[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


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
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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:]

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    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 
follows:]

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