regulations, receive
    much less scrutiny than proposed on-budget expenditures and the
    Federal deficit. Regulatory accounting is a useful way to
    improve the cost-effectiveness of government. Both Presidents
    Reagan and Clinton issued Executive orders requiring cost-
    benefit analyses so that policymakers could see the strengths
    and weaknesses of alternative approaches and could make choices
    to ensure that benefits to the public are maximized. I support
    these requirements and want to make sure that the Government is
    doing everything it can to minimize the burden of regulations
    on the American public.
        I look forward to the testimony of our witnesses.
        [The prepared statement of Hon. Doug Ose follows:]

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        Mr. Ose. I am pleased to recognize my good friend from
    Virginia, Mr. Schrock, for the purpose of an opening statement.
        Mr. Schrock. Thank you, Mr. Chairman. I have no opening
    statement. I am just looking forward to the testimony of Mr.
    Sullivan, among others, and to asking several questions I hope
    will clear up some issues. Thank you.
        Mr. Ose. All right, apparently there is a long line to get
    into Rayburn this morning, and we are concerned that Dr. Graham
    may be caught in that line. We are going to proceed at pace
    with Mr. Sullivan's testimony and subsequent witnesses, as time
    permits.
        Our typical practice here is to swear in all of our
    witnesses. We are not picking on anybody, that is just what we
    do here. So, Mr. Sullivan, if you would please rise.
        [Witness sworn.]
        Mr. Ose. Please let the record show the witness answered in
    the affirmative.
        Joining us today, our first witness today, Mr. Tom
    Sullivan, who is the Chief Counsel for Advocacy at the Small
    Business Administration.
        Mr. Sullivan, you are recognized for 5 minutes for the
    purpose of an opening statement.

     STATEMENTS OF THOMAS M. SULLIVAN, CHIEF COUNSEL FOR ADVOCACY,
          SMALL BUSINESS ADMINISTRATION; AND JOHN D. GRAHAM,
     ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS,
                    OFFICE OF MANAGEMENT AND BUDGET

        Mr. Sullivan. Thank you, Chairman Ose, Congressman Schrock.
    Good morning and thank you for giving me the opportunity to
    appear before you this morning. My name is Tom Sullivan, joined
    by Dr. John Graham, Administrator of OIRA. I am the Chief
    Counsel for Advocacy at the U.S. Small Business Administration.
    The Office of Advocacy is an independent office within SBA,
    and, therefore, the comments expressed in this statement do not
    necessarily reflect the position of the administration or the
    SBA.
        With the Chair's permission, I would like to submit my
    entire written statement for the record, but briefly summarize
    it under 5 minutes.
        Mr. Ose. Without objection.
        Mr. Sullivan. In general, Advocacy believes that improving
    regulatory analysis to delineate small business impacts,
    together with greater overall adherence to regulatory
    accounting requirements, will allow OMB to develop more
    comprehensive reports to Congress.
        While the draft OMB report recognizes the importance of the
    regulatory burden on small business, it does not attempt to
    quantify the impact of that burden beyond citing my office's
    sponsored Crain-Hopkins study in 2001. That study found that
    small businesses pay a disproportionately large share of the
    total Federal regulatory burden, which was estimated to total
    $843 billion in 2000. For firms employing fewer than 20
    employees, the annual regulatory burden in 2000 was estimated
    to be just under $7,000 per employee, nearly 60 percent higher
    than the burden for firms with more than 500 employees.
        The draft OMB report would benefit from impact analyses
    that, at a minimum, should accompany all major rules reviewed
    by OIRA. From the Office of Advocacy's perspective, the draft
    OMB report would also benefit from small business impact
    analyses that should be prepared for rules reviewed by OIRA.
        My office believes that the recently issued Circular A-4,
    entitled ``Regulatory Analysis,'' will go a long way to improve
    regulatory accounting. The OMB circular includes a section
    calling on Federal agencies to identify the effects of rules on
    small businesses, and the regulatory accounting worksheet that
    accompanies the circular has a section for agencies to list the
    impacts of their rules on small business. The circular became
    effective just this past January, so, at this hearing next
    year, we will have an opportunity for us to see if the circular
    works.
        While Advocacy would have preferred to see a quantitative
    analysis of the regulatory impacts on small business in the
    draft OMB report, I would be remiss if I did not commend Dr.
    Graham and our colleagues in OIRA for their daily efforts to
    ensure agencies' compliance with the Regulatory Flexibility Act
    through aggressive interagency review of proposed regulations.
        My office recommends that OMB issue return letters on a
    rule-by-rule basis to enforce agency compliance with Executive
    Order 12866, the Regulatory Flexibility Act, Executive Order
    13272, and the recently issued OMB Circular A-4.
        Last year, my office endorsed H.R. 2432, the Paperwork and
    Regulatory Improvement Act of 2003. Small business groups
    continue to tell me that the legislation would improve
    agencies' attention and sensitivity to how regulatory mandates
    impact the small business community. For that reason, the
    Office of Advocacy continues to support the legislation.
        Advocacy believes that improving the regulatory analysis of
    small business impacts, together with greater adherence to
    regulatory accounting requirements in general, will greatly
    improve the quality and transparency of economic analyses
    provided to OMB and will, in turn, allow Dr. Graham's office to
    develop more comprehensive reports to Congress.
        Thank you for allowing me to present these views, and I am
    happy to answer any questions.
        [The prepared statement of Mr. Sullivan follows:]

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        Mr. Ose. I appreciate the gentleman offering his comments,
    and I want to remind him that some of us might not be here next
    January, but we will be watching from the small business side
    of the table.
        Now, Dr. Graham, thank you for making it. I understand you
    had to hoof it up here. We went ahead and swore in Mr.
    Sullivan, so let us repeat that.
        [Witness sworn.]
        Mr. Ose. Let the record show that Dr. Graham answered in
    the affirmative.
        We are pleased to have join us on this first panel Dr. John
    Graham, who is the Administrator of the Office of Information
    and Regulatory Affairs at the Office of Management and Budget.
        Dr. Graham, we have received your written testimony. We
    invite you to utilize 5 minutes for the purpose of making this
    statement.
        Mr. Graham. Thank you, Mr. Chairman. Good morning, and I
    look forward to offering a few comments of overview on the
    draft report, which, as you know, is now out for public
    comment, agency comment, and expert peer review.
        The first point I would like to highlight in the report is
    good news about progress in this administration on slowing the
    rate of growth of regulatory burdens. Some of the key data in
    the 2004 draft report on this subject are quite interesting. If
    you look at the overall magnitude of unfunded mandates on the
    private sector and State and local governments, this report
    tracks them all the way back to 1987 for the first time. If you
    look at an annual average of the new regulatory burdens each
    year from 1987 until the year 2000, they were accumulating at a
    rate of $6 billion in additional unfunded mandates per year.
    You can think of that on a decade basis. It means each decade
    we are adding $60 billion of additional unfunded mandates on
    the private sector and State and local governments.
        We are pleased to report to you, Mr. Chairman, that in the
    first 3 years of the Bush administration, we have cut that
    growth of about $6 billion a year to $1.6 billion per year,
    roughly a 70 to 80 percent decline in the rate of growth.
        Having said that, I have two cautionary remarks. One is
    that the 4th year of most administrations tends to be the worst
    year with regard to growth of regulatory burdens. In the eighth
    year of the Clinton administration, that number was $13
    billion. We are all familiar with a lot of the midnight
    regulations that occurred in that last year.
        The second point is that we have to ask ourselves why do we
    only talk about the rate of growth of regulation? Why can't we
    ever actually cause a reduction in regulatory burden? I have to
    acknowledge to you that the progress we are making is only on
    reducing the rate of growth. I particularly want to thank Tom
    Sullivan and his colleagues because they have joined us in a
    variety of rulemakings to make sure that this rate of growth is
    as small as possible.
        Now, a person might ask why do we have to have any growth
    in regulatory burden? Why, Dr. Graham, don't you just put a
    moratorium on all new regulations? The answers are found in the
    report that is available for the committee to review. The
    answer is some regulations are beneficial. Indeed, they are so
    beneficial that we have made a judgment that their benefits
    justify their burdens.
        For example, the Food and Drug Administration has mandated
    that food labels contain information on the trans-fat content
    of the food, not just the saturated fat content, because
    growing scientific evidence indicates that trans-fat content is
    linked to coronary heart disease. The benefits of this rule are
    estimated on a ratio of 10 to 1 to costs. Another example is
    the U.S. Department of Agriculture in the control of Listeria
    in red meat and poultry products, with a benefit-cost ratio on
    the order of 8 to 1. We need to have a smart regulation
    approach, recognizing that there are cases when we need
    regulation, we should provide it, but always at the lowest cost
    necessary to achieve congressional objectives.
        The second major point of this report is we have begun the
    review of the sea of existing regulations. Since 1980, 4,000
    per year have been adopted. Over 20 years, that is 80,000 new
    regulations have been adopted. I must acknowledge to you most
    of them have been never looked at to determine whether they
    were beneficial or whether they were cost-effective. We have,
    this year, taken a very modest step by simply picking a single
    sector of the American economy, the manufacturing sector, and
    asked for public nominations of specific rules, guidance
    documents, or paperwork requirements that could result in more
    cost-effective regulation of manufacturing companies.
        Why did we choose the manufacturing sector for particular
    focus? No. 1, the SBA report that Mr. Sullivan mentioned--The
    Crain and Hopkins 2001 Report--has quantified the fact that the
    manufacturing sector is subject to higher overall burdens than
    other sectors in the American economy. And, second of all, we
    are all aware that the manufacturing sector has been one of the
    slowest to come back in the economic recovery, struggling to
    join other sectors in growth, jobs, earnings, and so forth. We
    feel there is ample rationale for this focus on streamlining
    regulation in the manufacturing sector.
        The final point I would like to make in the area of good
    news is the studies from the World Bank and the OECD that we
    reviewed in this report. They looked at over 130 countries
    throughout the world, in terms of the extent of their
    regulatory burden, and they have found that those countries
    that are the least regulated, Australia, Canada, the
    Netherlands, New Zealand, Singapore, and the United States, are
    characterized by more prosperity, more life expectancy, better
    health, and overall improved economic performance. In the
    underlying reasoning process, these studies point to a simple
    fact: least regulated countries find it is easier for people to
    start a new business, to hire workers, to enforce contracts,
    and to get credit.
        The United States of America is a small business-friendly
    country. That is why we are prosperous, that is why the economy
    is on the mend, and that is why we are here to streamline the
    regulatory process.
        Thank you very much.
        [The prepared statement of Mr. Graham follows:]

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        Mr. Ose. Thank you, Dr. Graham.
        I am pleased to be joined here by my good friend from
    Massachusetts, Congressman Tierney. I would be happy to
    recognize him for the purpose of an opening statement.
        Mr. Tierney. Thank you, Mr. Chairman.
        Mr. Graham, Mr. Sullivan. Mr. Graham, you are getting to be
    quite a regular around here.
        Let me just make a few brief remarks, if I may. I apologize
    for being somewhat late, and I am going to have to keep going
    in and out for a hearing that is going on in Education also.
        Each year we hold a hearing like this one to review OMB's
    report estimating the costs and benefits of major agency rules.
    I continue to be troubled by OMB's increasing emphasis on
    basing public policy decisions on estimates of the costs and
    benefits of Federal protections. OMB uses cost-benefit analysis
    as if it is a neutral and conclusive formula for deciding the
    worth of agency rules. However, agencies should not enact and
    enforce regulations independent of their costs. Dollars and
    cents do matter. But, another kind of sense matters as well,
    and that is common sense. It is important to look at the
    reasons behind regulations. An analysis of a proposed action
    should take into consideration not just dollars, but costs and
    benefits that are not easily defined in terms of money, such as
    human life, a protected ecosystem, future impacts, and even how
    one regulation impacts other regulations.
        OMB issued guidance last September, instructing Federal
    agencies on specific methods for evaluating regulatory
    decisions. In its guidance, OMB encouraged agencies to find out
    the net benefit of decisions by calculating the estimated
    benefit minus the estimated costs of compliance with the
    decision. It is frequently not possible to accurately calculate
    such a number. Some benefits are impossible to put into dollar
    form and plug into a calculator, and the costs are frequently
    overstated. The end result is incomplete and inaccurate. When
    cost-benefit calculations are done for Federal rules, they
    ought to be as completely, accurately, and transparently as
    possible. I think OMB fails in many of these areas.
        One specific example of OMB providing analysis that is
    difficult to understand and incomplete is in its 2004 draft
    report. In its draft report, OMB provides cost and benefit
    estimates for an EPA rule requiring factory farms to obtain
    clean water permits. In its explanation of the estimates for
    this rule, OMB provides a list of benefits, such as
    contamination of coastal waters, that have not been translated
    into dollar amounts so, therefore, are not included in the
    estimated benefits.
        The second section of OMB's draft report asks for public
    comment on regulatory reforms that will help the manufacturing
    industry. I am concerned that this is a solicitation for a hit
    list of environmental and health protections, much like that
    which OMB created in 2002. In evaluating the process of
    regulation, I am interested in learning more about the role
    OIRA is playing in approving and rejecting agency rules. As GAO
    reported last year, it seems that OIRA has increasingly become
    less of a counselor to agencies
    and more of a gatekeeper for agency decisions.
        I want to thank the witnesses for being here today. I look
    forward to your presentation.
        And I thank the chairman for the opportunity to speak.
        [The prepared statement of Hon. John F. Tierney follows:]

        [GRAPHIC] [TIFF OMITTED] T4493.027

        [GRAPHIC] [TIFF OMITTED] T4493.028

        Mr. Ose. I thank the gentleman.
        We will just go to questions here.
        Gentleman, one of the first questions, Dr. Graham and I
    have struggled with this, trying to figure out how to get it
    put together, and we are making progress. I want to go back to
    the statutory deadline issue for the regulatory accounting
    report. One of the difficulties that we have up here, when we
    are asked for comments on the President's budget, is that when
    we don't have the documents we think are integral to us
    providing feedback, it makes it obviously difficult to provide
    feedback, and the regulatory accounting report is one of those.
    H.R. 2432 tries to or would align the delivery of the
    regulatory accounting report with the delivery of the
    President's budget so that they must be contemporaneous. So it
    would be part of the President's budget, as opposed to with the
    President's budget.
        Now, would you support a requirement to integrate that
    regulatory information in the President's documents?
        Mr. Graham. Mr. Chairman, I am familiar with the fact that
    there are informal staff discussions that have been taking
    place on a range of provisions in the kind of legislation that
    your question addresses, including the specific question that
    you have asked about. As I think you are aware, OMB does have
    concerns with the kind of language that you are talking about
    for two reasons that I can cite to you, and I am sure the OMB
    general counsel has offered a few additional ones. But, the
    concern at the most principal level is the notion that the
    President would be required to submit certain kinds of
    information with his budget. The notion that would be a legal
    requirement is something I think people in the administration
    are not entirely comfortable with.
        The second much more practical consideration is, what we
    have provided to you admittedly 10 or 11 days late, is a draft
    report that has not yet gone out for public comment or for peer
    review, as required by Congress. I am a little uncomfortable
    including in the President's budget documents something like
    this draft report, which has not had the vetting process that
    we have become accustomed to for this report. And, as a
    consequence, I don't think it would be wise to have this report
    remove public comment and peer review at this stage so that we
    can get it out in the context of the budget documents. And, I
    can assure you there aren't going to be draft parts of the
    President's budget, that is just not going to happen.
        Mr. Ose. Does the law not already indicate or specify what
    the President's budget shall include?
        Mr. Graham. I think that there may be some parameters on
    that, and I would suggest to you that the administration is
    very reluctant to see any more precedence in the direction of
    requiring the President to provide certain kinds of information
    with his budget.
        Mr. Ose. Mr. Sullivan, from the Small Business Advocacy
    standpoint, do you have any comment on the submittal of the
    regulatory accounting report as part of the President's budget
    submittal?
        Mr. Sullivan. The Office of Advocacy does not have comment
    on that specific provision, Mr. Chairman.
        Mr. Ose. The second question I have is, Dr. Graham, OMB
    uses the information collection budget to manage the paperwork
    burdens on the public, and in one of the sections of our bill
    we have a requirement to conduct a multi-agency study of
    regulatory budgets, Section 6, if I recall. My question is
    whether or not you support such a study. I mean, I look at it
    as a tool that would help OMB and the agencies rank risk and
    then prioritize use of resources, and then make judgments to
    maximize the use of those resources. I am curious whether or
    not you have come to any conclusion on that, whether you
    support that particular requirement.
        Mr. Graham. I think that, again, this particular topic, as
    I understand it, is part of the informal dialog that is going
    between our staffs, and my understanding is we are making
    constructive progress in those discussions. You know that I am
    very optimistic and enthusiastic about the concept of a
    regulatory budget. That I am enthusiastic about the idea of
    trying to move forward for a pilot project, to try to actually
    demonstrate and study the potential promise of this type of
    activity. In terms of the specific language, I am not sure we
    are there yet, but my understanding is that we have made
    progress, if we are not thus hopefully that is something that
    we can work out if we don't yet have a detailed plan.
        Mr. Ose. Thank you, Dr. Graham.
        Mr. Tierney.
        Mr. Tierney. Thank you.
        Doctor, I am, as you noticed from my comments, a little
    concerned about the inclusion in your draft report of a call
    for public comments on reforms that can be made to regulations
    that affect the manufacturing sector. My concern obviously is
    that it is really an effort to target critical health, safety,
    and environmental protections that manufacturing industries
    feel are too expensive. Is that your aim?
        Mr. Graham. Our aim is to look at the cost effectiveness
    and degree of flexibility that are provided in existing
    regulations that govern the manufacturing sector. The
    motivation is, one, that studies demonstrate that compared to
    all other sectors of the economy, the manufacturing sector,
    particularly small and medium-sized manufacturers, bear a
    larger cost overall, and per firm, than firms in other sectors
    of the economy; and, second, as you know, in the last couple of
    years, while much of the economy is on the mend, the
    manufacturing sector is particularly struggling and, hence, we
    feel that is a good rationale for a priority and focus on the
    manufacturing sector.
        Mr. Tierney. I wouldn't think that the administration is
    trying to say that the problem with manufacturing job loss in
    this country is due to regulation. You are not going to tell me
    that, are you?
        Mr. Graham. Well, I think that, as both the Commerce
    Department study indicated and as our study indicates,
    regulation is part of a range of factors, including liability
    lawsuits and other factors unique to the U.S. system, that
    cause our manufacturers to be placed at a disadvantage.
        Mr. Tierney. And, so you are going to do a comparative
    study, I assume, of regulations before these jobs started to go
    out the window and since the date 2001, when they started to
    go?
        Mr. Graham. Well, I don't know how many studies we are
    going to do.
        Mr. Tierney. Well, I want to really see. If we are going to
    go down this path, let us take a look at how manufacturing was
    doing before 2001 with the regulations or what has changed in
    the regulatory atmosphere from then until now, because the jobs
    started going down about 2001. So, let us take a look at that,
    if you are going to do it. Let us not just go out there and try
    to find a boogyman for why the administration has lost almost
    2.3 million jobs, let us find out if something has changed in
    that there has been a real market change in the regulatory
    atmosphere around here.
        Mr. Graham. Right. And, I think the comment process will
    allow companies or any member of the public to offer opinions
    and make constructive suggestions in that area.
        Mr. Tierney. Well, but it seems the comment period is not
    asking them to do that; the comment period seems to be saying
    give us a list of things you would like to see go out the
    window here.
        Mr. Graham. Well, that may be your interpretation, but, in
    fact, the exact words are there should be a consideration of
    the benefit and cost case for those regulations. We have no
    intention of altering regulations that have a strong benefit-
    cost case.
        Mr. Tierney. Well, and I guess that depends on how we want
    to measure benefit and cost here. The guidance that OIRA issued
    last September asked the agencies to consider when they were
    evaluating regulations, estimates of the value of statistical
    life years in addition to estimates on the value of the
    statistical life. Now, it is my understanding that estimating
    the value of statistical life years would involve measuring the
    number of life years that would be saved by a particular
    regulation. Is that pretty much the case?
        Mr. Graham. Yes, sir.
        Mr. Tierney. Well, couldn't such an evaluation result in
    protections for the elderly being valued as less beneficial
    because they have fewer years left?
        Mr. Graham. Yes. One of the purposes of offering both
    measures is to provide children and infants who may lose 30 or
    70 years of life some indication of the measurement of their
    benefits, but then also adding the number of lives saved as a
    benefit measure, which provides for senior citizens, an
    accounting of each of the adverse impacts for seniors, without
    any adjustment for the number of years of remaining life. So,
    both pieces of information are provided to the regulator.
        Mr. Tierney. But, it is not your intention, at least you
    don't think that this is designed to value the elderly lives as
    less beneficial because they have fewer years left?
        Mr. Graham. No. In fact, the language you are referring to
    is the same language that has been in our guidance throughout
    the 1990's, unchanged from the language that was in there from
    the previous administration.
        Mr. Tierney. Doctor, you also, in your testimony that you
    submitted to the committee last July, discussed some of the
    limitations of the Crain and Hopkins estimate of the aggregate
    cost of Federal regulations. You stated that the estimate is
    based on previous estimates by Hopkins done in 1995, which
    itself was based on summary estimates done in 1991 and earlier,
    some dating all the way back to the 1970's. You noted only some
    of the underlying studies were peer reviewed, and many were
    based on data collected anywhere from 10 to 30 years ago. But,
    in the OMB draft report of 2004, you cite the Crain and Hopkins
    study as a way to back up the solicitation of public comment on
    manufacturing regulations that should be reformed.
        Do you stand by the comments that you gave to the committee
    last year in assessing those problems with the Crain and
    Hopkins estimate, and, if so, why do we find them being relied
    upon in this report?
        Mr. Graham. Good question. We do think that there is
    softness in the technical underpinnings of that particular
    report, even though it is the best available overall study of
    the economic impact of regulation in this country. However, our
    concerns are with the absolute magnitude of the estimates of
    costs, not the relative magnitude by sector of the economy. The
    only way we are using that particular report to justify the
    manufacturing initiative is the evidence comparing different
    sectors of the economy. We have no reason to believe that their
    conclusion is any way invalid that the manufacturing sector is
    hardest hit, compared to other sectors, by regulation.
        Mr. Tierney. Thank you, Mr. Chairman.
        Mr. Ose. Mr. Schrock.
        Mr. Schrock. Thank you, Mr. Chairman.
        Thank you, Dr. Graham and Mr. Sullivan for being here. Let
    me make a couple comments on the opening comments you made, Dr.
    Graham. You talked about a moratorium. Probably not a good idea
    because some regulations are beneficial. There are some bad
    actors out there, no question about it, but your comment smart
    regulation is what really struck me, and that is the key. If it
    boggles my mind, it should boggle the mind of every person in
    this room. That 80,000 new regulations have never been looked
    at is just obscene, and why we allow that to happen is a
    mystery to me.
        you talked about the least regulated countries having a
    better overall environment, and I know that to be the case.
    During my Navy career, I visited one country in Europe in
    particular, and as a Congressman have visited there, and have
    visited a manufacturing plant just recently, was overwhelmed at
    how clean things are and how well things are done to protect
    their environment, which is one of the best in the world,
    without all the regulators hanging over their backs all the
    time doing things. So, I think we have lost jobs because of
    that. I think regulations in this country have caused people to
    move out of there, and businessmen will come and tell you that.
    It might not have impacted the small business community as much
    as large business, but it is going to come, and we have to be
    very careful that we don't allow that to happen.
        Mr. Sullivan, the law requires OMB to submit not only a
    regulatory accounting statement, but also an associated report
    on the impacts of Federal rules and paperwork on selected
    groups, such, of course, as small business, and last year OMB
    did not submit this required element in both its February draft
    and the final report in September. On October 24th last year,
    as the subcommittee chair in the Small Business Committee, I
    wrote OMB that by law every regulation that is certified to
    have a significant impact on a substantial number of small
    entities is required to develop a regulatory flexibility
    analysis, but that each of the initial and final versions of
    this agency analysis is a statement of the potential impact of
    the rule on small business.
        I notice in Mr. Sullivan's written testimony he says, ``The
    draft OMB report would also benefit from small business impact
    analyses that should be prepared for rules reviewed by OIRA.''
    Of course, OMB's just-issued draft report includes a less than
    three-page discussion of impacts on small businesses.
        That being said, did the administration review each of the
    agency's regulatory flexibility analyses for its rolling 10-
    year period? If they did fine; if not, why not?
        Mr. Graham. Let me start by just getting a couple facts for
    the record straight. If you look at the draft report, we do
    have a section, as you indicate, several pages long on small
    business impact. But, we have a much more expanded section this
    year on the role of regulation on economic growth, and that is
    the section that reviews the World Bank studies, the OECD
    studies, and how the United States is relatively less
    regulated, compared to other countries around the world.
        One of the key conclusions of that body of research is less
    regulation leads to more economic growth, because it is easier
    in those countries to start a small business, to gain the
    capital you need to launch a small business, and to get
    whatever permits you need to operate whatever kind of facility
    you need to operate. So, the economic growth section, which I
    would encourage people to look at, has a very strong small
    business focus and is featured in the report.
        You also asked about the regulatory flexibility analyses.
    We do review those regularly when we review regulatory
    packages. But, to be quite candid with you, we don't consider
    ourselves at OMB the experts on small business. The gentleman
    to my left and his staff is where we go when we want a critical
    evaluation of an agency's package with respect to impact on
    small business.
        Mr. Schrock. OK.
        Do you want to make a comment, Mr. Sullivan?
        Mr. Sullivan. Certainly, Mr. Schrock. The way my office has
    approached this draft report is really in a two-step process.
    The first step that we look at is whether or not there is cost-
    benefit analysis of rules effects on the employer community
    overall. And what we found was that type of analysis, that type
    of transparency that would allow any interested party to
    comment on rules, is lacking in the draft report. Our second
    step is to look even further. If there is in fact a detailed
    economic analysis on a major rule, then underneath that it
    would be nice to have the small business impact analysis
    flushed out. Now, what we had hoped was with the Regulatory
    Flexibility Act, greater partnership with Dr. Graham's office,
    with an Executive order by the President enforcing the Reg Flex
    Act, what we had hoped was that the better analysis on small
    business would then be immediately transferred into the
    agencies' submittals to Dr. Graham's office in preparation for
    this draft report.
        Now, unfortunately, it doesn't look as though that has
    happened, so we have to work even more closely together to make
    sure that when the agencies fill out the A-4 Circular, that
    information does translate next year in the draft report to a
    better analysis of the small business impacts.
        Mr. Schrock. Do you want to comment on that?
        Mr. Graham. Yes. One thing I think we should also give good
    marks for is the fact that SBA Advocacy themselves produces an
    annual report on the impacts on small business of regulation.
        Mr. Schrock. Do they comply with the A-4?
        Mr. Graham. I think that we should be careful that we don't
    lose sight of the fact that we do have a substantial amount of
    this information being generated already.
        Mr. Schrock. Has OMB, though, asked the agencies about the
    impact it has had on them?
        Mr. Graham. Yes. In fact, the structure we have for this
    draft report is OMB has prepared it in its first form, but now
    it is available not only for agency comment, but for public
    comment, so SBA Advocacy, as well as all the agencies, have an
    opportunity to provide their information. So, we are in the
    process now of receiving that type of input. And, I can assure
    you that SBA Advocacy is not bashful about informing Dr. Graham
    about how they would like to see small business issues handled
    either in this report or in specific rulemaking contexts.
        Mr. Schrock. Hurray for SBA.
        My time is up, Mr. Chairman.
        Mr. Ose. I thank the gentleman.
        I want to go back to something that Mr. Tierney asked
    about, this Crain-Hopkins report. As I understand it, you
    entered into a contract to update that report?
        Mr. Sullivan. That is accurate. Yes.
        Mr. Ose. What is the schedule for completion of that?
        Mr. Sullivan. We are hoping that it be completed as we
    approach this fall. I also want to add to some of the
    statements of discussion about the Crain-Hopkins report.
    Similar to the progression of the seven reports coming out of
    Dr. Graham's office, the Office of Advocacy has also engaged in
    a progression of each Crain-Hopkins report, examination of how
    regulatory burden affects small business is getting better. So,
    what we expect is a more detailed analysis of a better sector-
    specific analysis on how regulations impact small business.
    Then we leave it up to other interested parties, certainly
    those involved in the second panel this morning, to compare how
    regulatory impact and the costs associated to different
    economic cycles and time periods that Congressman Tierney
    associated with.
        Mr. Ose. Thank you.
        Dr. Graham, the A-4 Circular on regulatory analysis, as I
    understand it, attempted to lay a framework down for
    calculating cost and benefit of an agency action. First of all,
    I think that standardization of the analyses is a great step
    forward, and I compliment you on that. What I am trying to make
    sure is that the requirement to use the standards within the
    circular actually are enforced. Have you received any
    submittals from the agencies under the revised standard? Have
    they complied with the standard or have they not complied with
    the standard?
        Mr. Graham. Mr. Chairman, the OMB Circular A-4 took effect
    for proposed rules on January 1st of this year, and it takes
    effect for final rules on January 1st of next year. And, my
    understanding is that we are now receiving the first packages
    from agencies that have sufficient economic impact to trigger
    the requirements of Circular A-4. So, my staff are literally in
    the process of reviewing the first packages that are subject to
    Circular A-4, and we intend to use all the available
    authorities we have to make sure that agencies comply with
    Circular A-4.
        Mr. Ose. Well, I know that in the past you have used these
    prompt letters, which I thought was, frankly, a creative use of
    the ability to drive something forward properly, so you don't
    have to go back and do it over and over and over again. One of
    the things I am concerned about is that having the A-4 come
    out, having set the standard, I want to make sure that we get
    apples versus apples versus apples, rather than apples versus
    oranges versus tomatoes. So I know that the circumstances may
    come up, but to the extent that you must or have to, or
    whatever vernacular you care to use, return submittals for
    further review, so to speak, I think you will find that your
    effort to standardize the submittal of information will garner
    great support up here. So my point in saying that is don't be
    bashful in saying, look, you are not complying with the
    requirements of the A-4. I am trying to give you some support
    here.
        Mr. Graham. I appreciate it.
        Mr. Ose. I give you enough criticism; I want to give you
    some support.
        Mr. Graham. Right. Well, we wouldn't mind a hearing at some
    point where we actually went through a couple of these agency
    analyses and whether they complied with A-4. I don't think that
    would be an unconstructive activity.
        Mr. Ose. All right. We may very well followup on that. My
    only point is that if they don't comply, I am encouraging you
    to, in fact, exercise your return authority.
        Mr. Graham. Return authority, right.
        Mr. Ose. Tom, Mr. Sullivan, do you have any input on that?
        Mr. Sullivan. Doug, Mr. Chairman.
        Mr. Ose. You come here one more time, I think we can
    legally claim you as a dependent.
        Mr. Sullivan. I would actually like to add to Dr. Graham's
    comments, and that is how the returns and prompts are used. I
    think that there has been some mischaracterization of the draft
    report, the return letters, the prompt letters as targeting
    rules, compromising valuable protections, and nothing could be
    further from the truth. It is all about transparency. And I
    would like to actually share with the committee one example of
    how this review of regulations and actual activity by Dr.
    Graham's office can actually lead to supporting a new
    regulation.
        Two years ago, when Dr. Graham's office put out the draft
    report, a number of small businesses commented on an OSHA
    standard, an OSHA standard having to do with the slings used in
    constructionsites. Their comment was not do away with the rule;
    their comment was that the small business industry is so far
    ahead of where Government is. Government has to catch up and
    proactively put out a modern sling standard. So, it is opposite
    from what some of the mischaracterizations have been about
    eliminating rules; it simply called for the Government to keep
    up with the entrepreneurial speed of small business.
        And, thanks to the activism of Dr. Graham's office, OSHA is
    in fact following up on a number of draft reports and
    recommendations, and revising that OSHA standard. That is
    within Dr. Graham's authority, but it didn't cause a prompt
    letter, it didn't cause a return letter, but it is a positive
    example of actually calling for a rule through the review of
    regulations, not simply calling to eliminate all rules.
        Mr. Ose. Thank you.
        Mr. Schrock.
        Mr. Schrock. Mr. Chairman, I just have one other question I
    want to ask Mr. Sullivan, and it involves the review of OMB's
    small business impacts report.
        In 2002, on March 19th, you signed a 3-year memorandum of
    understanding with Dr. Graham to institutionalize your office's
    working relationship. That stated purpose was, ``to achieve a
    reduction in unnecessary regulatory burden for small
    entities.'' Did OMB ask you to review its less than three-page
    small business impact discussion in its just-released draft
    report? And, if so, when? And, if so, did OMB reject any
    recommendations by you for a more thorough analysis?
        Mr. Sullivan. Congressman Schrock, Dr. Graham's office did
    not ask for us to review the section on small business impact
    in the OMB draft report.
        Mr. Graham. And, let me be clear. If we were to offer SBA
    Advocacy the opportunity to review our draft, we would have the
    Department of Health and Human Services, the Environmental
    Protection Agency, and the Labor Department. They would all
    like to be entitled to review a draft of OMB's report before we
    release it. The agency comment process is underway now that the
    draft report is available, so SBA Advocacy, like all other
    Federal agencies, has an opportunity to provide comments so
    that our final report has the benefit of SBA Advocacy's input.
        Mr. Schrock. I would almost think SBA should be separate
    and apart from the big agencies you just mentioned.
        Mr. Graham. Because it is small? Well, it is potent,
    though.
        Mr. Schrock. Well, it is potent, but I can see why you
    don't want all the big agencies doing that.
        Mr. Graham. Well, the reports that they have released,
    including the SBA commissioned Crain-Hopkins report, play a
    prominent role in the material that we have submitted in our
    draft report. That was commissioned by SBA Advocacy, so we are
    certainly open to input at any time from SBA Advocacy. In terms
    of formal interagency review and comment, however, that is a
    process that we like to treat all agencies the same. And, as
    important as SBA Advocacy is, it is one of the other Federal
    agencies.
        Mr. Schrock. Thank you.
        I yield back, Mr. Chairman. Thank you.
        Mr. Ose. I have one final question.
        Dr. Graham, I am a little bit confused on this 10-year
    window that you are looking at for analysis. I can't cite you
    chapter and verse, but it is my impression that we have major
    rules that predate that 10-year window that are still in
    effect.
        Mr. Graham. That is certainly true.
        Mr. Ose. And, what I am trying to understand is why is it,
    as I interpret the report, why is it we are only looking at
    that 10-year window in the calculation of costs and benefits?
        Mr. Graham. The question is for an estimate of the costs
    and benefits that was prepared before a rule was adopted, how
    long after that estimate was prepared should it still be
    considered to be sufficiently valid for inclusion in OMB's
    report? We have made a professional judgment that once the
    estimate is more than 10 years old, given the dynamics in our
    economy, and the way firms react to regulation, that it is no
    longer realistic to consider those estimates as valid. So, the
    challenge we have in front of us is how do we get updated
    estimates of the current costs and benefits of regulations that
    were adopted more than 10 years ago. I think that is a very
    substantial analytic and research challenge not just for the
    Federal Government, but for the academic community and for the
    think tank community, as well. We are not comfortable
    publishing estimates prepared more than 10 years ago as
    resembling anything about what really is happening today.
        Mr. Ose. The thought being that things have evolved to the
    point that this or that iteration, that report might not be
    accurate?
        Mr. Graham. The agencies' estimates that were made prior to
    issuing the regulation would be at least 10 years old, and
    usually probably 11 or 12 years old, given how the actual
    studies are done. So, we are very sensitive to the technical
    quality of the information that we are putting out in this
    report, and we think when the estimates are more than 10 years
    old, maybe we really ought to just draw a line.
        Mr. Ose. Well, I know we have had this conversation before.
    I am trying to figure out the basis on which the line was drawn
    at 10 versus, you know, 30 or whatever.
        Mr. Graham. Five?
        Mr. Ose. Five, two, whatever. Pick a number. I am trying to
    figure out. I think your phrase was professional judgment. Is
    it statutory?
        Mr. Graham. It is not a legal issue, it is the professional
    judgment of our staff analysts that we need to, at some point,
    say that an estimate that was made by an agency so many years
    ago is just simply no longer considered to be an appropriate
    estimate for what is going on today. If a subsequent study has
    been done that has validated those earlier estimates, then, of
    course, we would have no problem including those estimates.
        Mr. Ose. This is the dynamic that I am trying to get at it.
    As I understand the law, there is no provision saying you can
    exclude prior to 10 years for any reason; it says OMB or your
    office will calculate the cost-benefit analysis in the
    aggregate on older rules, younger rules, new rules, whatever.
        Mr. Graham. Now, if you are going to move on the legal
    requirement question, you are talking to a very amateur
    attorney.
        Mr. Ose. But, my point gets back to the statutory
    requirement. I am trying to figure out what is the basis on
    which we draw that line at 10 years?
        Mr. Graham. Right. Well, one thing to keep in mind is the
    Office of Management and Budget is covered by the Paperwork
    Reduction Act and by the new data quality law passed by the
    Congress, and signed by the President. We are accountable for
    the information we disseminate in this report. Our analysts are
    not comfortable suggesting to people that an estimate that an
    agency produced 10 years ago on a major regulation is a valid
    estimate of either the costs or the benefits of that regulation
    today.
        Mr. Ose. So we are caught in a little bit of a box here
    between the comfort level of the analysts looking at this 10-
    year-old data and perhaps a statutory requirement to include
    it, or the lack of definition as to whether it should be
    included?
        Mr. Graham. Well, if you give us a written question, I am
    sure we can have our lawyers pour over these statutes. We may
    be able to find a legal position that the statute doesn't in
    fact when you consider all issues, absolutely state that we
    have to do it that way.
        Mr. Ose. I am trying to noodle this through.
        Mr. Graham. I think that would be unfortunate, though,
    because I think that we are trying to put cost-benefit analysis
    on as strong a technical and scientific footing as possible.
    For us to be including in an official report like this, coming
    out of the Executive Office of the President, information that
    is over a decade old, given the way our economy changes, I just
    think is not a wise territory for us to be exploring.
        Mr. Ose. From a scientific standpoint, I can understand
    your point, and I accept it. My problem is do those costs and
    benefits then get excluded in their entirety from any analysis?
    Or, conversely, when you have a much older rule that still have
    significant impact, does it just get ignored?
        Mr. Graham. I think we ended up in between those two. This
    was the first year that we had the rollover effect, where we
    had a year's worth of regulations that we did not include in
    those calculations, roughly 1992-1993. We did report them in an
    appendix, but we did not put them in the main report. The
    information is still there for people who want to access it,
    but we did not put it in the main report.
        Mr. Ose. Well, I tell you what, I think I am going to give
    some additional thought to this, and I will probably put a
    question to you in writing, because I do think this is
    important to flush out.
        Mr. Graham. It is very important.
        Mr. Ose. Because there are rules that predate where that
    10-year line might be drawn, or the 5-year line, or whatever it
    is.
        Mr. Graham. Right. Obviously, we could have picked a
    different number. It is a professional judgment call in how far
    you go back.
        Mr. Ose. I understand.
        All right, the balance of my questions I am happy to submit
    in writing.
        Mr. Schrock, do you have anything further?
        Mr. Schrock. Nothing further, thank you.
        Mr. Ose. I want to thank you both for coming up today. I
    hope you don't have to walk back. Dr. Graham got to walk up
    here this morning. I do appreciate your taking the time to
    provide your testimony and your feedback. We will leave the
    record open for 10 days for the written questions to you.
    Obviously, as in the past, we have appreciated your timely
    responses, and we would again thank you both.
        We will take a 5-minute recess.
        Mr. Graham. Thank you.
        [Recess.]
        Mr. Ose. OK, we are going to go back into session. Our
    second panel is joining us today. As you saw in the first
    panel, our standard procedure is we swear everybody in. I will
    first introduce everybody, and then we will have the swearing
    in ceremony.
        We are joined on the second panel by Mr. William Kovacs,
    the vice president for Environment, Technology, and Regulatory
    Affairs at the U.S. Chamber of Commerce; our second witness is
    Ms. Susan Dudley, who is the director of the regulatory studies
    program of Mercatus Center at George Mason University; also
    joined by Dr. Richard Belzer, who is the president at
    Regulatory Checkbook Organization; we are again joined by the
    president of Public Citizen, Ms. Joan Claybrook; and I believe
    a new witness to our committee this morning is Robert Verchick,
    who is the Ruby Hulen professor of law, the University of
    Missouri at Kansas City School of Law, Center for Progressive
    Regulation. Welcome to all of you.
        Now, if you would all rise. I am not picking on you; we do
    this for everybody.
        [Witnesses sworn.]
        Mr. Ose. Let the record show the witnesses all answered in
    the affirmative.
        Now, as you saw in the first panel, what we do is we just
    go from my left to my right on testimony; everybody gets 5
    minutes. I have a heavy gavel on the time requirement; that is
    why we started on time. We do have, I think, Dr. Belzer, you
    have a 12:30 plane you have to get?
        Mr. Belzer. Two.
        Mr. Ose. Two o'clock. OK. Well, let me just tell you we are
    not able to violate this timeline. I am advised that the
    gentleman has a daughter being married. Tell her this committee
    congratulates her.
        OK, our first witness is Mr. William Kovacs from the
    Chamber of Commerce. Mr. Kovacs, you are recognized for 5
    minutes.

      STATEMENTS OF WILLIAM KOVACS, VICE PRESIDENT, ENVIRONMENT,
     TECHNOLOGY AND REGULATORY AFFAIRS, U.S. CHAMBER OF COMMERCE;
     SUSAN DUDLEY, DIRECTOR, REGULATORY STUDIES PROGRAM, MERCATUS
    CENTER, GEORGE MASON UNIVERSITY; RICHARD B. BELZER, PRESIDENT,
        REGULATORY CHECKBOOK; JOAN CLAYBROOK, PRESIDENT, PUBLIC
     CITIZEN; AND ROBERT R.M. VERCHICK, RUBY M. HULEN PROFESSOR OF
       LAW, UNIVERSITY OF MISSOURI AT KANSAS CITY SCHOOL OF LAW,
                   CENTER FOR PROGRESSIVE REGULATION

        Mr. Kovacs. Thank you, Mr. Chairman and members of the
    committee. The first thing I want to do is commend you and Dr.
    Graham for taking on this very important subject. Some people
    in the Washington community would consider it tedious or
    complex or arcane. But, unlike Congress, the regulatory
    agencies never take a break, they don't have a recess, so every
    year you see 4,000 regulations; it just never stops. And, the
    reason the Chamber cares, and why we are so concerned, whether
    it be regulatory accounting or a budget or cost-benefit, is you
    need to put it in perspective. If you looked at all the
    discretionary spending in 2003 for the Congress, it was $825
    billion. The Hopkins-Crain report has the cost of the
    regulatory programs at about $843 billion annually and the cost
    of environmental programs around $250 billion annually. And, to
    put this in one last perspective, all of the corporate income
    taxes paid in the year 2002 only total $211 billion. So, when
    you have this kind of a burden and you realize that, for a
    small business, they have a 60 percent premium, we care,
    because well over 90 percent of our businesses are small
    businesses.
        The cost-benefit analysis is really a tool. It is a tool
    that helps us determine what particular regulations are worth
    expending public or private funds, which are always limited.
    But, cost/benefit is one of many tools. We have other tools: we
    have data quality, we have data access, peer review, sound
    science, and transparency in the regulatory process. And, the
    purpose of using these tools is really so that we use our money
    and our resources to protect and to get maximum protection both
    for health and safety and the environment.
        Now, we have been very honest and have said that the
    current cost-benefit approach has a number of problems. It is
    extremely confusing and it is extremely complex, and, even
    though I have read Circular A-4, we have to be honest with
    ourselves. It is a complex issue, and when you have the numbers
    coming out with such great disparities between where OMB is
    coming, at a relatively minor number for the cost of
    regulation, and then you have the Crain-Hopkins report at $843
    billion, what happens to the public is they really dismiss it.
    If you are working in the field and you are a small
    businessman, you know that regulators have real costs. But when
    you see these discrepancies, it is easier for someone to say,
    well, we are just going to put them aside because it is just
    politics.
        And, in addition to that, the OMB looks at a limited number
    of rules; its static versus dynamic system. Agencies game the
    system. I will just give you an example on the TMDL rules. EPA,
    no matter what it was told, said the cost of the rules are $25
    million annually. The States did their own study and they found
    that it was $670 million to $1.2 billion annually. Also, this
    committee has done a lot of work on agency guidance documents.
    So we are not just dealing with rules. Every year agencies puts
    out hundreds of guidance documents which, in effect, operate as
    rules. And, in this instance EPA, over a 4-year period, put out
    about 2,300 and OSHA put out about 2,500. So it is a very
    complex system.
        And, one of the things, as I run out of time, is that what
    we need, and A-4 is starting this, is some kind of consistency
    within a model, where we need to understand the uncertainties
    of the issue and we need to clearly state these are
    uncertainties. And, the best example that we can give is what
    EPA is doing right now with a particulate matter rule. Everyone
    says, well, there are all these health benefits. Well, there
    are studies on both sides. Some of the studies indicate that
    there is absolutely no link between the mortality rates and
    particulate matter. Now, whether that is true or not, I don't
    know, but in John Graham's studies EPA accounts for about 60
    percent of all the costs and benefits in the environmental
    section.
        So, what we are talking about is not the 4,000 rules and
    not all the rules going back 10 years. What we are talking
    about is for a cost/benefit analysis to be conducted for those
    major rules that have major impact. For those rules we need to
    do an honest study, find the right economists, the right
    scientists, and integrate science and data into the rule so we
    can do it right. And, we have just, at the Chamber, gone
    through this on the technology side because the industry lost
    $2 trillion in market capital, a lot of which was due to
    regulation. So, when we did this, we scoured the United States,
    and it is very hard to find a group of people who can do one of
    these studies.
        So, what our recommendation would be to the committee is
    that you proceed with the cost/benefit analysis. This is very
    valuable; we have to do it. But, we take one or two rules and
    we do it right so that we can begin developing the model.
        Thank you very much.
        [The prepared statement of Mr. Kovacs follows:]

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        Mr. Ose. Thank you, Mr. Kovacs.
        Our next witness has been with us before, Ms. Susan Dudley,
    who is the director of regulatory studies at the Mercatus
    Center from George Mason University. Welcome. You are
    recognized for 5 minutes.
        Ms. Dudley. Thank you. Thank you, Mr. Chairman and Mr.
    Schrock for having me here to talk about the important issue of
    regulatory accounting. I am also an adjunct professor at George
    Mason University School of Law, but my comments today reflect
    my own views, not an official position of either the University
    or the Center.
        You have my written testimony, but today I would like to
    focus on the similarities and differences between regulatory
    accounting and the fiscal budget.
        American citizens generally know how much they pay in taxes
    each year, but taxes and subsequent spending are just one way
    that the Federal Government diverts resources to achieve
    broader public goals. The other is through regulation. While
    taxes and associated spending are tracked annually through the
    fiscal budget, there is no corresponding mechanism for keeping
    track of the off-budget spending accomplished through
    regulation.
        These annual regulatory accounting reports that you have
    required represent an important step toward tracking these off-
    budget taxes and expenditures. These reports can be valuable
    not only for informing Americans generally about the costs and
    benefits of regulation, but also for helping policymakers
    allocate limited resources to those activities that provide the
    greatest net benefit to American citizens.
        A better understanding of regulatory performance and
    results will help appropriators allocate budgets toward those
    agencies and activities that produce the greatest net social
    benefit. I think you will find that what OMB has done with the
    Government Performance and Results Act, by integrating that
    into the budget, has proved valuable.
        These reports and other executive and legislative branch
    activities, along with extensive academic research, have
    improved our understanding over the years of the impact
    regulations have on consumers, workers, and companies. However,
    the reports are still far from perfect, and we still lack a
    reliable mechanism analogous to the fiscal budget process for
    tracking regulatory expenditures and ensuring they produce
    desired outcomes. So, I have three recommendations.
        First, OMB can improve the quality of information in future
    reports by holding agencies accountable for complying with new
    guidelines. Second, a legislative branch review body could
    provide a more independent assessment of regulatory costs and
    benefits. And, third, Congress could explore further ways to
    treat regulatory expenditures in a manner similar to on-budget
    expenditures. And, I would mention that H.R. 2432 does this.
        Let me go back and talk a little bit about each of those
    three recommendations.
        The increased transparency that is reflected in OMB's
    review procedures and in this report are welcomed improvements
    to the regulatory process, but the benefit and cost estimates
    in the draft report do not offer the American people an
    accurate picture of the impact of regulation. To be comparable
    in value to the fiscal budget figures, OMB's estimates must
    reflect an independent assessment of regulatory costs and
    benefits, and not simply provide a summation of agency
    estimates. Such an approach would be unthinkable in the fiscal
    budget process.
        Over the coming year, OMB will be in a better position to
    hold agencies accountable for conducting analysis to ensure
    that the resulting benefits and costs are reliable and robust.
    Last September, OMB issued guidelines for regulatory analysis
    that reflect generally accepted principles, and it also is
    developing guidelines for peer review and data quality. Over
    the coming year, in the course of Executive Order 12866 review,
    OMB should be able to hold agencies accountable for these new
    guidelines. And, if draft regulations do not comport, OMB
    should return regulations to agencies. If it does return
    regulations whose analysis don't comport with the new
    guidelines, I think it will be able to rely on agency estimates
    with more confidence.
        While I think OMB should continue its review procedures
    under Executive Order 12866, and hold agencies accountable for
    ensuring that proposed regulations do more good than harm,
    Americans may also benefit from a legislative branch agency.
    Indeed, Congress has authorized a congressional office of
    regulatory analysis to be housed in the General Accounting
    Office, but it hasn't been funded. Such a body could provide
    Congress and U.S. citizens with an independent assessment of
    the total costs and benefits of regulation, and also help
    ensure that statutes are being implemented so that the benefits
    to Americans outweigh the costs.
        An annual regulatory accounting report issued with the
    Federal budget is an important first step toward providing the
    same scrutiny to regulatory impacts as on-budget impacts. Mr.
    Chairman, H.R. 2432 would explore ways to treat regulatory
    expenditures in a manner similar to on-budget expenditures,
    recognizing that regulations, like on-budget fiscal programs
    funded by taxes, divert private resources to broader national
    goals. I applaud you for this. A more explicit recognition of
    the expected costs, as well as expected benefits, of achieving
    regulatory goals will help policymakers allocate scarce
    resources to activities that will produce the greatest net
    social benefits. Thank you.
        [The prepared statement of Ms. Dudley follows:]

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        Mr. Ose. Thank you, Ms. Dudley.
        Our third witness is Dr. Belzer. He joins us as president
    of the Regulatory Checkbook Organization.
        Sir, welcome to our committee. You are recognized for 5
    minutes.
        Mr. Belzer. I thank you, Mr. Chairman.
        And, Mr. Schrock, it is true, my daughter will be getting
    married, and I appreciate your indulgence. I told her she is
    just going to have to postpone it; this is more important.
        Mr. Ose. This is Congress. You can say things like that on
    the floor.
        Mr. Belzer. I will pay.
        Yes, thank you, sir. I am Dr. Richard Belzer, president of
    Regulatory Checkbook. Regulatory Checkbook is a nonpartisan and
    nonprofit organization whose mission is to advance the use of
    high-quality and policy-neutral science and economics to inform
    regulatory decisionmaking. Since earning my doctorate, I have
    over 15 years of experience performing and reviewing regulatory
    analyses, including a 10-year stint as a career economist in
    OMB's Office of Information and Regulatory Affairs.
        I will briefly summarize for you the three points that I
    have made in greater depth in my written testimony.
        First, the estimates of costs and benefits that are
    contained in OMB's draft report are unreliable and probably
    misleading. The estimates reported for individual regulations
    are unreliable because the agencies that prepared them had
    incentives to underestimate costs and overestimate benefits.
    The draft report consists of agency estimates and not those of
    OMB.
        Estimates of the total benefits and total costs of Federal
    regulation have little or no informational value to me.
    Aggregation only magnifies the biases that are embedded in
    agency estimates for individual regulations, so the more
    regulations OMB includes in its reports, the more unreliable
    and misleading the totals become, particularly the net benefit
    estimate.
        Congress should create incentives for higher quality
    estimates to be produced and reported, and I think substantial
    progress must first be made to improve the reliability of
    estimates for individual rules. Only then will it be possible
    to derive the useful estimates of the total estimates and costs
    of individual regulatory programs.
        Second, I see no evidence of a trend indicating that the
    quality of regulatory analysis is improving. Although the
    methods of benefit-cost analysis continue to improve, its
    fundamental principles do not change. The most troubling
    problem I see with agency analyses isn't that they don't follow
    what are called best practices; rather, it is agencies too
    often do not abide by fundamental benefit-cost principles.
        OMB's 2003 regulatory impact analysis guidelines differs
    little from previous editions issued in 1990, 1996, and in
    2000. Agencies did not adhere to these principles as a general
    rule in these earlier guidance documents, and it is safe to
    predict, I think, that they will also fail to adhere to the
    principles set forth in the 2003 edition.
        I am troubled by some language in OMB's draft report that
    it seems to excuse a low standard of agency performance. OMB
    should not make excuses for substandard agency performance by
    mischaracterizing fundamental principles of analysis as best
    practices.
        Third, if Congress wants regulatory analysis to be
    performed well and wants the information to be usable, I think
    it needs to help create an environment in which that can
    happen. Each agency has a monopoly over the production of
    regulatory analysis and controls the benefit and cost estimates
    reported to Congress. As in every other market, the key to
    improving quality is competition; quality will not improve
    without it. The public comment process alone is not sufficient
    to improve quality.
        Congress can help make this market for high quality
    analysis by breaking up these monopolies and injecting
    competition. Most of the country's competent regulatory
    analysts work outside the Government; they rarely contribute
    much because there is barely a market for their services.
    Create a market for high quality analysis and supply will
    respond to meet this demand.
        Give OMB the authority, and not just the responsibility,
    for providing Congress with reliable estimates of benefits and
    costs. The Regulatory Right-to-Know Act doesn't give OMB any
    statutory authority to determine which estimates are most
    reliable. With a competitive supply of analyses and this
    authority, OMB would have all the tools it needs to make future
    reports for Congress and the public, reliable indicators of the
    impacts, both costs and benefits, of Federal regulation.
        Thank you very much for your time. I will answer any
    questions that you might have.
        [The prepared statement of Mr. Belzer follows:]

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        Mr. Ose. Thank you, Dr. Belzer.
        Our next witness is the president of the Public Citizen
    Organization, Ms. Joan Claybrook.
        Ma'am, welcome again.
        Ms. Claybrook. Thank you very much, Mr. Chairman. I
    appreciate the opportunity to be here, and the invitation.
        My name is Joan Claybrook, and I am president of Public
    Citizen, which is a national public interest organization
    representing consumer interests, and I am here to talk about
    the regulatory accounting legislation and the draft report for
    2004 to the Congress on the costs and benefits of Federal
    regulation.
        We strongly object to the use of regulatory accounting
    because we believe that, when you look at the facts, it is not
    able to support itself scientifically or intellectually. The
    notion of a regulatory budget in which Federal agencies have to
    compete with each other in order to pose a cost on industry in
    the private sector is highly improper, we believe, and
    inappropriate. The goal to control regulation that some agency
    rules might have been eliminated and new ones not issued, no
    matter how pressing the need, it seems to me, is morally
    repugnant.
        The pilot projects called for in the Paperwork and
    Regulatory Improvements Act that you have would be the first
    step toward establishing a regulatory budget, and a requirement
    that is not supportable, we believe, that all agencies conduct
    cost-benefit analysis.
        I would refer you in my full testimony, which I would hope
    would be submitted for the record, that the court of appeals,
    when we challenged the tire monitoring rule that OMB adjusted a
    change and degraded, they said that NHTSA was to be reminded
    that ``cheapest is best'' is contrary to Supreme Court
    precedent, and the agency is supposed to place ``a thumb on the
    safety side of the scale.'' So the courts, at least, very
    recently in this case, do not agree that cost-benefit analysis
    is just a numerical calculation.
        I would like to comment for just 1 second on the whole idea
    of the 10-year issue which you raised in this report. The major
    problem with it is not is it 5 years or 10 years or 15 years,
    in our view; it is that once a rule has been issued and the
    regulatory analysis done, then what happens is industry, which
    has complained bitterly about the costs, and often exaggerated
    the costs in its submissions to the agencies, then goes about
    implementing the rule if it is issued; and, when they do that,
    you see a dramatic reduction in the cost. And, so the estimates
    that are made, that are used by OMB, where they just assemble
    all the information that was evaluated when the rule was being
    considered, is now completely inaccurate.
        And, I would like to submit for the record a report that
    has just come out this month by Ruth Ruttenberg, who is an
    economist, called ``Not Too Costly, After All: An Examination
    of the Inflated Cost-Estimates of Health, Safety and
    Environmental Protections.''
        Mr. Ose. Without objection.
        Ms. Claybrook. Thank you.
        There is a growing body of evidence that establishes that
    regulatory accounting suffers from fatal flaws; it requires a
    pretense that accurate and reliable data are presented on both
    sides, which we all know is not accurate. It is very hard to
    get benefit data; it is far easier to get cost data. And, as I
    just mentioned, cost data changes dramatically when a rule
    takes effect.
        The committee is familiar with the groundbreaking work, I
    believe, of Professor Lisa Heinzerling, who demonstrated that
    studies claiming regulations caused statistical murder were
    based on fictional regulations, they were never in fact ever
    issued, which I would like to submit a summary for the record.
        Another new book called ``Grading the Government,'' by
    Professor Richard Parker, examines three influential studies
    often cited to support regulatory accounting by John Morrall,
    John Graham, and Tammy Tengs and Robert Hahn; and all of these
    are rife with errors, avoidable errors such as undisclosed
    data, non-replicable calculations, guesses presented as facts,
    and gross underestimates of the numbers of lives saved.
        One of the major issues that I think that the committee
    needs to consider, in addition to the fact that the small
    business agency represents only, in its study, the costs, the
    Crain study only talks about costs, but never about benefits.
    Why wouldn't the committee ask for the benefits as well? It
    seems to me that is a major issue. No manufacturer would go and
    spend money to build a factory and not consider the benefits of
    building the factory, only the costs. It is just irrational.
    And, so I hope that the committee will ask that the Crain study
    consider benefits as well.
        But, the other issue is that when you look at the
    regulations that you are looking at before this committee,
    mostly health, safety, and environmental regulations, you have
    40,000 deaths a year on the highway, 42,000 to be exact; you
    have close to 50,000 from occupational safety and health
    problems; you have close to 100,000 adverse reactions under the
    Food and Drug Administration rules and laws; you have
    environmental deaths that are almost incalculable, or injuries
    or sufferings, such as from bad air, that is clear. And, so my
    question is when you are looking at all these deaths and then
    you consider homeland security or you consider the Defense
    Department costs for protecting this Nation, there is no
    relationship; the deaths for just the military are far exceeded
    on the highway, just on the highway, than they are in foreign
    lands.
        So, I think that it is totally skewed in terms of the
    imposition of these requirements when you don't have a
    balancing here of where the harm is occurring in this Nation;
    it is like having doctors treat a minor disease instead of
    treating a major disease. And that, it seems to me, is what is
    happening with this focus on regulatory accounting, which costs
    the Government a lot; it takes a lot of agency work and time to
    do these analyses and to produce a regulatory accounting that I
    think I have made pretty clear is inaccurate.
        I would like a chance to answer some questions, perhaps,
    Mr. Chairman. I see I am out of time, and there is much more to
    say. Thank you so much.
        [The prepared statement of Ms. Claybrook follows:]

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        Mr. Ose. We thank you for your participation today.
        Our final witness in the second panel joins us from the
    University of Missouri Kansas City School of Law, and that
    would be Robert Verchick. He is the Ruby Hulen professor of law
    and comes to us from the Center for Progressive Regulation.
        Welcome, sir. Nice to see you. You are recognized for 5
    minutes.
        Mr. Verchick. Good morning. Mr. Chairman, members of the
    subcommittee, my name is Rob Verchick. I am the Ruby Hulen
    professor of law at the University of Missouri Kansas City. I
    have also been a visiting professor of law at Aarhus University
    in Denmark and a guest professor at Beijing University in
    China.
        I would like to offer my written comments for the record,
    but today I am a scholar at the Center of Progressive
    Regulation, and I have only three points I want to make that
    are fairly important.
        The first, and I am going to collapse a lot of this but I
    would be happy to answer questions on it later, is that OMB's
    estimates of costs and benefits of Federal regulation are often
    arbitrary in this report and its previous ones, and are skewed
    against regulations to protect health, safety, and the
    environment. A few examples: OMB's tables, for instances,
    suggest comparisons among agencies where the figures don't
    support such comparisons because of inconsistent methodologies
    it admits to; OMB minimizes regulatory benefits by leaving some
    benefits, even monetizable benefits, out of its calculations.
    This is a point that Representative Tierney made about the
    factory farms that is very well taken. OMB also excludes
    deregulatory actions from cost-benefit analysis. It has done
    that in the past. Again, this study, to cite one example,
    excludes the final rules from the so-called ``Healthy Forest
    Initiative'' from any cost-benefit analysis; and, also OMB
    excludes transfer rules from cost-benefit analysis, such as
    billions of dollars in farm subsidies, which have the practical
    effect of regulation.
        My second point that I want to spend a little more time on
    has to do with all these international studies, because this is
    something that has been discussed a bit today and is new for
    OMB. OMB attempts to make an international case for
    deregulation; it asserts that, globally speaking, economic
    growth is associated with less regulation. But, its use of
    these studies, I am sorry to say, after looking very carefully
    at them, is, at best, very careless. I am going to focus on the
    World Bank study, because that is the study that OMB focuses
    mostly on. But, let us just take a few things just to see some
    problems here with the study.
        First, the World Bank study ignores other means of market
    intervention which wealthy countries use in place of direct
    regulation. Denmark, a country praised in OMB's report, and a
    country that I have lived in, imposes heavy taxes on industrial
    practices that pollute and waste energy as a replacement for
    direct regulation. I don't read the OMB report to be advocating
    that sort of a replacement. Norway and Sweden, incidentally, do
    the same thing.
        Also, if you take a look, the World Bank study, if you look
    at the methodology, does not even concern itself with many of
    the regulations that the OMB is studying in this report. For
    instance, in comparing regulations affecting market entry, the
    World Bank assumes that a business is, among other things, not
    using heavily polluting production processes, is not subject to
    industry-specific regulations, such as environmental
    regulations, and that the business is operating in the
    country's most populous city, like Tokyo or New York, where
    service sectors often dominate. The bottom line is you can tell
    very little about what countries like Denmark, Sweden,
    Singapore do environmentally, or for public health, by looking
    at a study like this.
        The other thing, and OMB has done this before, and I have
    written about this, as Lisa Heinzerling has also written about
    this, is that OMB also makes the mistake of understanding
    wealth to be well-being, when in fact those things are very
    different. For instance, the OMB report chides the five OECD
    countries that it claims have the most regulation: Greece,
    Italy, Portugal, Ireland, and France. All of those countries
    have lower infant mortality rates than the United States does.
    All of those countries but Portugal have higher left
    expectancies at birth than the United States does. If you want
    to look at countries with similar infant mortality rate or life
    expectancy to the United States, one of the closest examples
    you will find is Cuba, one of the most repressed and regulated
    nations on Earth.
        My point is not to suggest that Sweden and Singapore or the
    United States is Cuba, but my point here is that, if you focus
    on any single characteristic about a country and then cross
    over 130 countries, you can prove virtually anything that you
    want to prove. These studies, for the use that OMB is using
    them, are flawed because they suggest that regulation has
    something to do with all of these things as a primary factor,
    when in fact they don't.
        I am running out of time, but I do want to say that I think
    that there is very little evidence to suggest that we need to
    look at manufacturing regulatory reform. There are other
    things, like greenhouse gases and asthma and pollution and
    sewage problems, which cost billions of dollars a year. We know
    we already have these problems. These are the problems that
    need some regulatory reform.
        Thank you very much, and I am willing to answer questions.
        [The prepared statement of Mr. Verchick follows:]

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        Mr. Ose. Thank you, Mr. Verchick.
        All right, as we did in the previous panel, the manner in
    which we will proceed is that I will ask questions, then Mr.
    Tierney will have his round of questions, then Mr. Schrock will
    have his round, and, if we have multiple questions, we will
    have multiple rounds.
        I have broken my questions out in two ways. I want to focus
    on the bill itself first.
        Mr. Kovacs, you heard the discussion in part, I believe,
    about including ``as part of'' the President's budget the
    regulatory accounting statement and its associated report, as
    opposed to including that report ``with'' the President's
    budget. In other words, is it in the document or is it
    accompanying the document.
        Now, one of the difficulties we had this spring was that
    the regulatory accounting statement was not with the
    President's budget; it was 11 days late. And one of the
    difficulties we have up here is that we are required to provide
    feedback to other committees about the President's budget on a
    certain timeline, and, if we don't have the accompanying
    documents, it is awful hard to provide whatever insights we may
    have.
        My legislation would require that the regulatory accounting
    statement be integrated into the President's budget documents.
    Do you support that requirement?
        Mr. Kovacs. Let me see if I can give it to you in three
    parts as simply as I can. One is the Chamber supports
    regulatory accounting; two, in the perfect world, we would like
    to see it concurrent with the President's budget; but, three,
    in the practical world, we are here to get the regulatory
    accounting and the regulatory cost-benefit analysis straight.
    We think there are deficiencies in the process now. Until we
    really sit down and take it seriously, and whatever you get in
    terms of a regulatory budget is going to end up being a range.
    It has to be a range because regulatory accounting is a dynamic
    process, it is not a static process. Also, as part of the
    process you need to consider the kind of data that is going in.
    The Data Quality Act is only about a year old, and you need to
    make sure that the agencies incorporate sound science, that the
    process is transparent, that it is peer reviewed; and then I
    think you get to the point where you actually understand what
    the regulations are going to do and the range of impacts.
        So, we think it is a three-step process.
        Mr. Ose. OK, using your phrase, ``in a perfect world,''
    should the regulatory accounting statement be part of the
    President's submittal or should it be in an accompanying
    document?
        Mr. Kovacs. We would like to see it as part of a submittal,
    because what the agencies are going to do as part of their
    budget is certainly going to have an impact on regulation.
        Mr. Ose. All right.
        Ms. Dudley, any comments on that?
        Ms. Dudley. No, I would agree, and I think the analogy to
    the Government Performance and Results Act is helpful there. We
    have seen that in recent years, GPRA measures have been part of
    the budget; not alongside the budget, but part of the budget,
    and I think it is helping improve accountability and
    performance.
        Mr. Ose. Dr. Belzer, you have been 10 years at OMB in one
    form or another. What is your feedback on this?
        Mr. Belzer. Well, I applaud the idea. I think that is
    useful to be careful about what we think we want to get out of
    it. Ideally, what I would like to be able to see, and maybe you
    would like to see, is within the budget to be able to quickly
    discern, when you are looking at some obscure regulatory
    outpost in the Government that issues regulations, what were
    the costs and benefits of the regulations that it issued; and
    to be able to have that information handy within the document.
        To make that work for you, though, those estimates have to
    have gone through a pretty careful validation exercise so that
    they are not simply reported estimates or suggested estimates
    or draft estimates, or something of that form. And, from my 10
    years of experience at OMB, my concern would be that the
    numbers that right now would go into such a document would not
    be OMB's numbers, and I think that is part of the reason for
    some concern about incorporating them.
        Mr. Ose. Well, you questioned the validity of some of the
    numbers on the basis that they hadn't been checked, is the way
    I interpreted your remarks, and that there existed, probably on
    the private side, the better part of wisdom in the regulatory
    analysis industry. Given the difficulties here, you have been
    on both sides, who will compress this so we have the
    information in a timely fashion?
        Mr. Belzer. Well, I believe that it speaks to the question
    of the quality of the information that we are dealing with, as
    well as the reporting timing. If you were to incorporate within
    the budget document a final accounting statement, I think that
    is perfectly helpful. A draft accounting statement would be
    problematic. ,But the underlying problem I have still is that
    the numbers that OMB is reporting are not OMB's numbers. I do
    find it a little amusing to find OMB criticized for the numbers
    when they really don't belong to OMB; they have simply
    repackaged the agencies' estimates and in some cases made the
    simple conversions to make them a little bit more comparable.
    But, the problem is that the agency estimates are coming in to
    this process without any real thorough review, except by OMB,
    but without any competitive estimates from other parties, from
    whichever interest group might want to provide a credible
    policy-neutral, compliant estimate, compliant with Circular A-
    4.
        Mr. Ose. Mr. Tierney.
        Mr. Tierney. My initial approach to this whole thing is
    that the agencies ought to be worried about the cost it takes
    them to do all of this work and making all these comparisons,
    when it seems the benefit of their work isn't that obvious to
    many of us, since it seems so difficult to measure the benefit
    side of it; and I am not sure there is a value to what they
    actually end up with in the end.
        Mr. Verchick, maybe you can tell us a little bit. How can
    we ever be comfortable that somebody is giving a fair
    assessment of the value of a benefit like a health factor or
    environmental factor or safety factor? How comfortable can we
    be that any calculation that tries to measure those aspects is
    in any way accurate and gives us a clear picture of what it is?
        Mr. Verchick. I think that they can't give you a clear
    picture if what you want to do is look at losses of money,
    which can be measured, and then also try to incorporate losses
    of life or injury, harm, this sort of thing. Those are value
    judgments, and those value judgments, in my view, should be
    made by the people in an open process, rather than economists
    deciding whether to discount a life by 3 percent or 7 percent
    into the future. Those are value judgments too, but those are
    judgments that are made by unelected people applying economic
    practical to moral ideas that they weren't intended to affect.
        Mr. Tierney. I guess we are just reiterating a point that I
    made in my opening remarks. This is a lot of common sense. If
    you have a dollars matter, we ought not to start putting in
    relations without any consideration for their costs, but, in
    the end, there are some things that are just common sense. And,
    you can't measure the things that you and I were just
    discussing, but you have to factor them in then make a
    decision, and that may make it sometimes more difficult to sit
    in these chairs, but that is what you do on that.
        Ms. Claybrook, I was concerned about OIRA's increasing
    interference in agency rulemaking decisions. I think there is a
    real trend in that. GAO stated in a report last September that
    there is a clear indication of OIRA's new gatekeeper role, and
    that is the office's increased use of return letters. GAO
    reported that, between 2001 and 2002, 23 letters were returned,
    far more than the number returned the previous years. Do you
    share that concern? And, would you talk a little bit about
    that?
        Ms. Claybrook. I do have concern about it. It seems to me
    that the major role of the Office of Management and Budget in
    the regulatory sphere is to look at the overall impact, but not
    to try and get into the nitty-gritty. In the tire rule, the
    rule that required an indicator on the dashboard about whether
    your tires were inflated or under-inflated, they got into
    proposing an alternative method for measuring the system to be
    used by industry, and the original proposal by the Department
    of Transportation was that it be a direct measurement of each
    tire and that it be a dashboard light. What OMB said is, well,
    there are some vehicles that have these analog brakes, and,
    when you have analog brakes, you can measure it on the analog
    brake itself. But, of course, the problem with that was that
    you only measure one tire. Now, most people want to know about
    all four tires in their car. You can only measure it when the
    tire is moving. But, when I am at the gas station at the pump,
    I want to know, while I am there, whether or not I have an
    under-inflated tire and which one it is.
        So, they proposed an almost ridiculous alternative
    proposal, and it was a little bit cheaper, but in terms of
    cost-benefit analysis it really wasn't cheaper, even if you did
    it that way. And, we sued the Department of Transportation
    after OMB forced the agency to change the rule, and we won, and
    I quoted to you from what the court said. So it seems to me
    that should not be the role of citizen groups, to have to sue
    OMB when it interferes with a particular rule in that level of
    detail.
        The other issue, of course, is that the way that OMB looks
    at the overall costs and benefits is really inappropriate
    because you cannot measure the decisionmaking process of
    someone who is charged by Federal statute to save lives, reduce
    injuries, or protect the environment. You cannot look at it in
    purely monetary terms. And, I don't think anybody in this panel
    would want that to happen. You may want to understand it. I was
    a Federal regulator; I wanted to know the numbers, I wanted to
    understand it. But that should not be the guideline that
    determines how you set that rule or what it is. There is no
    industry in America that I know of that has been put out of
    business because of some Federal regulation. I don't see that
    there is a case that has been made for a regulatory accounting
    or an absolutist cost-benefit analysis because of the harm that
    has been done to any company.
        In addition, there are all sorts of ways of mitigating the
    cost to industry, which agencies take into account all the
    time. For example, how long the industry has to implement a
    rule. If, for example, in the auto safety area, if you issue a
    regulation and say to the company you have 2 years to do this,
    it is going to cost the companies a lot more than if you give
    them 5 or 6 years to implement it. And, agencies give them more
    time all the time. Companies ask for that, they do that. So,
    the cost to the company is vastly reduced. But, that doesn't
    mean that you shouldn't issue the safety standard.
        Mr. Tierney. Thank you.
        Mr. Ose. Mr. Schrock.
        Mr. Schrock. Thank you, Mr. Chairman.
        I was interested, Ms. Claybrook, you said you objected to
    regulatory accounting, but how do you respond to the 80,000 new
    regs that Dr. Graham talked about that have never been looked
    at? Doesn't that deserve some oversight?
        Ms. Claybrook. Well, if you are going to go back and look
    at past rules that have been issued, I think you have to take
    half the Federal budget to do that.
        Mr. Schrock. What?
        Ms. Claybrook. Take maybe half the Federal budget to do
    that, because the data that exists is out of date now for the
    past rules, it is totally out of date. So, you would have to do
    brand new evaluations. I think that if you look at the report
    that we submitted for the record today by Ruth Ruttenberg, you
    will see that, once a rule is actually implemented, the costs
    are far less than what companies said when the proposal was on
    the table, before it had been issued. And, so, you would have
    to go and do an evaluation of that.
        The other issue that I think is really important on the
    cost side is that there is no accounting by a Federal agency.
    When a company says it is going to cost us $25 million to
    implement this rule, the agencies don't have the resources to
    go look at the factories and the cost estimates made by the
    industry; they just accept the complaints by the companies.
    And, so, if you are going to really evaluate this, there is a
    huge, huge amount of work to look at even a few, not even the
    80,000. I don't think that it is possible to do that.
        Mr. Schrock. Did I understand you to say that some of the
    regulations are really not applicable anymore? But, businesses
    think they are applicable and they are trying to adhere to what
    it says. You know, for instance, this telephone is applicable
    today; 2 months from now it won't be. In 2 months the new one
    won't be and in 2 months the new, new one won't be. So some of
    these regulations these poor folks are trying to adhere to have
    no applicability to anything, as I hear you saying. And, this
    lady who wrote this ``Not Too Costly After All,'' I would like
    to have a copy of that, by the way.
        Ms. Claybrook. Yes, of course.
        Mr. Schrock. I think there are some businesses who would
    differ with you. In the district I represent in Norfolk and
    Virginia Beach, VA, I think they would differ with that,
    because I think some of them have gone out of business because
    they said it is just not worth it, the regulations are too
    costly. And, I know some of the regulators in this town have
    dropped in on certain business people and made their life a
    living hell for a couple hours, and they say it is just not
    worth it anymore.
        Ms. Claybrook. Well, I didn't say that they weren't
    applicable anymore, but I am sure there are some that are.
        Mr. Schrock. Oh, I am sure.
        Ms. Claybrook. I am sure that there are. And you have a
    table here of three organizations, particularly the Chamber of
    Congress, which is supposed to represent small business, that I
    am sure is petitioning agencies all the time on behalf of their
    small business members, and you have a Government agency on
    small business that just testified that certainly has the
    capacity to go to Government agencies and say these standards
    are no longer applicable.
        I would point out that most health, safety, environmental
    regulations are performance regulations. They don't tell them
    how to design the product, they don't tell them that they have
    to do it this way or that way; they actually measure the
    performance of the activity and say you can't die in a frontal
    crash at 25 miles an hour with an air bag, the air bag has to
    protect you so you don't die. That is an example. So that means
    that the regulations are able to go with the new generation of
    a product, because it is a performance standard.
        But, in terms of the impact on small business, I don't want
    to argue, and I will not argue, that for smaller companies it
    isn't more complicated to comply with regulations than with
    larger companies. But let us take lead smelting. I mean, that
    can really harm people, both in the workplace and in the
    community. You have issues of environmental justice, for
    example, which is that a lot of companies are located in low-
    income areas, and so children in low-income areas are more
    subject to harmful environmental impacts.
        I don't think anyone in this room would want to live in the
    maquiladora area, which is just south of our border into
    Mexico, where children are born with all kinds of harm, brain
    damage and limb damage and other things, because of the
    environmental impacts that they face. Some of those are small
    companies down there.
        Mr. Schrock. And, Ms. Claybrook, I understand that, but the
    bad actors like that ought to be taken to the woodshed. But, I
    don't think we make everybody pay because there are a couple of
    bad actors. But, I know there has to be a balance there
    somewhere.
        Mr. Kovacs, I know you want to comment on that.
        Mr. Kovacs. Sure. First of all, the position of the Chamber
    is, as you said, Congressman, if there is a bad actor, they
    should just go to jail. I mean, we are not even here talking
    about that. That is really the first thing.
        The second thing is most regulations are not necessarily
    performance standards, they are mandates and they are controls,
    and they are the most difficult ones. And we can go down the
    list, whether it be ergonomics or mercury standards or
    whatever. We can give you thousands of those. And there are
    processes, like Section 610 of the Regulatory Flexibility Act,
    which requires the agencies on a 10-year basis to actually go
    over and look at the rules to see which ones no longer apply,
    and there are far more in the breach than in compliance. So
    there are mechanisms.
        But, what we are trying to say, and why we really
    appreciate so much what this committee is doing, is this is the
    beginning of let us get a handle on what is there. You have a
    mechanism in 610. Why aren't the agencies doing this on a 10-
    year basis? Second, we have a way to check the system. Let us
    just take the regulations that are out there where we do a
    cost-benefit analysis, and let us just, after 4 or 5 years,
    have the agency go back and check to see how closely they came.
        You know, we from the industrial sector and the business
    sector pay for most of these regulations. Frankly, the
    consumers end up paying, and they sometimes pay not just in
    cost of product, but in lost jobs which is contrary to what Ms.
    Claybrook was saying, that there has been no effect on, let us
    say, the manufacturing industry. My recollection is correct,
    over the last 30 years, the manufacturing sector of this
    country has been cut in half in terms of jobs. So, it is real.
    It is real, and no one is going to disagree that, where you
    have property rights and certainty of regulation, you have more
    investment in technology; and in a lot of areas across this
    country, the technology sector, the biotech sector, the
    biogenics, all of those, our regulations are forcing companies
    and the most advanced technologies in the world to go to Korea
    or Ireland. We are now 13th in the world in Internet. So these
    are real consequences to regulations. So let us not kid
    ourselves. And, the opportunity that we lose by not being able
    to advance our regulation into the modern era is huge.
        So, we do have options. We can look at regulations
    retroactively, using Section 610. We are not saying that every
    regulation is bad or we should look at it, because there are
    4,000 a year, that is impossible. We might look, at 20 or 30 in
    the course of a year.
        And, then, finally, a lot of the regulations are just good
    business practices and we do need them. So you have to
    understand what kind of regulations you want. But, if you want
    to look at regulations that cost a lot of money, just look at
    the Federal income tax laws. You have a lot of places for
    change that are very common sense, and that is what we are
    saying. Let us not sit here as a panel and say regulations are
    all good or bad; let us get a handle on the process and what it
    really costs, and get science into the program.
        Mr. Schrock. I think everybody agrees with that.
        I know my time is up, Mr. Chairman. I am sorry. You have
    been banging for a while.
        Mr. Ose. I want to followup on Mr. Kovacs' comment. On page
    3 of your testimony you make this exact point, about how do you
    know which ones to emphasize if you don't know their relative
    costs and benefits.
        Mr. Kovacs. Well, you do. You really do. Because let us
    just take TMDLs, which is total maximum daily loads, which is a
    water standard. The agency walks in and says, look, this
    regulation is going to cost $25 million a year; let us go back
    to Mr. Tierney, common sense. You are asking the entire country
    to analyze 40,000 water bodies and to come up with a statement
    and then come into effect with a plan to treat it. And, so,
    even if you took it at $1 million a water body for the analysis
    for treatment and everything else, you are at $40 billion. And,
    that is what one study had. GAO had it a little over $1 billion
    annually; the States had it $670 million annually to about $1.2
    billion annually; EPA said it is $25 million.
        Mr. Ose. I didn't state my question very well. I understand
    your point about the common sense issue in that respect. What I
    am more interested in is that Mr. Schrock, Mr. Tierney and I
    and our colleagues, we only have X amount of resources. I am
    trying to figure out the way in which we take those resources
    and we maximize the benefit to the country as a whole, from a
    cost-benefit perspective. Your testimony here is that, absent
    some sort of measurement, we are not going to be able to do
    that.
        Mr. Kovacs. That is correct.
        Mr. Ose. So, you would support something such as in Section
    6 that allows improvements to regulatory accounting, the
    objective of which is to get us to a point where we can say
    this impact has a cost-benefit ratio of X; this one has a cost-
    benefit ratio of Y; this one has a cost-benefit ratio of Z, and
    allow the policymakers up here to decide which one should have
    priority? Is that your point?
        Mr. Kovacs. No. I think Congress makes the law and it
    decides whatever the priorities are, but when the agency is
    implementing the law, they have tools at their disposal. They
    should always be using the best science. They should always be
    using the best data. And, from that they are going to begin to
    understand, and I will make a quick point.
        Ten years ago, when Bill Riley was the head of the EPA, he
    did an internal study, and he asked the scientists and the
    public what are the most serious risks; the public put
    Superfund at No. 1. He then asked the scientists what are the
    most serious risk to public health, and they would select
    certain aspects of air quality. If you looked at the list, they
    were almost absolutely the opposite of each other. What the
    public perceived and the scientists perceived as a serious risk
    were completely different. What we need to begin doing is
    realigning that. And, you have the tools.
        You have already given the agencies the tools with data
    quality and data access and sound science. It is now up to them
    to really begin in a rigorous process, and that is why I
    suggested a pilot study, because this is a rigorous process,
    this isn't an easy thing. We have to take these options, look
    at a dynamic system, look at the true health, honestly evaluate
    what it is, because at the end of the day, if the agency spends
    its money on the most serious public health problems, we are
    all going to be better off. But they have the tools now.
        Mr. Ose. Ms. Dudley, do you agree with that?
        Ms. Dudley. Yes. Let me just add one more thing to the
    study that he mentioned. I thought the most interesting thing
    about that was that our resources were being devoted to the
    public's ranking of risks, rather than what experts think is
    the more real ranking of risk. And, that is your point, isn't
    it, that we aren't sending our resources to the most
    effectively to activities that will produce the greatest good.
    I know Alexandra Teitz and I have had a conversation, and she
    was shocked that I didn't think that cost-benefit analysis was
    the answer to everything; and I think it is not, but I think it
    does provide information that allows you to make more informed
    decisions.
        Mr. Ose. Dr. Belzer, do you have any input on this?
        Mr. Belzer. Well, I have been practicing benefit-cost
    analysis for so long, I can't remember when it wasn't the way
    that I made decisions. I chose whether to have a heart surgery
    based on cost-benefit analysis.
        Mr. Ose. What was the result of your study?
        Mr. Belzer. I lived.
        Cost-benefit analysis is nothing different than what people
    do in their daily lives when they make mundane decisions; they
    do it intuitively. It is exactly what common sense is all
    about. When you get into complicated issues with valuing very
    difficult commodities, it can get technical. This is what
    professionals do, they try to do the technical part and then
    simplify it for other people.
        I should point out the common myth is that costs are easier
    to estimate than benefits. All things held constant, I really
    don't think that is true, because costs, properly understood,
    the costs of a regulation are the benefits that one must forego
    in order to have the benefits of the regulation. So really you
    are giving something up, not just dollars, you are giving
    something up in order to get the benefits of a regulation. What
    exactly are you giving up? Well, if somebody tells you it costs
    $1 million or $2 million or $3 million, I don't really care
    about the dollars, what I care about is what those dollars
    would have been used for; how would the public have been served
    by those expenditures. Those are the things that end up being
    given up. So it is harder, in principle, to estimate costs if
    you try to do this correctly.
        It is a mystery to me why it has become such a controversy,
    especially since I cut my teeth in cost-benefit analysis 30
    years ago with a rather famous book called ``Damming the
    West.'' It was a book on exposing all of the flaws in cost-
    benefit analysis performed, as it happens, by the Bureau of
    Reclamation. They were inflating the benefits and they were
    low-balling the costs and they were cheating on the different
    methods; they were double-counting benefits. They were doing
    everything wrong and it was a terrific book; it caused me to
    become an economist. Now, I find it ironic that the book was a
    product of the Ralph Nader study group at the time.
        So, to me, the methods are the same now as they were in
    1973, and maybe the parties have changed as to who is putting
    their thumbs on the scale. But the methods are the methods, and
    they inform people; they help you make decisions, they don't
    tell you what you have to decide.
        Mr. Ose. Mr. Tierney.
        Mr. Tierney. I feel like I should offer somebody some
    rebuttal time, but I am not sure who.
        Ms. Claybrook, go ahead.
        Ms. Claybrook. Well, the chairman didn't ask me about cost-
    benefit analysis.
        Mr. Ose. Consider asked.
        Mr. Tierney. My time just expired. I get to Dr. Belzer and
    I sit here.
        Ms. Claybrook. Well, our concern about cost-benefit
    analysis is that, different than in your daily lives, which Dr.
    Belzer mentions, the value and enjoyment of clean air, for
    example is priceless, and that is what Dr. Heinzerling's book
    discusses. There are many priceless elements to the benefits of
    regulation that are simply non-calculable, and so when you
    reduce it to cost and benefit analysis in monetary terms, those
    are eliminated, those are ignored; they don't get counted.
        In addition, Dr. Belzer is right, the cost issue is very
    complicated, and the fact is that most of the time agencies,
    because they don't have the resources to collect the cost data,
    evaluate the cost data, they just rely on what the industry
    claims are; and often, as I have mentioned already, they are
    much less.
        On the benefits side, it is very expensive to collect the
    benefits. I give you one example of the agency I used to
    regulate, that regulates the auto industry, and that is on the
    national accident sampling system, which is the collection of
    data about harm in auto crashes, and the fatal accident
    reporting system, when I was in office, the budget was $20
    million, and that was 24 years ago. The budget is now $17
    million. The agency is collecting one-fifth of the data that it
    used to collect because the budget has not kept up with it,
    even with inflation, much less where it was 24 years ago. So
    the benefit data are tremendously degraded.
        How is the agency going to comply with your requirement,
    Mr. Chairman, that it do a cost-benefit analysis, even if you
    could change the value of a life into a dollar? It can't. For
    example, the finding of the problem with the Firestone tire was
    completely outside the agency's scope, because it just didn't
    have the data. The harm to children in auto crashes is
    completely uncalculated by this agency, and we all know that it
    is the largest killer of people between age 2 and 34 in the
    United States of America. But, they can't collect that data
    because it is too obscure, given the small amount of money they
    have to collect such data today.
        So, when you argue that there should be these calculations,
    even aside from the prices element, there is no way. And, talk
    about EPA. EPA has a larger budget than the National Highway
    Traffic Safety Administration, but it administers a wide
    variety of programs. There is no way that they can collect the
    benefit data.
        So, I just think that it is fraudulent. The reason I use
    that word, because the information isn't there. Even if Dr.
    Belzer and I agreed on the adequacy of the agency's efforts,
    there is no capacity to do this. And, I think that when you say
    that the agency should do this with current regulations, then
    you look at it 10 years hence, and you don't even go back and
    adjust the way this regulation has been implemented, what the
    costs really are to the industry at that time, what the
    benefits are that have come out, and you want a regulatory
    accounting without any update, I just think it is an
    impossibility.
        Mr. Tierney. I am always mindful, when we talk about trying
    to measure these things. The oil refinery industry used to come
    in here all the time and bellyache that they just couldn't
    build a single new refinery, they couldn't get a single new
    permit for a 10-year period of time because of regulations and
    regulations. And, when we finally brought them in and we asked
    the administrator of the EPA how many oil refinery permits had
    been sought in that period of time, it was zero. We found out
    they hadn't asked for one because they found out it was cheaper
    for them to expand the existing ones, so they can come in and
    concoct more information. And, there was a tremendous amount of
    information on that, too, of the overestimate of the costs on
    that. And, when the requirements were actually implemented,
    sometimes they ended up to be less than a single-digit
    percentage of what the estimates had originally been.
        Mr. Verchick, is there anything you would like to add
    before we close out here?
        Mr. Verchick. Yes. I would like to say just one more thing
    about the cost-benefit analysis, because I think intuitively
    what people want is they want more information. They think,
    well, if cost-benefit analysis gives me some numbers, I would
    rather have the numbers, even if they are flawed, than not have
    the numbers.
        I am against that way of thinking, and the reason is that
    it is not that these numbers that you see on these tables are
    somehow mistaken in a small way; they are worse than having no
    information, because they suggest things that clearly aren't
    true. Some of these numbers are based on a discount rate into
    the future of deaths at 7 percent, some are based on 3 percent.
    Well, what is the difference of discounting a saved life 30
    years from now, 3 percent or 7 percent? Well, the difference
    is, if you work it out, a 3 to 1 ratio. So some of these rules
    you are looking at are either three times the benefit of human
    lives saved or a third of the benefit of human lives saved.
    And, of course, there is no indication of when what number is
    being used uniformly.
        And, that is just one example of having information that is
    really worse than not having information at all. And that is
    why I think that cost-benefit analysis is wonderful things that
    we have market prices for. But no other country that I am aware
    of is using cost-benefit analysis to such a degree in the
    environmental area, which leads me to think that it is
    something less than common sense.
        Mr. Ose. Mr. Schrock.
        Mr. Schrock. Thank you, Mr. Chairman. I am going to
    probably talk about one of Ms. Claybrook's favorite topics, and
    that is automobiles. By the way, in the spirit of full
    disclosure, my wife and I each have an SUV, and my son is about
    ready to buy one. I know, it is terrible.
        Ms. Claybrook. I hope it is a recent model.
        Mr. Schrock. Brand new.
        Ms. Claybrook. Brand new? Oh, that is a little bit better.
        Mr. Schrock. But, in full disclosure, I wanted to tell you
    that.
        You know, you talked about 40,000 highway deaths, and Dr.
    Belzer was talking about something about the west, what was it?
        Ms. Claybrook. Reclamation, Bureau of Reclamation.
        Mr. Schrock. No, no, no, some book title.
        Mr. Belzer. Oh, it is called ``Damming the West.''
        Mr. Schrock. Oh, ``Damming the West.'' Speaking of damning
    the west and 40,000 highway deaths, I just came back from
    California, where I spent 10 days, most of it on the 405, and I
    can tell you where a lot of those 40,000 deaths are going to
    come from, just because of the way they drive. It is not the
    way the car is built, it is just the way people drive out there
    and other places.
        But in her written statement to this committee in a
    previous year, Ms. Dudley 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 social goals.'' Question to Ms. Claybrook: ``If
    these studies are correct in whole or in part, isn't regulatory
    accounting essential to better protect public health and
    safety? If we don't know the costs or benefits of a regulation,
    how do we know if we are truly protecting the public and saving
    lives?''
        And that was a roundabout way to get there, but that was a
    question.
        Ms. Claybrook. Well, first of all, I would just like to
    comment that no matter how people drive, they also do crash, or
    someone crashes into you. And, so, there was a wonderful
    analytical piece of work that was done in 1966 by the first
    administrator of the National Highway Traffic Safety
    Administration, and he divided that one-twenty-fifth of a
    second crash into three parts: what caused the crash, what
    causes the injury, and the after treatment. And all of those
    are relevant to whether you live.
        And, so, the problem with SUVs is that even if you don't
    roll over, but someone else crashes into you, there is a
    possibility that because the roof crushes in and the belts
    don't cinch up and then you roll over, that you are going to
    die anyway, even if you are the best driver in the world.
        I just wanted to make that statement for the record.
        Mr. Schrock. But it could be the same way with sedans as
    well?
        Ms. Claybrook. Yes, but they don't roll over as frequently.
    And, the problem with the SUV is it has this greenhouse roof,
    and so, it sticks up more than the roof, and so if you roll,
    when you roll in a car it rolls without smashing the roof as
    much; whereas, if you are in an SUV, the roof smashes in more,
    and you are tall, and your head is going to be smashed. So, I
    just would point that out.
        Mr. Schrock. OK, but I am probably as bad a driver as
    anybody, and I have had no problem with my SUV.
        Ms. Claybrook. OK. Well, that was just a little comment on
    auto safety injury prevention.
        Mr. Schrock. I understand.
        Ms. Claybrook. Would you repeat your question?
        Mr. Schrock. OK. We talked about Ms. Dudley's statement
    when she was here in a previous year, and if those studies are
    correct in whole or in part, isn't regulatory accounting
    essential to better protect public safety and health? And, if
    we don't know the cost or benefits of a regulation, how do we
    know if we are truly protecting the public and saving lives?
        Ms. Claybrook. Well, at the National Highway Traffic Safety
    Administration, the agency I am most familiar with in that
    regard, there are regulatory evaluations done all the time to
    look at whether or not the estimates that the agency made for
    lives saved are in fact being saved; and in some instances they
    say it is more, in some instances it is less, and in some
    instances it is about the same. So, there is an evaluation done
    of the actual lives saved based on the data that the agency
    has. As I have said, part of the problem is that most of these
    agencies aren't funded sufficiently to get the data, and so, if
    you want to really have that, I would urge this agency to go to
    the Appropriations Committee and ask them to please increase
    the capacity of these agencies to do this work.
        I don't say that data are not important. I think data are
    important. They are important. And, it is important for the
    public to be able to evaluate them and to look at them and to
    consider them. But when you talk about regulatory accounting,
    which takes costs-benefits and it monetized benefits that are
    non-monetizable, and then you take it to the next step, now,
    that is fine when you are making a decision as a regulator, to
    look at the numbers and then to make an evaluation and to make
    a decision. And, people can argue with you about it and, as you
    know, the standard for the courts is whether or not it is an
    abuse of discretion or whether it is substantial evidence on
    which you based your decision; and, that is, in our society,
    the way we evaluate what a regulator does in the courts. And,
    we delegate that authority to the agencies to do that, and we
    can argue with them, and we have public comment and all the
    rest.
        To take it to the next step and say it can only be in
    monetized numbers, and then we are going to do a regulatory
    accounting and evaluate what is most important or not important
    then, loses the value of the human judgment; and I don't think
    you would want to do that for yourself, and I certainly don't
    want to do that for myself or for the public, because the value
    that we are able to express in terms of do we try and prevent
    death or injury or environmental health is as important in many
    ways as the costs and benefits as it is monetized. So you don't
    want to take the human decisionmaker out. If we did that, we
    could just do it on a calculator and just have a calculator
    make all these decisions.
        Mr. Schrock. Mr. Chairman, I know my time is up, but since
    I quoted Ms. Dudley, I would like to ask her if she would like
    to comment. If not, that is fine.
        Ms. Dudley. Yes, just briefly. I agree that, when we do big
    cost-benefit analyses of rules that affect everyone in the
    Nation, we are losing some of the value of human judgment. But,
    what I am concerned about is that we are losing the value of
    the judgment of the people who are going to be affected by the
    rule. So, for example, with seatbelts, I am forced now to put
    my child in the back seat because there is an air bag in the
    front seat. I would rather buckle my child than have that air
    bag.
        So, while we agree on some of the problems with cost-
    benefit analysis, I think the real problem is that we are not
    allowing enough human judgment, enough choice by individuals in
    the country. And that doesn't question the value of regulatory
    accounting, but it expands this notion of cost-benefit analysis
    and human judgment.
        Ms. Claybrook. But when your husband is in the front seat,
    you would want the air bag for him, I take it.
        Ms. Dudley. No, because he buckles a seatbelt. We buckle
    our seatbelts.
        Ms. Claybrook. I know, but that is not enough, because you
    are going to have head injuries.
        Ms. Dudley. No, but, see, that is it; I should make that
    decision rather than you. That is my point, that is a decision
    I think that individuals can make. And, that is a lot of what
    regulation does, it restricts individuals.
        Mr. Tierney. So you do or you do not like your husband?
        Ms. Dudley. I love my husband.
        Mr. Ose. Keep in mind you are sworn.
        Ms. Dudley. And, he is not even here.
        Mr. Ose. Well, I want to thank our witnesses for joining us
    today. As with the first panel, we will leave the record open
    for 10 days to undoubtedly followup with some of you with
    written questions. And, to the extent that you could have
    timely response, that would certainly be appreciated.
        Dr. Belzer, good luck.
        Mr. Belzer. Thank you.
        Mr. Ose. You have big days ahead of you.
        We are adjourned.
        [Whereupon, at 12:12 p.m., the subcommittee was adjourned,
    to reconvene at the call of the Chair.]
        [Additional information submitted for the hearing record
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