[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                    AMENDING EXECUTIVE ORDER 12866:
                     GOOD GOVERNANCE OR REGULATORY
                     USURPATION? PART I AND PART II

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

                                HEARINGS

                               BEFORE THE

                   SUBCOMMITTEE ON INVESTIGATIONS AND
                               OVERSIGHT

                  COMMITTEE ON SCIENCE AND TECHNOLOGY

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 13, 2007
                                  and
                             APRIL 26, 2007

                               __________

                            Serial No. 110-4
                                  and
                           Serial No. 110-21

                               __________

     Printed for the use of the Committee on Science and Technology


     Available via the World Wide Web: http://www.house.gov/science



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                                 ______


                  COMMITTEE ON SCIENCE AND TECHNOLOGY

                 HON. BART GORDON, Tennessee, Chairman
JERRY F. COSTELLO, Illinois          RALPH M. HALL, Texas
EDDIE BERNICE JOHNSON, Texas         F. JAMES SENSENBRENNER JR., 
LYNN C. WOOLSEY, California              Wisconsin
MARK UDALL, Colorado                 LAMAR S. SMITH, Texas
DAVID WU, Oregon                     DANA ROHRABACHER, California
BRIAN BAIRD, Washington              KEN CALVERT, California
BRAD MILLER, North Carolina          ROSCOE G. BARTLETT, Maryland
DANIEL LIPINSKI, Illinois            VERNON J. EHLERS, Michigan
NICK LAMPSON, Texas                  FRANK D. LUCAS, Oklahoma
GABRIELLE GIFFORDS, Arizona          JUDY BIGGERT, Illinois
JERRY MCNERNEY, California           W. TODD AKIN, Missouri
PAUL KANJORSKI, Pennsylvania         JO BONNER, Alabama
DARLENE HOOLEY, Oregon               TOM FEENEY, Florida
STEVEN R. ROTHMAN, New Jersey        RANDY NEUGEBAUER, Texas
MICHAEL M. HONDA, California         BOB INGLIS, South Carolina
JIM MATHESON, Utah                   DAVID G. REICHERT, Washington
MIKE ROSS, Arkansas                  MICHAEL T. MCCAUL, Texas
BEN CHANDLER, Kentucky               MARIO DIAZ-BALART, Florida
RUSS CARNAHAN, Missouri              PHIL GINGREY, Georgia
CHARLIE MELANCON, Louisiana          BRIAN P. BILBRAY, California
BARON P. HILL, Indiana               ADRIAN SMITH, Nebraska
HARRY E. MITCHELL, Arizona
CHARLES A. WILSON, Ohio
                                 ------                                

              Subcommittee on Investigation and Oversight

               HON. BRAD MILLER, North Carolina, Chairman
JERRY F. COSTELLO, Illinois          F. JAMES SENSENBRENNER JR., 
EDDIE BERNICE JOHNSON, Texas             Wisconsin
DARLENE HOOLEY, Oregon               DANA ROHRABACHER, California
STEVEN R. ROTHMAN, New Jersey        TOM FEENEY, Florida
BRIAN BAIRD, Washington              MICHAEL T. MCCAUL, Texas
BART GORDON, Tennessee                   
                                         
                                     RALPH M. HALL, Texas
                DAN PEARSON Subcommittee Staff Director
            JAMES PAUL Democratic Professional Staff Member
          DOUG PASTERNAK Democratic Professional Staff Member
            TOM HAMMOND Republican Professional Staff Member
                    STACEY STEEP Research Assistant
                            C O N T E N T S

                           February 13, 2007

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Brad Miller, Chairman, Subcommittee 
  on Investigations and Oversight, Committee on Science and 
  Technology, U.S. House of Representatives......................    10
    Written Statement............................................    11

Statement by Representative F. James Sensenbrenner, Jr., Ranking 
  Minority Member, Subcommittee on Investigations and Oversight, 
  Committee on Science and Technology, U.S. House of 
  Representatives................................................    12
    Written Statement............................................    13

Prepared Statement by Representative Jerry F. Costello, Member, 
  Subcommittee on Investigations and Oversight, Committee on 
  Science and Technology, U.S. House of Representatives..........    14

Prepared Statement by Representative Eddie Bernice Johnson, 
  Member, Subcommittee on Investigations and Oversight, Committee 
  on Science and Technology, U.S. House of Representatives.......    15

                               Witnesses:

Ms. Sally Katzen, Adjunct Professor and Public Interest/Public 
  Service Fellow, University of Michigan Law School
    Oral Statement...............................................    16
    Written Statement............................................    17
    Biography....................................................    22

Mr. David C. Vladeck, Director, Institute for Public 
  Representation; Associate Professor of Law, Georgetown 
  University Law Center
    Oral Statement...............................................    23
    Written Statement............................................    25
    Biography....................................................    33

Mr. William L. Kovacs, Vice President, Environment, Technology, 
  and Regulatory Affairs, U.S. Chamber of Commerce
    Oral Statement...............................................    33
    Written Statement............................................    35
    Biography....................................................    39
    Financial Disclosure.........................................    40

Mr. Rick Melberth, Director of Regulatory Policy, OMB Watch
    Oral Statement...............................................    41
    Written Statement............................................    42
    Biography....................................................    56

Discussion
  Role of OIRA...................................................    56
  Transparency Provisions........................................    57
  Outside Comment on E.O. 12866..................................    58
  Cost-Benefit Analyses..........................................    59
  Market Failure Provisions......................................    60
  More on Transparency Provisions................................    62
  More on Market Failure Provisions..............................    63
  Regulation and the Public Interest.............................    64
  More on Transparency Provisions................................    67
  Transparency Costs.............................................    69

             Appendix 1: Answers to Post-Hearing Questions

Ms. Sally Katzen, Adjunct Professor and Public Interest/Public 
  Service Fellow, University of Michigan Law School..............    74

Mr. David C. Vladeck, Director, Institute for Public 
  Representation; Associate Professor of Law, Georgetown 
  University Law Center..........................................    76

Mr. William L. Kovacs, Vice President, Environment, Technology, 
  and Regulatory Affairs, U.S. Chamber of Commerce...............    80

Mr. Rick Melberth, Director of Regulatory Policy, OMB Watch......    85

             Appendix 2: Additional Material for the Record

Memorandum for Heads of Executive Departments and Agencies, and 
  Independent Regulatory Agencies, from Rob Portman, Director, 
  Office of Management and Budget, April 25, 2007................    90

Analysis of E.O. 12866 with edits made by E.O. 13422.............   108

While on the Home Front, Unpublished OP-ED by Dr. Peter Strauss, 
  Betts Professor of Law, Columbia Law School....................   122

Bush Order Limits Agencies' `Guidance,' by Cindy Skrzycki, 
  Bloomberg News, January 30, 2007...............................   123

Bush order on government regulation stirs debate, by Tabassum 
  Zakaria, Reuters, January 30, 2007.............................   125

Comments submitted by the Union of Concerned Scientists, February 
  12, 2007.......................................................   126

Public Citizen position on the January 2007 Executive Order and 
  Bulletin on Guidance, January 2007.............................   129

                            C O N T E N T S

                             April 26, 2007

                                                                   Page
Witness List.....................................................   134

Hearing Charter..................................................   135

                           Opening Statements

Statement by Representative Brad Miller, Chairman, Subcommittee 
  on Investigations and Oversight, Committee on Science and 
  Technology, U.S. House of Representatives......................   142
    Written Statement............................................  1143

Statement by Representative Dana Rohrabacher, Acting Ranking 
  Minority Member, Subcommittee on Investigations and Oversight, 
  Committee on Science and Technology, U.S. House of 
  Representatives................................................   144
    Written Statement............................................   145

Prepared Statement by Representative Jerry F. Costello, Member, 
  Subcommittee on Investigations and Oversight, Committee on 
  Science and Technology, U.S. House of Representatives..........   146

                                Panel 1:

Mr. Steven D. Aitken, General Counsel for the Office of 
  Information and Regulatory Affairs, Office of Management and 
  Budget
    Oral Statement...............................................   147
    Written Statement............................................   148
    Biography....................................................   158

Discussion
  Executive Order Consultation Process...........................   159
  Market Failure Provisions......................................   166
  Transparency Provisions........................................   169
  Confidentiality Concerns.......................................   171
  Regulatory Policy Officers.....................................   172
  Division of Power in the Federal Government....................   173

                                Panel 2:

Mr. Peter L. Strauss, Betts Professor of Law, Columbia Law School
    Oral Statement...............................................   178
    Written Statement............................................   180
    Biography....................................................   185

Dr. Robert W. Hahn, Executive Director, AEI-Brookings Joint 
  Center for Regulatory Studies
    Oral Statement...............................................   185
    Written Statement............................................   186
    Biography....................................................   190

Dr. Gary D. Bass, Executive Director, OMB Watch
    Oral Statement...............................................   191
    Written Statement............................................   193
    Biography....................................................   202

Mr. Richard W. Parker, Professor, University of Connecticut Law 
  School
    Oral Statement...............................................   203
    Written Statement............................................   205
    Biography....................................................   210

Discussion
  More on Regulatory Policy Officers.............................   210
  More on Separation of Powers and Market Failure Provisions.....   211
  More on Transparency Provisions................................   214

              Appendix: Additional Material for the Record

Changes to the OMB Regulatory Review Process by Executive Order 
  13422, CRS Report for Congress, Updated February 21, 2007......   218


     AMENDING EXECUTIVE ORDER 12866: GOOD GOVERNANCE OR REGULATORY 
                           USURPATION? PART I

                              ----------                              


                       TUESDAY, FEBRUARY 13, 2007

                  House of Representatives,
      Subcommittee on Investigations and Oversight,
                       Committee on Science and Technology,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 11:35 a.m., in 
Room 2141 of the Rayburn House Office Building, Hon. Brad 
Miller [Chairman of the Subcommittee] presiding.


                            hearing charter

              SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT

                  COMMITTEE ON SCIENCE AND TECHNOLOGY

                     U.S. HOUSE OF REPRESENTATIVES

                    Amending Executive Order 12866:

                           Good Governance or

                     Regulatory Usurpation? Part I

                       tuesday, february 13, 2007
                          12:00 p.m.-1:30 p.m.
                   2141 rayburn house office building

Purpose

    On Tuesday, February 13, 2007 the Subcommittee on Investigations 
and Oversight of the Committee on Science and Technology will hold a 
hearing to receive testimony regarding the President's recent amendment 
to Executive Order 12866. That order provides guidance to agencies for 
submitting proposed regulations to the Office of Management and Budget 
(OMB) for pre-approval.
    The amendment (Executive Order 13422) expands this process by 
requiring agencies to submit proposed significant guidance documents 
for pre-approval. The Order also requires for the first time that 
agencies identify in writing the specific market failure or problem 
that warrants the proposed regulation or guidance; that a Presidential 
appointee in each agency be designated as regulatory policy officer and 
that officer must approve each regulatory undertaking by the agency.
    The hearing will explore the consequences of Executive Order 12866, 
as it has been used by the Bush Administration, as well as the impact 
of this amendment to the order. Among the issues the Subcommittee will 
seek information on are:

        1.  What has been the record of OMB's use of Executive Order 
        12866 to date, with particular attention to its use under the 
        Bush Administration?

        2.  How will the expansion of OMB's role impact the ability of 
        agencies to follow the laws passed by Congress to protect 
        public safety and health?

        3.  What are the practical implications of having a 
        Presidential appointee at each agency act as a minder on what 
        rule-making work can be started at an agency and what can leave 
        the agency to go to OMB?

Witnesses

Sally Katzen: Adjunct Professor and Public Service Fellow at University 
of Michigan Law School: Former Director of OIRA during the Clinton 
Administration.

David Vladick: Professor of Law, Georgetown University Law Center.

Rick Melberth, Ph.D.: Director, Federal Regulatory Policy, OMB Watch

Bill Kovacs: Vice President for Environment, Technology, and Regulatory 
Affairs, U.S. Chamber of Commerce (minority witness).

Key Issues

    Regulatory authority is the main tool Congress has used to charge 
Executive agencies with responsibilities to protect the environment, 
public health, the safety of the workplace, the use of public lands and 
a myriad of other good purposes. Congress obviously cannot pass a law, 
or amend statute, every time a new threat to air or health arises. 
Instead, Congress puts into place general purposes, general authority 
and a set of values that the agency should use in carrying out the law.
    When the Office of Information and Regulatory Analysis (OIRA) 
injects itself into the regulatory process there can be a fine line 
between guaranteeing that a proposed regulation is convincingly 
demonstrated and efficient in its likely outcome and substituting the 
President's values and preferences for the goals and purposes Congress 
enacted in statute. This line can be crossed either in the guidance to 
agencies from OIRA or by the way OIRA conducts itself.
    OIRA has quietly grown into the most powerful regulatory agency in 
Washington. The Reagan Administration used OIRA push further and 
further into the process of vetting regulations. A string of Executive 
Orders in the 1980s, many issued during David Stockman's tenure at OMB, 
forced agencies to let OIRA be a full partner--some thought dominant 
partner--in moving regulations forward. Several House Chairs fought a 
very bitter struggle to push OIRA back out of the business of 
interfering with the conduct of agencies as they carried out the law. 
That fight met only mixed success.
    As discussed below, E.O. 12866 was a Clinton-era effort to retain 
Reagan-initiated White House oversight of agency regulatory processes 
that had been the product of Reagan initiatives, balanced against the 
recognition that agencies should have primacy in the regulatory 
process. The thrust of E.O. 12866 was to pare back the array of 
regulatory actions that would be swept up into OIRA's review (the 
estimate was that the annual number of regulations for review declined 
from 2000 to a mere 500 or so). Clinton's OIRA, while still assertive, 
was cognizant that it was ultimately the agencies that were charged by 
Congress with carrying out public purposes and OIRA's assertions of 
authority had to be tempered by that legal reality.
    The Bush Administration has moved very aggressively to supplant the 
agencies' authority with a centralized command-and-control system 
whereby OIRA acts as a very stingy gatekeeper on what proposed 
regulations can see the light of day. In tone, OIRA has returned to the 
Reagan-era where OIRA uses its privileged position as ``the President's 
voice'' in regulatory matters, to push agencies into rethinking 
everything they are doing on regulation.
    Critics of OIRA's role since 2001 describe a process whereby the 
values and judgments of OIRA's small staff (dominated by economists) 
trump the judgments of technical experts in the agencies and supplant 
the values in statute designed to guide agency regulatory activities. 
The cumulative effect of OIRA's behavior since 2001 has been to 
intimidate agencies into running away from pursuing their statutory 
responsibilities rather than get caught up in the political struggles 
associated with moving regulation forward. Supporters of this approach 
are happy to see some office moving to slow agency actions and argue 
that the net result of OIRA's actions is a more defensible regulation 
at the end of the day.
    How does all this matter for science and the agencies under the 
Science Committee's jurisdiction?
    Every year the Federal Government funds billions of dollars of 
research at the Environmental Protection Administration, the Department 
of Labor, the Department of Transportation, the Department of 
Agriculture, the Department of the Interior, the Department of Energy 
and the National Oceanic and Atmospheric Administration that contribute 
directly or indirectly to regulatory considerations. Even the National 
Institutes of Health and the National Science Foundation fund science 
that finds its way into regulatory proposals. Experts at agencies--
often federal scientists--charged with regulatory responsibilities 
survey the relevant scientific literature to determine where there may 
be dangers to the public or the public interest. In determining the 
need for a regulation, the agency uses science funded with public 
dollars, as well as that from private sources, to make reasoned 
assessments of risks and propose responses. This is all to be done 
consistent with statutory responsibilities as established by Congress.
    OIRA has been using its circulars to force agencies to analyze and 
reanalyze the information underlying and supporting proposed 
regulations. Now, with the amended Executive Order, OIRA is putting in 
place very clear economic criteria for regulation and guidance that may 
have nothing to do with the values established in statute. This effort 
is coming with no consultation or input from Congress. Further, by 
making the regulatory policy officer a more empowered gatekeeper, with 
political allegiance to the President, it raises the chances that the 
agencies themselves will find it hard during the Bush years to get 
regulatory proposals started or completed simply to submit them to OIRA 
for review. Congress did not empower agencies to protect public health 
and safety simply to then sit on its hands to see all Congress 
appropriates for regulatory-relevant science and the legal authority 
seated in agencies be trumped through a sweeping Executive Order.

Background

Brief History of OMB: What is now known as the Office of Management and 
Budget (``OMB'') was originally created in the Budget and Accounting 
Act of 1921.\1\ The Act created the Bureau of Budget (``BOB'') in the 
Treasury Department. Congress created the BOB to unify the budget 
process and have the executive branch send a single budget to Congress. 
Previously, the executive branch transmitted budgets to Congressional 
committees independently of one another, and the budget process was 
consequently highly fragmented. Created at the same time was the 
Congress's General Accounting Office (now the Government Accountability 
Office) to give Congress an ability to independently check the 
budgetary information from the Executive as well as to examine the way 
programs were being funded and managed.
---------------------------------------------------------------------------
    \1\ 42 Stat. 22, Ch. 18, Sec. 207. OMB currently resides at U.S.C. 
Title 31, Chapter 5 (31 U.S.C. Sec. 501).
---------------------------------------------------------------------------
    In 1939, Congress moved the BOB from the Treasury Department to the 
Executive Office of the President.\2\ FDR, largely through executive 
order, expanded BOB's functions to include broad management oversight 
of federal operations.
---------------------------------------------------------------------------
    \2\ 53 Stat. 1423, Sec. 1.
---------------------------------------------------------------------------
    In 1970, BOB went through another major reorganization which saw it 
transformed into OMB.\3\ At this time, the federal management oversight 
functions of OMB were expanded, and have continued to be expanded until 
the present day.
---------------------------------------------------------------------------
    \3\ 84 Stat. 2085, Sec. 102(a), restated 88 Stat. 11, Sec. 1.
---------------------------------------------------------------------------
    The next major change to OMB occurred with the 1980 Paperwork 
Reduction Act.\4\ This act created the Office of Information and 
Regulatory Affairs (``OIRA'') within OMB.\5\ OIRA's original charge was 
primarily to reduce the Government paperwork burden on the public and 
to develop policies and standards with regard to information 
management. One focus of this was to eliminate duplicitous or 
unnecessary paperwork and information collections.
---------------------------------------------------------------------------
    \4\ 44 U.S.C. Chapter 35, P.L. 96-511, restated P.L. 104-13, 109 
Stat. 163.
    \5\ 44 U.S.C. Sec. 3503.
---------------------------------------------------------------------------
    Other major laws affecting OMB are the Congressional Budget Act of 
1974, and the Budget Enforcement Act of 1990. The Budget Enforcement 
Act expired in 2002.

OIRA and Executive Order 12866: The Office of Information and 
Regulatory Affairs (``OIRA'') was created with the 1980 Paperwork 
Reduction Act.\6\ Under the enabling act, OIRA was charged with 
reducing the Government paperwork burden on the public and developing 
policies and standards with regard to information management. 
Throughout the years, OIRA's functions have been expanded through 
legislation and executive action. The major surviving changes include 
the Paperwork Reduction Act of 1995\7\ and Executive Order #12866 
(1993). In addition, during the current Bush Administration, OIRA has 
come to oversee implementation of the Data Access Law\8\ and the Data 
Quality Law,\9\ including the peer review practices of agencies. The 
effect of these, and other changes to OIRA, has guaranteed that OIRA is 
the central player in the promulgation of virtually all federal 
regulations.
---------------------------------------------------------------------------
    \6\ 44 U.S.C. Chapter 35, P.L. 96-511, restated P.L. 104-13, 109 
Stat. 163.
    \7\ 44 U.S.C. Chapter 35, P.L. 104-13, 109 Stat. 163.
    \8\ P.L. 105-277, 112 Stat 2681.
    \9\ P.L. 106-554, Sec. 515, 114 Stat. 2763.
---------------------------------------------------------------------------
    Executive Order 12866 requires the following from all agencies:

        1.  Assess the economic costs and benefits of all regulatory 
        proposals;

        2.  Complete a Regulatory Impact Analysis (RIA) for all major 
        rules (any rule that will have an impact of $100 million or 
        more, or that OMB designates as major). The RIA must describe 
        the costs and benefits of the proposed rule and alternative 
        approaches, and then justify the chosen approach;

        3.  Submit all major proposed and final rules to OMB for 
        review;

        4.  Wait until OMB reviews and approves the rule before 
        publishing proposed and final rules;

        5.  Submit an annual plan to OMB to establish regulatory 
        priorities and improve coordination of the Administration's 
        regulatory program (this requirement also applies to 
        independent agencies);

        6.  Periodically review existing rules.

    Most of these requirements actually originated in earlier 
administrations (particularly the Reagan Administration). The 
initiatives of the Reagan years had turned OIRA into a kind of 
``gatekeeper'' that stood between the agencies and putting regulations 
out for comment (or finalizing them). However, the Clinton 
Administration intended to set a different tone and, drawing on what 
they felt to be the best of the ideas of the Reagan years, drafted a 
new Executive Order to organize and guide the work of OIRA.
    Sally Katzen, an attorney by training with experience in the Carter 
Administration's management system, took the lead in drafting E.O. 
12866. That process involved comment and review from all the agencies, 
as well as participation by OMB General Counsel, White House Counsel 
and Domestic Policy Staff and even the President himself. What Katzen 
attempted to do has been described as the ``hot tub theory'' of 
managing regulation. Rather than being a gatekeeper, OIRA would work 
with agencies to put out the best regulations possible. The economics 
of a proposal were important, but not to the exclusion of other values. 
Indeed, there was recognition that not everything valued by society 
could have a dollar value assigned to it. In addition, some statutes 
require agencies to consider economic costs only in choosing among 
alternatives for achieving the goal of the regulation, not whether to 
issue the regulation or not.
    Clinton's approach changed regulatory oversight. First, it set up a 
90-day period for OMB review of proposed rules, and created a mechanism 
for the timely resolution of disputes between OMB and agency heads. 
There would be no ``paralysis by analysis'' if these commitments were 
kept. Second, it created new public disclosure requirements which 
mandated that all documents exchanged between OMB and the agency during 
regulatory review be made available to the public at the conclusion of 
the rule-making. Lastly, the Order created a process for meetings 
between OMB officials and people outside the executive branch regarding 
pending reviews which attempted to shine a more public light on these 
types of meetings.
    These aspects of E.O. 12866 made the OMB regulatory review process 
much more transparent and limited OMB's ability to ``kill'' agency 
rule-making by endless OMB review. The E.O. also focused OMB review to 
only include major rule-making instead of all rule-making, reducing the 
number of regulations reviewed each year from 2,200 under Reagan, to 
about 500 under Clinton.

Bush Amendments to E.O. 12866: The Bush Administration has amended this 
Executive Order two times. The first amendment in 2002 simply removed 
the Vice President from the process, replacing that office with that of 
the White House chief of staff. This second occasion for amendment has 
come with limited warning, little discussion and with much broader 
implications. The attached CRS report goes into detailed discussion of 
the major changes, and some of their implications. Below is a summary 
of the key observations.

1. Elevating ``Market Failure'':

    First, the amendment establishes a new standard that must be met by 
any proposed guidance or regulation. Originally, the first principle 
guiding submissions to OIRA seeking approval of a proposed regulation 
was that ``[e]ach agency shall identify the problem that it intends to 
address (including, where applicable, the failures of private markets 
or public institutions that warrant new agency action) as well as 
assess the significance of that problem.''
    Under the amended language, ``Each agency shall identify in writing 
the specific market failure (such as externalities, market power, lack 
of information) or other specific problem that it intends to address 
(including, where applicable, the failures of public institutions) that 
warrant new agency action, as well as assess the significance of the 
problem, to enable assessment of whether any new regulation is 
warranted.''
    Critics of OIRA allege that this new standard of ``market failure'' 
supplants the values that exist in statute for regulatory action. They 
also worry that OIRA will use this standard to summarily dispense with 
proposals that they deem to be unconvincing in their articulation of a 
market failure. However, there is permissive language allowing for 
other kinds of analysis. The core question will rest on how OIRA 
applies this language in practice.

2.  Presidential Appointees as Regulatory Policy Officers

    The amendment directs that each agency shall name a regulatory 
policy officer who shall be a Presidential appointee. While regulatory 
policy officers had been required in the Executive Order as originally 
propounded in 1993, the notion that the officer must be a Presidential 
appointee takes the expert staff of agencies out of the picture. The 
language of the amendment charges this officer with being ``involved at 
each stage of the regulatory process to foster the development of 
effective, innovative, and least burdensome regulations and to further 
the principles set forth in this Executive order.''
    This political appointee appears to serve as a kind of gatekeeper's 
gatekeeper. The officer will compose an annual plan and ``no rule-
making shall commence nor be included on the Plan without the approval 
of the agency's Regulatory Policy Office.'' Previously such officers 
were to be involved in the rule-making process and now they have total 
discretion over the initiation of work that could lead to a regulation. 
(CRS states that these Regulatory officers are largely drawn from 
political appointees already so this may not be a notable change; 
however, the source on that is OIRA and they do not keep a master list 
of these officers so it is hard to know how to evaluate this 
assertion.)

3.  Aggregate Regulatory Costs and Benefits

    The original of 12866 required a ``summary of planned significant 
regulatory action including, to the extent possible, alternatives to be 
considered and preliminary estimates of anticipated costs and 
benefits.'' The amendment expands this requirement to direct that each 
agency provide the ``best estimate of the combined aggregate costs and 
benefits of all its regulations planned for that calendar year to 
assist with the identification of priorities.''
    Critics allege that this will elevate cost-benefit analysis in the 
regulatory process. Cost-benefit analysis is a very controversial 
analytical tool in guiding regulatory behavior. While the call to make 
sure that the benefits of a regulation exceed its costs has a simple 
appeal, the reality is that many of the benefits regulations are 
designed to capture (the survival of a species, to protect the lives 
and health of citizens, the quality of the air or water) are impossible 
to accurately value. However, the costs of steps to implement a 
regulation are usually easy to specify with precision. The result is a 
process that tends to be very complete in its enumeration of costs and 
incomplete in its ability to set values on the benefits. Retrospective 
studies have found that costs used in estimating the costs of a 
regulation turn out to be overstated. And of course because you are 
using ``dollars'' to estimate costs, it provides the illusion of a 
precision that does not--perhaps cannot--exist.
    Critics also view this as a potential first step towards a 
regulatory ``budget'' that could be used to stop future regulations 
based on some ``capping'' of that budget.

4.  Review of Significant Guidance Documents

    Under the amendment each agency is to provide OIRA with advance 
notice of all proposed significant guidance documents. OIRA may then 
decide which guidance it deems to be ``significant'' from its 
perspective and ask for the proposed guidance and a brief explanation 
of need. ``The OIRA administrator shall notify the agency when 
additional consultation will be required before issuance of the 
significant guidance document.''
    There is no time limit on how long OIRA may take in moving on these 
guidance proposals.
    The impact on agency conduct may be very, very significant and 
could potentially sweep up thousands of such proposals each year. 
Guidance is issued to communicate to an effected public how an agency 
intends to interpret or enforce statutory directions. The business 
community relies on guidance to ensure that conduct will comply with 
agency intentions for application of law.

Conclusion

    While the language of the Amendment to Executive Order 12866 is 
alarming to many, the fundamental issue is how does OIRA intend to 
implement it? The re-emergence of the ``gatekeeper'' approach to OIRA 
under President Bush--an event that has not so far received the kind of 
institutional push-back from Congress which that role drew in the 
1980s--suggests that the rule as amended will be used very aggressively 
to stall agency action. But how OIRA intends to apply this language in 
practice is a subject worth some study.
    Two other issues loom large from the Committee on Science and 
Technology's perspective. First, what will these changes imply for the 
science-based regulatory agencies? Will we increasingly find that the 
``science'' that matters is no longer that of climate, biological or 
medical researchers, but narrow applications of cost-benefit analysis 
and market failure theory drawn from economics? Should the science 
committee, uniquely positioned to examine and evaluate research, 
undertake a more rigorous review of the validity and utility of these 
economic approaches to regulation?
    Second, what does this new amendment imply for the institutional 
prerogatives of the legislative branch? Agencies exist in statute and 
are given mandates under the law. Should Congress passively accept an 
Executive Order that, just as an example, places Presidential 
appointees in a position where they can arbitrarily block career agency 
officials from carrying out the purposes of the law Congress charged 
them with?
    The growth of power at the Office of Information and Regulatory 
Affairs has gone largely unexamined in recent years. This amendment 
invites Congress as a body, and many, many Committees that are 
affected, to undertake a vigorous and thorough review of the changes in 
that office since 2001.

Appendix:

Other Regulatory Tools that OMB has used to expand its Powers:

    Data Quality: There were two recent acts of legislation that 
affected OMB's oversight of data. They are the Data Access Law and the 
Data Quality Law. Both of these laws were inserted into omnibus 
appropriations bills, and neither was fully debated in Congress.

         The entire Data Access Law consists of the following short 
        passage:

         ``Office of Management and Budget Salaries and Expenses

                 . . .Provided further, That the Director of OMB amends 
                Section------.36 of OMB Circular A-110 to require 
                federal awarding agencies to ensure that all data 
                produced under an award will be made available to the 
                public through the procedures established under the 
                Freedom of Information Act: Provided further, That if 
                the agency obtaining the data does so solely at the 
                request of a private party, the agency may authorize a 
                reasonable use fee equaling the incremental cost of 
                obtaining the data. . .'' \10\
---------------------------------------------------------------------------
    \10\ P.L. 105-277, 112 Stat. 2681.

    The purpose of the law was to increase public access to data 
conducted with funding from federal grants. Another purpose of the law 
was to overturn Forsham v. Harris,\11\ which stood for the principle 
that data generated by a privately controlled organization which 
received grant funds from a federal agency were not 'agency records' 
accessible under the Freedom of Information Act.
---------------------------------------------------------------------------
    \11\ 445 U.S. 169 (1980).
---------------------------------------------------------------------------
    The Data Quality Act (``DQA''), was inserted into the FY 2001 
Consolidated Appropriations Act.\12\ The Data Quality Act instructed 
OMB to establish guidelines to federal agencies for ``ensuring and 
maximizing the quality, objectivity, utility, and integrity of 
information (including statistical information) disseminated by federal 
agencies.'' Through its guidelines,\13\ OMB directed agencies to 
establish ``administrative mechanisms allowing affected persons to seek 
and obtain correction of information maintained and disseminated by the 
agency.'' To date, there appears to have been over 100 DQA petitions 
filed with numerous federal agencies. OMB does not compile a list of 
DQA petitions, so ascertaining the exact number of petitions filed is 
cumbersome. OMB Watch (www.ombwatch.org) keeps track of the individual 
petitions filed at each agency, and maintains a comprehensive list of 
DQA petitions.
---------------------------------------------------------------------------
    \12\ P.L. 106-554, 114 Stat. 2763(A).
    \13\ 67 FR 8452 (2002).
---------------------------------------------------------------------------
    Two major questions concerning the DQA remain unresolved. The first 
is whether the DQA applies to agency rule-making. It is clear that the 
DQA applies to agency action outside the rule-making process (for 
instance, agency dissemination of information through websites). 
However, there is no guidance in the actual legislation as to the 
applicability of the DQA to rule-making. There appears to be a 
consensus position across the federal agencies that the DQA doesn't 
apply to rule-making, as the rule-making process already allows for 
public comment. Furthermore, the DQA contains no reference to the 
Administrative Procedure Act. Nevertheless, industry petitioners have 
successfully used the DQA petition process to influence agency rule-
making. One instance involves the chemical atrizine. As a result of a 
DQA petition, the EPA included a sentence in a scientific assessment of 
the risks of atrazine that stated hormone disruption cannot be 
considered a ``legitimate regulatory endpoint at this time.'' \14\ 
Atrazine is banned in Europe precisely because of the evidence that it 
is an endocrine disruptor. By attacking the science underlying 
potential rule-making, the petitioners were able to avoid agency rule-
making altogether.
---------------------------------------------------------------------------
    \14\ Data Quality Law is Nemesis of Regulation, Washington Post, 
August 16, 2004.
---------------------------------------------------------------------------
    Another major question concerning the DQA is whether DQA petitions 
are judicially reviewable. Thus far, the major case on the issue held 
that DQA petitions are not judicially reviewable.\15\ However, further 
challenges in different circuits are planned, and the issue may not be 
fully settled. Judicial review of DQA petitions would cause massive 
delays to the petition process.
---------------------------------------------------------------------------
    \15\ Salt Institute v. Michael O. Leavitt, 440 F.3d 156 (2006).
---------------------------------------------------------------------------
    DQA Based Regulations: OIRA developed two important new regulations 
based on the Data Quality Act: OMB Peer Review Guidelines\16\ and OMB 
Risk Assessment Bulletin (Proposed). OMB's Peer Review Guidelines 
dictate that ``important scientific information shall be peer reviewed 
by qualified specialists before it is disseminated by the Federal 
Government.'' The guidelines apply to all ``scientific information 
disseminations that contain findings or conclusions that represent the 
official position of one or more agencies of the Federal Government.'' 
OMB's guidelines establish minimum peer review standards for federal 
agencies. Varying requirements for peer review are established based on 
the potential influence of the scientific information, with ``highly 
influential scientific assessments'' receiving the strictest peer 
review requirements. OMB asserts its legal authority to impose the Peer 
Review Guidelines flows from the Data Quality Act's direction to OMB to 
provide guidance for federal agencies for ``ensuring and maximizing the 
quality, objectivity, utility and integrity of information'' which is 
disseminated.
---------------------------------------------------------------------------
    \16\ 70 FR 2664 (2005).
---------------------------------------------------------------------------
    OIRA recently proposed a Risk Assessment Bulletin.\17\ This has not 
yet been published in its final form. The Risk Assessment Bulletin 
establishes ``quality standards for risk assessment disseminated by 
federal agencies.'' Much like the Peer Review Bulletin, the Risk 
Assessment guidelines have varying levels of quality standards. There 
is one set of standards for general risk assessments and another set of 
stricter standards for influential risk assessments. Influential risk 
assessment is defined as ``a risk assessment the agency reasonably can 
determine will have or does have a clear and substantial impact on 
important public policies or private sector decisions.'' OMB again 
asserts legal authority to issue the bulletin arises from the Data 
Quality Act. This Risk Assessment proposal was soundly rejected by the 
National Academy of Sciences in their January review. That step seems 
to have killed the proposal.
---------------------------------------------------------------------------
    \17\ Notice of proposal at: 71 FR 2600. Text of the proposed 
bulletin is not published in the Federal Register.
---------------------------------------------------------------------------

Analysis

    The effect of the Data Quality Act, Peer Review Bulletin and Risk 
Assessment Bulletin is to impose an additional layer of regulatory 
administration on agencies that, for the most part, already have strong 
internal guidelines (at least for peer review and risk assessment). The 
result of this will likely be greater delay in agency dissemination of 
information, and a chilling effect that might discourage agencies from 
attempting to disseminate information in the first place. The bulletins 
also represent another step in OMB's continuing effort to insert itself 
into agency affairs. In addition, the possibility remains that OMB will 
attempt to use its authority under the Data Quality Act to insert 
itself into the agency rule-making process. This could potentially reek 
havoc on the rule-making process, and create years of new legal 
challenges related to the rule-making process. Needless to say, that 
would cause significant slowdown of an already slow rule-making 
process.
    Chairman Miller. The Committee hearing will come to order. 
And good afternoon to all of you. I want to welcome all of you 
to this first hearing of the Investigations and Oversight 
Subcommittee of the Committee of Science and Technology for 
purposes of this hearing on the growing role of the Office of 
Information and Regulatory Affairs, OIRA.
    Mr. Costello, who is not here, will serve as the Vice 
Chairman. There has not been an Investigations and Oversight 
Subcommittee of the Committee on Science and Technology for a 
dozen years, and I look forward to working with all of you, the 
Members who are not here, plus anyone out there as well, and 
working with all of you on a very active, very engaged 
subcommittee.
    We will work to expose abuse of power, corruption, and 
waste. A great American political scientist, Woodrow Wilson, 
called that the informing power of Congress, and said that it 
was probably more important than Congress' legislative powers. 
The light we shine will often be unwelcome by those whose 
conduct we illuminate, but unflattering scrutiny from Congress 
should be a healthy deterrent to the abuse of power.
    Today's hearing is part of our oversight duties, to 
consider broader public policy questions that need the 
attention of Congress. I have heard the phrase ``it takes an 
act of Congress'' my entire life, but it has taken on new 
meaning for me in these last four years that I have served in 
Congress. When Congress enacts legislation to protect public 
health, the environment, safety, civil rights, privacy, and on 
and on, Congress cannot possibly anticipate every circumstance 
that will arise, and Congress cannot possibly address every new 
circumstance by new legislation. So Congress has long delegated 
to federal agencies the power to enforce the laws that Congress 
passes, and to adopt regulations that address circumstances 
within the intended protection of the legislation, but not 
specifically addressed.
    Federal agencies frequently rely on scientific research, 
whether applied or basic, to inform their decisions. Scientific 
research within the jurisdiction of the Committee on Science 
and Technology, research by NOAA, EPA, NIH, the Departments of 
Labor and Agriculture, is all properly part of rule-making 
decisions, as are the standards and guidelines work at NIST and 
the Department of Transportation. We spend billions on that 
research. We should certainly examine how it is used in rule-
making.
    Rule-making decisions should properly be based on 
expertise, but that does not mean that they are beyond 
challenge. The authority of federal agencies should not amount 
to government by Platonic guardians, experts better informed 
and wiser than we are, and untroubled by tawdry concerns of 
politics. Congress and the President should pay close attention 
when agencies act, and should pay close attention when agencies 
fail to act. And we should pay close attention to the reasons 
for agency action or inaction, to what extent is agency action 
or inaction based on considerations of scientific expertise 
such as environmental or public health consequences, and to 
what extent is agency action or inaction based on economic or 
political considerations.
    When agencies act, they must explain their decisions and 
allow public participation in that decision, but are decisions 
not to act being made in back rooms, based upon considerations 
that never would withstand public scrutiny? Does Executive 
Order 13422 create an almost insuperable bias in favor of 
agency inaction, even in the face of clear need for action and 
a clear statutory directive to act? Does the order shield 
decisions at agencies from the scrutiny that they should 
receive? Does the order shift to the President powers that the 
Framers of our Constitution intended be exercised by Congress?
    I welcome the testimony of our distinguished panelists on 
those issues. I also look forward to working with our 
distinguished Ranking Member, James Sensenbrenner. Mr. 
Sensenbrenner is by far my senior in Congress. He has served 
for four years as Chairman of the Judiciary Committee--excuse 
me, of this committee, the Committee on Science, six years as 
Chairman of the Judiciary Committee, and I hope he does not 
feel that after having been star player in the big leagues, he 
has now been sent back to the minors.
    [The prepared statement of Chairman Miller follows:]
               Prepared Statement of Chairman Brad Miller
    I want to welcome all of you to this first hearing of the 
Investigations and Oversight Subcommittee of the Committee on Science 
and Technology. For purposes of this hearing on the growing role of the 
Office of Information and Regulatory Affairs (OIRA), Mr. Costello will 
serve as the Vice Chairman.
    There has not been an Investigations and Oversight Subcommittee of 
the Science and Technology Committee for a dozen years, and I look 
forward to working with all of you on a very active, very engaged 
subcommittee.
    We will work to expose abuse of power, corruption and waste. A 
great American political scientist, Woodrow Wilson, called that the 
``informing power'' of Congress, and said that it was probably more 
important than Congress' legislative powers. The light we shine will 
often be unwelcome by those whose conduct we illuminate, but 
unflattering scrutiny from Congress should be a healthy deterrent to 
the abuse of power.
    Today's hearing is part of our oversight duties, to consider 
broader public policy questions that need the attention of Congress.
    I've heard the phrase ``it takes an act of Congress'' all of my 
life, but it has taken on new meaning for me in first four years of my 
service in Congress. When Congress enacts legislation--to protect 
public health, the environment, safety, civil rights, privacy, and on 
and on--Congress cannot possibly anticipate every circumstance that 
will arise, and Congress cannot possibly address every new circumstance 
by new legislation.
    So Congress has long delegated to federal agencies the power to 
enforce the laws that Congress passes, and to adopt regulations that 
address circumstances within the intended protection of the 
legislation, but not specifically addressed.
    Federal agencies frequently rely on scientific research, whether 
applied or basic, to inform their decisions. Scientific research within 
the jurisdiction of the Committee on Science and Technology, research 
by NOAA, EPA, NIH, the Departments of Labor and Agriculture, is 
properly part of rule-making decisions, as are the standards and 
guidelines work at NIST and the Department of Transportation. We spend 
billions on that research; we should certainly examine how it's used in 
rule-making.
    Rule-making decisions should properly be based on expertise, but 
that does not mean those decisions are beyond challenge. The authority 
of federal agencies should not amount to government by Platonic 
guardians, experts better informed and wiser than we are and untroubled 
by tawdry political concerns. Congress and the President should pay 
close attention to when agencies act, and to when agencies fail to act, 
and we should pay close attention to the reasons for agency action or 
inaction.
    To what extent is agency action or inaction based on considerations 
of scientific expertise, such as environmental or public health 
consequences, and to what extent is agency action or inaction based on 
economic or political considerations? When agencies act, they must 
explain their decisions and allow public participation in the decision. 
But are decisions not to act being made in back rooms, based upon 
considerations that would never withstand public scrutiny?
    Does Executive Order 13422 create an almost insuperable bias in 
favor of agency inaction, even in the face of a clear need for action 
and a clear statutory directive to act? Does the Order shield decisions 
at agencies from the scrutiny they should receive? And does the Order 
shift to the President powers that the framers of our Constitution 
intended be exercised by Congress?
    I welcome the testimony of our distinguished panelists on these 
issues.
    I also look forward to working with our very distinguished Ranking 
Member, James Sensenbrenner. Mr. Sensenbrenner served for four years as 
Chairman of the Committee on Science, and for six years on the 
Judiciary Committee. I hope he does not feel that after being a star 
player in the big leagues, he has now been sent back to the minors.
    We very much welcome his experience and his expertise.
    And I now recognize Mr. Sensenbrenner for his opening remarks.

    Mr. Sensenbrenner. I thank the gentleman from North 
Carolina for his comments. I am not in the minor leagues. I 
have a little bit different role, and not only is this role to 
keep the agencies on their toes, but also, to keep the Chairman 
and the Majority on their toes as well.
    So, I would like to welcome him to the Chair of the 
Subcommittee, and say that I am looking forward to working with 
him and looking forward to making him a better Chair during the 
next two years.
    Chairman Miller. Something for me to look forward to.
    And I also want to announce the one baseball analogy is out 
of deference and respect to our immediate past Chairman, Mr. 
Sherry Boehlert, but it will be the policy of this committee 
going forward that the preferred sports analogy are analogies 
to college basketball.
    Elections have consequences.
    Mr. Sensenbrenner. That is fine, because Wisconsin is 
ranked third in the country, sir.
    May I have an opening statement now?
    Chairman Miller. Actually, that is in my remarks, and I now 
recognize Mr. Sensenbrenner for his opening remarks.
    Mr. Sensenbrenner. Although this is the first 
Investigations and Oversight Subcommittee hearing since 1995, 
the record of oversight under my chairmanship speaks for 
itself, from monitoring the status of the Spallation Neutron 
Source of the Department of Energy to evaluating the proposal 
to bring Russia into the International Space Station Program, 
the Science and Technology Committee's vigilant oversight 
produced better programs and policies, and I look forward to 
returning to this committee and continuing the same rigorous 
oversight.
    Having been the Chair of two committees, I am uniquely 
aware of the topic before us, and I am glad to see that my 
colleagues on the Judiciary Committee have taken an interest as 
well, and their expertise is appreciated.
    As for the Executive Order and the OMB Bulletin, I am 
inclined to think that the issues that will be brought up today 
have less to do with their implications and more to do with who 
issued them. While I do get concerned when any Administration, 
be it Republican or Democratic, asserts too much control over 
the regulatory process, it is important to note that organizing 
that process is not and should not be a partisan endeavor, and 
it certainly didn't start with the current President.
    President Clinton, just like several Presidents before him, 
used the regulatory process to advance his own agenda in the 
waning years of his Presidency. Ultimately, these policies last 
only as long as the current Administration allows them to, and 
the best way to ensure that longevity is to include the 
legislative branch. To quote a recent article on the topic in 
CQ Weekly: ``While executive power is mighty, it is also 
ephemeral.'' Most of the issues that the Executive Order and 
the OMB Bulletin address are simple clarifications of 
organizational changes that President Clinton's Executive Order 
12866, and will ultimately help OMB better coordinate the 
regulatory process. None of the amendments call for additional 
hurdles to be overcome. They simply require the reporting of 
work that has already been done.
    Additionally, none of the issues or changes are anything 
new. All of them have either been released for public comment, 
like the OMB Bulletin on guidance documents, or are 
clarifications to President Clinton's original Executive Order. 
For example, the OMB Bulletin was issued in draft form over a 
year ago. While 31 comments were received, only three or four 
were negative. It is also interesting to note that none of our 
witnesses here today chose to issue comments on that Bulletin, 
save Mr. Kovacs. But OMB will have an opportunity to defend 
their document at the next hearing before the Judiciary 
Committee, and I am told we will be inviting them back before 
us at a later time as well.
    Right now, I am more concerned with the impact that these 
guidance documents and regulations have on the American 
economy, particularly small businesses that can't afford high 
priced counsels and lobbyists to monitor the thousands of 
guidance documents and rules agencies issue each year. The 
increased use of guidance documents by agencies to circumvent 
the regulatory process has been diligently documented. They 
often conflict with each other, and are not subject to public 
notice and comment, and rarely receive agency approval, not to 
mention OMB review.
    While I am concerned about the impact that Presidential 
appointees may have on the regulatory process, just as in the 
issue of market failure, these issues have all been addressed 
previously by other Administrations as well. In reality, the EO 
and the OMB Bulletin simply formalize many of the principles 
derived under the previous Administrations.
    That being said, as a part of this committee's day-to-day 
oversight, I will certainly follow how these changes are 
implemented to ensure that public health and safety is 
preserved, and that there is transparency and accountability in 
our regulatory process.
    Thank you.
    [The prepared statement of Mr. Sensenbrenner follows:]
    Prepared Statement of Representative F. James Sensenbrenner, Jr.
    Although this is the first Investigation & Oversight hearing since 
1995, the record of oversight under my Chairmanship speaks for itself. 
From monitoring the status of the Spallation Neutron Source at the 
Department of Energy to evaluating the proposal to bring Russia into 
the International Space Station Program, the Science and Technology 
Committee's vigilant oversight produced better programs and policies, 
and I look forward to returning to this committee and continuing the 
same rigorous oversight.
    Having been Chairman of both the Science and Technology Committee 
and the Judiciary Committee, I am uniquely aware of the topic before 
us. I am glad to see my colleagues on the Judiciary Committee have 
taken an interest as well, as their expertise is certainly appreciated.
    As for the Executive Order and the OMB Bulletin, I am inclined to 
think that the issues that will be brought up today have less to do 
with their policy implications, and more to do with who issued them. 
While I do get concerned when any Administration (be it Republican or 
Democratic) asserts too much control over the Regulatory Process, it is 
important to note that organizing that process is not a partisan 
endeavor, and it certainly didn't start with the current President.
    President Clinton, just like several Presidents before him, used 
the regulatory process to advance his own agenda in the waning years of 
his Presidency. Ultimately, these policies last only as long as the 
current Administration allows them to, and the best way to ensure their 
longevity is to include the Legislative Branch. To quote a recent 
article on the topic in CQ Weekly, ``while Executive power is mighty, 
it is also ephemeral.''
    Most of the issues that the E.O. and the OMB Bulletin address are 
simple clarifications and organizational changes to President Clinton's 
E.O. (12866) and will ultimately help OMB better coordinate the 
regulatory process. None of the amendments call for additional hurdles 
to be overcome; they simply require the reporting of work that has 
already been done. Additionally, none of these issues or changes are 
anything new--all of them have either been released for public comment 
(like the OMB Bulletin on Guidance Documents) or are clarifications to 
President Clinton's Executive Order.
    For example, the OMB Bulletin was issued in draft form over a year 
ago. While 31 comments were received, only three or four were negative. 
But OMB will have an opportunity to defend their document at the next 
hearing before the Judiciary Committee, and I am told we will be 
inviting them back before us at a later time as well.
    Right now I am more concerned with the impact that these guidance 
documents and regulations have on the American economy, particularly 
small businesses that can't afford high-priced counsels to monitor the 
thousands of guidance documents and rules agencies issue a year.
    The increased use of guidance documents by agencies to circumvent 
the regulatory process has been diligently documented. They often 
conflict with each other, are not subject to public notice and comment, 
and rarely receive agency approval (not to mention OMB review).
    While I am concerned about the impact that Presidential Appointees 
may have on the regulatory process, just as in the issue of Market 
Failure, these issues have all been addressed previously under other 
Administrations as well. In reality, the E.O. and the OMB Bulletin 
simply formalize many of the principles derived under those previous 
Administrations. That being said, as part of the Committee's day-to-day 
oversight, I will certainly follow how these changes are implemented to 
ensure that public health and safety is preserved, and that there is 
transparency and accountability in our regulatory process.
    I look forward to our witnesses' testimony today.

    Chairman Miller. Thank you, Mr. Sensenbrenner.
    [The prepared statement of Mr. Costello follows:]
         Prepared Statement of Representative Jerry F. Costello
    Good afternoon. Thank you, Mr. Chairman, for calling this hearing 
to examine the consequences of President Bush's recent amendment to 
Executive Order 12866, which requires Federal Government agencies to 
submit any proposed regulations to the Office of Management and Budget 
(OMB) for pre-approval.
    The Science and Technology Committee has the authority to examine 
and evaluate the validity and utility of economic approaches to 
regulation. Further, agencies exist in statute and are given mandates 
under the law issued by Congress. The amendment put in place by the 
Bush Administration goes one step further than the current process by 
requiring agencies to identify in writing the specific market failure 
or problem that warrants the proposed regulation or guidance. 
Therefore, I look forward to hearing the perspective of the witnesses 
as to how they perceive the Bush Administration will implement its new 
amendment to Executive Order 12866 and their assessment on how this 
will impact science-based regulatory agencies and public safety.
    I welcome today's witnesses and look forward to their testimony.

    [The prepared statement of Ms. Johnson follows:]
       Prepared Statement of Representative Eddie Bernice Johnson
    Thank you, Mr. Chairman. The President amended a key executive 
order to tighten the president's grip on federal agencies that enforce 
health, safety and environmental protections.
    This order gives the White House's Office of Information and 
Regulatory Affairs (OIRA) enhanced tools to oversee and interfere with 
federal regulations on everything from warning labels on medicines to 
safety standards for construction work sites.
    Executive Order 12866 built on a Clinton-era executive order which 
authorized OIRA to use cost-benefit analysis and other market-based 
calculations to evaluate rules and regulations proposed by federal 
agencies.
    The Executive Order now enables the Bush Administration to oversee 
not only regulations, but also guidance documents that agencies issue 
to inform the public about how rules will be enforced. OIRA can now 
examine all significant guidance.
    The amended executive order also now lists the economic concept of 
market failure as a standard for reviewing a proposed rule.
    The notion of the free market having the ability to eventually 
resolve public needs could become an expansive pretext for OIRA to 
dismiss crucial regulatory protections.
    I welcome the witnesses who are here today, especially Sally 
Katzen, the creator and Former Director of OIRA under the Clinton 
Administration.
    Thank you, Mr. Chairman. I yield back.

    Chairman Miller. I would now like to welcome our witnesses. 
Today, we are honored to have a very distinguished and 
knowledgeable panel of witnesses.
    Ms. Sally Katzen, the former head of the Office of 
Information and Regulatory Affairs, again OIRA, in the Clinton 
Administration, and currently a professor at the University of 
Michigan Law School. She is a recognized expert in federal 
regulatory matters, and we are very pleased to have her here 
today.
    Mr. David Vladeck is a Director of the Institute for Public 
Representation, and a professor at Georgetown University Law 
Center. He is also an expert in administrative and regulatory 
law, topics on which he writes and testifies frequently before 
Congress.
    Dr. Rick Melberth is the Director of Federal Regulatory 
Policy for OMB Watch, which works to protect and improve the 
government's ability to develop and enforce safeguards for 
public health, safety, the environment, and civil rights.
    And finally, Mr. Bill Kovacs is the Vice President for 
Environment, Technology, and Regulatory Affairs, the Regulatory 
Affairs Division for the United States Chamber of Commerce. 
That division is responsible for such significant issues, 
including the systematic application of sound science to the 
federal regulatory process.
    Now, it is the custom of the Investigations and Oversight 
Subcommittee, well, going back a dozen years, when we last had 
one, it is the custom of the Investigations and Oversight 
Subcommittee, and it will be our custom going forward, we are 
establishing it now, to swear in our witnesses.
    Do any of you have any objection to being sworn in? Okay. 
If not, then if you would please stand and raise your right 
hand.
    [Witnesses sworn.]
    Chairman Miller. We will now hear the statements of the 
entire panel, beginning with Ms. Katzen. To the panel, please 
limit your remarks to five minutes. We do have written 
testimony from all of you.
    After all the statements have been received, the oral 
statements, all Members will have five minutes to ask 
questions.
    Ms. Katzen, I think we begin with you.

  STATEMENT OF MS. SALLY KATZEN, ADJUNCT PROFESSOR AND PUBLIC 
  INTEREST/PUBLIC SERVICE FELLOW, UNIVERSITY OF MICHIGAN LAW 
                             SCHOOL

    Ms. Katzen. Thank you very much, and thank you for inviting 
me to testify today.
    During the last six years, there has been a slow but steady 
change in the process by which federal regulatory agencies 
develop and issue regulations, specifically in the balance of 
authority between those agencies and the Office of Management 
and Budget. With its most recent actions, the Bush 
Administration has taken yet another step restricting agency 
discretion and making it more difficult for the agencies to do 
the job that Congress has delegated to them.
    As you mentioned in your introduction, I served as the 
Administrator of OIRA for over five years during the Clinton 
Administration, and was involved in the drafting and 
implementation of Executive Order 12866. I am a strong 
proponent of centralized review of agency rule-making, and have 
often spoken and written in support or defense of OIRA. I am 
also a strong proponent of regulations, believing that if 
carefully crafted, they can improve the quality of our lives, 
the performance of our economy, and our nation's well-being.
    Why, then, am I so critical of the new Executive Order? I 
have prepared written testimony that provides extensive 
background and explanatory information. I would like to use my 
five minutes to emphasize several important points. First, the 
Bush Administration has taken many discrete steps to tighten, 
incrementally to be sure, but tighten nonetheless OMB control 
over the agencies. The information or data quality guidelines, 
the peer review guidelines, Circular A-4 for regulatory 
analyses, the Risk Assessment Bulletin, and now, the Bulletin 
on Good Guidance Practices, all of which are described in my 
written testimony.
    Now, each step, standing on its own, can be justified or 
defended, and none, standing on its own, warrants the outrage 
that was directed at them by the critics of the Administration. 
At the same time, the cumulative effect has been overwhelming 
on the agencies, and there is a dramatically different dynamic 
between the agencies and the White House than there was at the 
end of the Clinton Administration.
    In Executive Order 12866, President Clinton continued the 
practice of centralized review of rule-makings by OIRA, but at 
the same time, he reaffirmed the primacy of the agencies, which 
are the repositories of significant expertise and experience, 
and the entities to which Congress has delegated the authority 
to issue rules that have the force and effect of law. Today, 
those same agencies have at least one arm tied behind their 
backs, two ten pound bricks tied to their ankles, and they are 
set on an obstacle course to navigate before they can issue any 
regulations. Forgive me for mangling my metaphors, but the 
combination of all the multiple mandates that OMB has imposed 
on the agencies makes it so much more difficult for them to do 
their job. Oversight is one thing--I am talking of Presidential 
oversight--but burdening the agencies to slow them down, or 
destroy their morale, is something else.
    Now, I have heard that there is nothing new in the 
Executive Order. It is all business as usual. It is simply what 
the Clinton Administration had done. That is not the case. This 
is a dramatically different environment, and a dramatically 
different thrust. And I can go into detail, if you would like, 
during questions.
    It is also--the one explanation that was given when the 
Executive Order was issued, had to do with increasing 
transparency and producing better decisions. That simply is not 
credible. Look at the way it was done. There was no 
consultation or explanation. Look at the effect it has on the 
agencies, coming on the heels of the many mandates that OMB has 
imposed on them, and look at the message it sends. Regulations 
to protect the environment or to promote the health and safety 
of American people are disfavored. Let the market, not the 
government, do it.
    Executive Order 12866, as originally drafted, was neutral 
as to process, even though President Clinton was highly 
supportive of regulations as part of the solution to serious 
problems plaguing our society. The Executive Order was not 
skewed to achieve a pro-regulatory result. It was not a 
codification of a pro-regulatory philosophy or ideology. It 
was, on its face and by intent, a charter for good government, 
without any predetermination of outcomes. Simply stated, the 
agencies' regulations would be debated on the merits, not 
preordained by the process through which they were developed 
and issued.
    In light of the actions taken over the last six years by 
the Bush Administration, that is no longer the case. With 
Executive Order 12866, as amended, each step in the process of 
extending Presidential control over the agencies has placed a 
thumb on the scale. By now, we have a whole fist influencing 
the outcome.
    Thank you so much for holding this hearing. It is important 
for Congress to let the executive know that it takes these 
matters seriously and is deeply concerned about the 
implications of their recent actions on the integrity of the 
administrative process.
    [The prepared statement of Ms. Katzen follows:]
                   Prepared Statement of Sally Katzen
    Chairman Miller and Members of the Subcommittee. Thank you for 
inviting me to testify today on a subject that is vitally important to 
the American people. During the last six years, there has been a slow 
but steady change in the process by which regulations are developed and 
issued--specifically, in the balance of authority between the federal 
regulatory agencies and the Office of Management and Budget. With its 
most recent actions, the Bush Administration has again restricted 
agency discretion and made it more difficult for them to do the job 
that Congress has delegated to the federal agencies. It is therefore 
important that this subcommittee consider the reasons for these changes 
and the implications of these changes for administrative law and 
regulatory practice.
    I served as the Administrator of the Office of Information and 
Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB) 
for the first five years of the Clinton Administration, then as the 
Deputy Assistant to the President for Economic Policy and Deputy 
Director of the National Economic Council, and then as the Deputy 
Director for Management of OMB. I am a proponent of centralized review 
of agency rule-making, and I was personally involved in the drafting 
and implementation of Executive Order 12866. I have remained active in 
the area of administrative law generally and rule-making in particular. 
Since leaving government service in January 2001, I have taught 
Administrative Law and related subjects at the University of Michigan 
Law School, George Mason University Law School, and the University of 
Pennsylvania Law School, and I have also taught American Government 
seminars to undergraduates at Smith College, Johns Hopkins University, 
and the University of Michigan in Washington Program. I frequently 
speak and have written articles for scholarly publications on these 
issues.
    On January 18, 2007, the Bush Administration released two 
documents. One was expected; the other was not. I can understand why 
OMB issued a ``Final Bulletin for Good Guidance Practices.'' While I 
disagree with several of the choices made, I recognize that a case can 
be made that there is a need for such a Bulletin. On the other hand, 
there is no apparent need for Executive Order 13422, further amending 
Executive Order 12866. Regrettably, none of the plausible explanations 
for its issuance is at all convincing. As I will discuss below, there 
are at least three aspects of the new Executive Order that warrant 
attention: 1) the way it was done--without any consultation or 
explanation; 2) the context in which it was done--coming on the heels 
of OMB's imposing multiple mandates/requirements on the agencies when 
they are developing regulations; and 3) the effect it will have and the 
message it sends to the agencies--it will be even more difficult for 
agencies to do their jobs because regulations are disfavored in this 
Administration.
    To put the most recent Executive Order in perspective, a little 
history may be helpful. The first steps towards centralized review of 
rule-making were taken in the 1970's by Presidents Nixon, Ford and 
Carter, each of whom had an ad hoc process for selectively reviewing 
agency rule-makings: President Nixon's was called the Quality of Life 
Review; President Ford's was focused on the agency's Inflationary 
Impact Analysis that accompanied the proposed regulation; and President 
Carter's was through the Regulatory Analysis Review Group. Those rule-
makings that were considered significant were reviewed by an inter-
agency group, which then contributed their critiques (often strongly 
influenced by economists) to the rule-making record.
    In 1981, President Reagan took a significant additional step in 
issuing Executive Order 12291. That Order formalized a process that 
called for the review of all Executive Branch agency rule-makings--at 
the initial and the final stages--under specified standards for 
approval. The Office that President Reagan chose to conduct the review 
was the Office of Information and Regulatory Affairs (OIRA), 
established by the Congress for other purposes under the Paperwork 
Reduction Act of 1980. Unless OIRA approved the draft notice of 
proposed rule-making and the draft final rule, the agency could not 
issue its regulation.
    Executive Order 12291 was highly controversial, provoking three 
principal complaints. One was that the Executive Order was unabashedly 
intended to bring about regulatory relief--not reform--relief for the 
business community from the burdens of regulation. Second, the Order 
placed enormous reliance on (and reflected unequivocal faith in) cost/
benefit analysis, with an emphasis on the cost side of the equation. 
Third, the process was, by design, not transparent; indeed, the mantra 
was ``leave no fingerprints,'' with the result that disfavored 
regulations were sent to OMB and disappeared into a big black hole. The 
critics of Executive Order 12291, including Members of Congress, 
expressed serious and deep concerns about the Executive Order, raising 
separation of powers arguments, the perceived bias against regulations, 
and the lack of openness and accountability of the process.
    When President Clinton took office and I was confirmed by the 
Senate as the Administrator of OIRA, my first assignment was to 
evaluate Executive Order 12291 in light of the 12 years of experience 
under Presidents Reagan and Bush, and help draft a new Executive Order 
that would preserve the strengths of the previous Executive Order but 
correct the flaws that had made the process so controversial. President 
Clinton would retain centralized review of Executive Branch agency 
rule-makings, but the development and the tone of the Executive Order 
he would sign (Executive order 12866) was to be very different.
    I was told that Executive Order 12291 was drafted in the White 
House (Boyden Gray and Jim Miller take credit for the document) and 
presented, after President Reagan had signed it, as a fait accomplis to 
the agencies. The protests from the agencies were declared moot. We 
took a different route, consulting and sharing drafts with the 
agencies, public interest groups, industry groups, Congressional 
staffers, and State and local government representatives. When all 
their comments were considered and changes made to the working draft, 
we again consulted and shared our new drafts with all the groups, and 
again took comments. More changes were made, and where comments were 
not accepted, we explained the basis for our decisions.
    The tenor of Executive Order 12866 was also quite different from 
Executive Order 12291. As noted above, Executive Order 12866 retained 
centralized review of rule-makings, but also reaffirmed the primacy of 
the agencies to which Congress had delegated the authority to regulate. 
(Preamble) Among other things, Executive Order 12866 limited OIRA 
review to ``significant regulations''--those with a likely substantial 
effect on the economy, on the environment, on public health or safety, 
etc., or those raising novel policy issues (Section 6(b)(1) )--leaving 
to the agencies the responsibility for carrying out the principles of 
the Executive Order on the vast majority (roughly 85 percent) of their 
regulations.
    Executive Order 12866 continued to require agencies to assess the 
consequences of their proposals and to quantify and monetize both the 
costs and the benefits to the extent feasible. (Section 1(a) ) But it 
explicitly recognized that some costs and some benefits cannot be 
quantified or monetized but are ``nevertheless essential to consider.'' 
(Section 1(a) ) I believe it was Einstein who had a sign in his office 
at Princeton to the effect that ``not everything that can be counted 
counts, and not everything that counts can be counted.''
    While Executive Order 12291 required agencies to set their 
regulatory priorities ``taking into account the conditions of the 
particular industries affected by the regulations [and] the condition 
of the national economy'' (Section 2 (e) ), Executive Order 12866 
instructed agencies to consider ``the degree and nature of the risks 
posed by various substances and activities within its jurisdiction'' 
(Section 1(b)(4) ), and it added to the list of relevant considerations 
for determining if a proposed regulation qualified as ``significant'' 
not only an adverse effect on the economy or a sector of the economy, 
but also ``productivity, competition, jobs, the environment, public 
health or safety or State, local, or tribal governments or 
communities.'' (Section 3(f) )
    There were other significant differences between Executive Order 
12291 and Executive Order 12866, including those relating to the 
timeliness of review and the transparency of the process, but for 
present purposes, the key to the difference was that President Clinton 
was focused on a process for better decision-making and hence better 
decisions and not a codification of a regulatory philosophy or 
ideology. Centralized review was seen as a valid exercise of 
presidential authority, facilitating political accountability (the 
President takes the credit and gets the blame for what his agencies 
decide) and to enhance regulatory efficacy (that is, decisions that 
take into account the multitude of disciplines and the multitude of 
perspectives that can and should be brought to bear in solving problems 
in our complex and interdependent society). But whatever one's view of 
centralized review of agency rule-makings, Executive Order 12866 was--
on its face and by intent--a charter for good government, without any 
predetermination of outcomes.
    The neutrality of the process was essential. President Clinton 
viewed regulations as perhaps the ``single most critical. . .vehicle to 
achieve his domestic policy goals'' (Kagan, 114 Harv. L. Rev. 2245, 
2281-82 ((2001) ), and he spoke often of the salutary effects of 
regulations on the Nation's quality of life and how regulations were 
part of the solution to perceived problems. But the Executive Order was 
not skewed to achieve a pro-regulatory result. The regulations would be 
debated on their merits, not preordained by the process through which 
they were developed and issued.
    When George W. Bush became President in January 2001, his 
philosophy was decidedly anti-regulatory. I know that his advisors 
considered whether to change Executive Order 12866 and they concluded 
that it was not necessary to accomplish their agenda. Indeed, President 
Bush's OMB Director instructed the agencies to scrupulously adhere to 
the principles and procedures of Executive Order 12866 and its 
implementing guidelines. (OMB M-01-23, June 19, 2001) The only changes 
to the Executive Order came two years into President Bush's first term, 
and the changes were limited to transferring the roles assigned to the 
Vice President to the Chief of Staff or the OMB Director. (Executive 
Order 13258)
    Almost five years later, President Bush signed Executive Order 
13422, further amending Executive Order 12866. So far as I am aware, 
there was no consultation and no explanation of the problems under the 
existing Executive Order that prompted these amendments, or whether the 
amendments would have a salutary effect on whatever problems existed, 
or whether the amendments would have unintended consequences that 
should be considered. Press statements issued after the fact do not 
make for good government.
    Second, the new Executive Order comes in the course of a steady and 
unwavering effort to consolidate authority in OMB and further restrict 
agency autonomy and discretion. On February 22, 2002, OMB issued its 
Information Quality Act (IQA) Guidelines. (67 Fed. Reg. 8452). The IQA 
itself was three paragraphs attached to a more than 700-page Treasury 
and General Government Appropriations Act for Fiscal Year 2001, with no 
hearings, no Floor debate and no committee reports. Its objective was 
``to ensure the quality, objectivity, utility and integrity of 
information disseminated to the public.'' OMB took up the assignment 
with a vigor and determination that was remarkable. OMB's government-
wide guidelines created a new construct: now, there would be 
``information'' and ``influential information'' and different (more 
stringent standards) would apply to the higher tiers. OMB also required 
the agencies to issues their own guidelines (subject to OMB approval); 
establish administrative mechanisms allowing people or entities to seek 
the correction of information they believe does not comply with these 
guidelines; and report periodically to OMB on the number and nature of 
these complaints. The U.S. Chamber of Commerce thought this ``would 
have a revolutionary impact on the regulatory process''--keeping the 
agencies from relying on data that industry thought was questionable.
    Then came OMB's Proposed Draft Peer Review Standards for Regulatory 
Science (August. 29, 2003), in which OMB attempted to establish uniform 
government-wide standards for peer review of scientific information 
used in the regulatory process. Peer review is generally considered the 
gold standard for scientists. Yet leading scientific organizations were 
highly critical of what OMB was trying to do and how it was doing it, 
and they were joined by citizen advocacy groups and former government 
officials. They argued that the proposed standards were unduly 
prescriptive, unbalanced (in favor of industry), and introduced a new 
layer of OMB review of scientific or technical studies used in 
developing regulations. The reaction was so strong and so adverse that 
OMB substantially revised its draft Bulletin to make it appreciably 
less prescriptive and restrictive, and in fact OMB resubmitted it in 
draft form for further comments before finalizing the revised Bulletin.
    On March 2, 2004, OMB replaced a 1996 ``best practices'' memorandum 
with Circular A-4, setting forth instructions for the federal agencies 
to follow in developing the regulatory analyses that accompany 
significant draft notices of proposed rule-making and draft final 
rules. The Circular, almost 50-pages single spaced, includes a detailed 
discussion of the dos and don'ts of virtually every aspect of the 
documentation that is needed to justify a regulatory proposal. While 
the term ``guidance'' is used, agencies that depart from the terms of 
the Circular do so at their peril (or more precisely, at the peril of 
their regulatory proposal).
    Then came the OMB Proposed Risk Assessment Bulletin (January 9, 
2006), providing technical guidance for risk assessments produced by 
the Federal Government. There were six standards specified for all risk 
assessments and a seventh standard, consisting of five parts, for risk 
assessments related to regulatory analysis. In addition, using the 
terminology from the IQA Guidance, OMB laid out special standards for 
``Influential Risk Assessments'' relating to reproducibility, 
comparisons with other results, presentation of numerical estimates, 
characterizing uncertainty, characterizing results, characterizing 
variability, characterizing human health effects, discussing scientific 
literature and addressing significant comments. Agency comments raised 
a number of very specific problems and such general concerns as that 
OMB was inappropriately intervening into the scientific underpinnings 
of regulatory proposals. OMB asked the National Academies of Scientists 
(NAS) to comment on the draft Bulletin. The NAS panel (on which I 
served) found the Bulletin ``fundamentally flawed'' and recommended 
that it be withdrawn.
    Then, on January 18, 2007, OMB issued its final Bulletin on 
``Agency Good Guidance Practices.'' Agencies are increasingly using 
guidance documents to inform the public and to provide direction to 
their staff regarding agency policy on the interpretation or 
enforcement of their regulations. While guidance documents--by 
definition--do not have the force and effect of law, this trend has 
sparked concern by commentators, including scholars and the courts. In 
response, the Bulletin sets forth the policies and procedures agencies 
must follow for the ``development, issuance, and use'' of such 
documents. It calls for internal agency review and increased public 
participation--all to the good. In addition, however, the Bulletin also 
imposes specified ``standard elements'' for significant guidance 
documents; provides instructions as to the organization of agency 
websites containing significant guidance documents; requires agencies 
to develop procedures (and designate an agency official/office) so that 
the public can complain about significant guidance documents and seek 
their modification or rescission; and extends OIRA review to include 
significant guidance documents. I do not believe it is an overstatement 
to say that the effect of the Bulletin is to convert significant 
guidance documents into legislative rules, subject to all the 
requirements of Section 553 of the Administrative Procedure Act, even 
though the terms of that Section explicitly exempt guidance documents 
from its scope. To the extent that the Bulletin makes the issuance of 
guidance documents much more burdensome and time consuming for the 
agencies, it will undoubtedly result in a decrease of their use. That 
may well have unintended unfortunate consequences, because regulated 
entities often ask for and appreciate receiving clarification of their 
responsibilities under the law, as well as protection from haphazard 
enforcement of the law, by agency staff.
    This is quite a record. While each step can be justified as helping 
to produce better regulatory decisions, the cumulative effect is 
overwhelming. Requirements are piled on requirements, which are piled 
on requirements that the agencies must satisfy before they can issue 
regulations (and now, significant guidance documents) that Congress 
authorized (indeed, often instructed) them to issue. And OMB has not 
requested, nor has the Congress in recent years appropriated, 
additional resources for the agencies to carry out OMB's ever 
increasing demands. As agencies must do more with less, the result is 
that fewer regulations can be issued--which is exactly what the 
business community has been calling on this Administration to do.
    It is in this context that Executive Order 13422, further amending 
Executive Order 12866, is released. Until the Bulletin on guidance 
documents, OIRA extended its influence throughout the Executive Branch 
without any amendments to Executive Order 12866. As discussed above, 
OMB issued Circulars and Bulletins covering a wide variety of subjects, 
virtually all of which were quite prescriptive (and often quite 
burdensome) in nature. OMB Circulars and Bulletins do not have the same 
status as an Executive Order, but they are treated as if they did by 
the federal agencies. Why then did OMB draft and the President sign 
Executive Order 13422?
    One indication of a possible answer is that while Executive Order 
13422 in effect codifies the Bulletin on guidance documents, it does 
not pick up and codify the earlier pronouncements on data quality, peer 
review, regulatory impact analyses, or even risk assessment principles. 
It may be that it was thought necessary to amend Executive Order 12866 
for guidance documents because Executive Order 12866 was written to 
apply only where the agencies undertook regulatory actions that had the 
force and effect of law. But it is unlikely that the agencies would 
balk at submitting significant guidance documents to OIRA if there were 
an OMB Bulletin instructing them to do so, and since neither Executive 
Orders nor Circulars or Bulletins are judicially reviewable, it is also 
unlikely that anyone could successfully challenge in court an agency's 
decision to submit a significant guidance document to OIRA.
    Perhaps more revealing of the reason(s) for Executive Order 13422 
is that it is not limited to guidance documents. Consider the other 
amendments included in the new Executive Order. First, Executive Order 
12866 had established as the first principle of regulation that:

         Each agency shall identify the problem that it intends to 
        address (including, where applicable, the failure of private 
        markets or public institutions that warrant new agency action) 
        as well as assess the significance of that problem''

    Executive Order 13422 amends Executive Order 12866 to state 
instead:

         Each agency shall identify in writing the specific market 
        failure (such as externalities, market power, lack of 
        information) or other specific problem that it intends to 
        address (including, where applicable, the failures of public 
        institutions) that warrant new agency action, as well as assess 
        the significance of that problem, to enable assessment of 
        whether any new regulation is warranted.

    By giving special emphasis to market failures as the source of a 
problem warranting a new regulation, the Administration is saying that 
not all problems are equally deserving of attention; those caused by 
market failures are in a favored class and possibly the only class 
warranting new regulations. This could be read as a throw back to the 
``market-can-cure-almost-anything'' approach, which is the litany of 
opponents of regulation; in fact, history has proven them wrong--there 
are many areas of our society where there are serious social or 
economic problems--e.g., civil rights--that are not caused by market 
failures and that can be ameliorated by regulation.
    Second, the new Executive Order amends Section 4 of Executive Order 
12866, which relates to the regulatory planning process and 
specifically references the Unified Regulatory Agenda prepared annually 
to inform the public about the various proposals under consideration at 
the agencies. The original Executive Order instructed each agency to 
also prepare a Regulatory Plan that identifies the most important 
regulatory actions that the agency reasonably expects to issue in 
proposed or final form in that fiscal year. Section 4, unlike the rest 
of the Executive Order, applies not only to Executive Branch agencies, 
but also to independent regulatory commissions, such as the Securities 
and Exchange Commission, the Federal Communications Commission, the 
Federal Trade Commission, and the Federal Reserve Board. It is not 
without significance that the new Executive Order uses Section 4 to 
impose an additional restraint on the agencies:

         Unless specifically authorized by the head of the agency, no 
        rule-making shall commence nor be included on the Plan without 
        the approval of the agency's Regulatory Policy Office. . .

    This language should be read in conjunction with an amendment to 
Section 6(a)(2) that specifies that the agency's Regulatory Policy 
Officer must be ``one of the agency's Presidential Appointees.'' 
Executive Order 12866 had provided that the agency head was to 
designate the agency's Regulatory Policy Officer, with the only 
condition that the designee was to report to the agency head. The 
original Executive Order further provided that the Regulatory Policy 
Officer was to ``be involved at every stage of the regulatory process. 
. .''--in other words, a hands-on job. Now, there is an explicit 
politicalization of the process; a ``sign-off,'' not a hands-on, 
assignment; and, most significantly, no accountability. The newly 
appointed officer is not required to be subject to Senate confirmation, 
nor is the person required to report to a Senate-confirmed appointee.
    The other changes to Section 4 are also troubling. As amended, the 
agencies must now include with the Regulatory Plan the:

         agency's best estimate of the combined aggregate costs and 
        benefits of all its regulations planned for that calendar year. 
        . .

    Very few would dispute that the Regulatory Plan has been 
notoriously unreliable as an indicator of what an agency is likely to 
accomplish in any given timeframe; it is not unusual for regulations 
that are not included in the Plan to be issued should circumstances 
warrant, nor is it unusual for regulations included in the Plan with 
specific dates for various milestones to languish year after year 
without getting any closer to final form.
    In any event, the requirement to aggregate the costs and benefits 
of all the regulations included in the Plan for that year is very 
curious. We know that costs and benefits can be estimated (at least 
within a range) at the notice stage because the agency will have 
settled on one or more options for its proposal. But to try to estimate 
either costs or benefits at the notice of inquiry stage or before the 
agency has made even tentative decisions is like trying to price a new 
house before there is even an option on the land and before there are 
any architect's plans. The numbers may be interesting, but hardly 
realistic, and to aggregate such numbers would likely do little to 
inform the public but could do much to inflame the opponents of 
regulation. This would not be the first time that large numbers that 
have virtually no relation to reality have driven the debate on 
regulation--e.g., the $1.1 trillion estimate of the annual costs of 
regulations that is frequently cited by opponents of regulation, even 
though every objective critique of the study that produced that number 
concludes that it not only overstates, but in fact grossly distorts, 
the truth about the costs of regulation. The only other plausible 
explanation for this amendment to the Executive Order it that it is the 
first step toward implementing a regulatory budget. In my view, the 
concept of a regulatory budget is deeply flawed, but it should be 
debated on the merits and not come in through the back door of an 
Executive Order designed for other purposes.
    There is also a gratuitous poke at the agencies in the amendment to 
Section 4(C). The original Executive Order instructed the agencies to 
provide a ``summary of the legal basis'' for each action in the 
Regulatory Plan, ``including whether any aspect of the action is 
required by statute or court order.'' The new amendment adds to the 
previous language the clause, ``and specific citation to such statute, 
order or other legal authority.'' It may appear to be trivial to add 
this requirement, but by the same token, why is it necessary to impose 
such a requirement?
    As noted above, I am not aware of any consultation about either the 
merits of any of the amendments or the perception that may attach to 
the cumulative effect of those amendments. Therefore, I do not know 
whether the agencies have, for example, been proposing regulations 
based on problems caused by something other than market failure which 
OMB does not consider an appropriate basis for a regulation; whether 
senior civil servants at the agencies have been sending proposed 
regulations to OMB that run contrary to the wishes of the political 
appointees at those agencies; or whether agencies have been 
misrepresenting what applicable statutes or court orders require.
    If not, then there is little, if any, need for these amendments, 
other than to send a signal that the bar is being raised; that OMB is 
deciding the rules of the road; and that those rules are cast so as to 
increase the I's that must be dotted and the T's that must be crossed. 
In other words, the message is that agencies should not be doing the 
job that Congress has delegated to them. This is not a neutral process. 
If the Bush Administration does not like some or all agency proposed 
regulations, they can debate them on the merits. But the Executive 
Order should not become a codification of an anti-regulatory manifesto. 
This is not good government.

                       Biography for Sally Katzen
    Since leaving government service in January 2001, she has been 
teaching both graduate students (University of Pennsylvania Law School 
in Spring '03; Johns Hopkins University in Fall '03, 04, University of 
Michigan Law School in Spring '04, Fall '05, Spring '06); George Mason 
University Law School, Spring and Fall '06) and undergraduates (at 
Smith College in Fall '01-'04; Johns Hopkins University in Spring '02, 
'06; University of Michigan in Washington Program '05-'07). She served 
almost eight years in the Clinton Administration, first as 
Administrator of the Office of Information and Regulatory Affairs in 
the Office of Management and Budget (OMB), then Deputy Assistant to the 
President for Economic Policy and Deputy Director of the National 
Economic Council in the White House, and then as the Deputy Director 
for Management at OMB. Before joining the Clinton Administration, Ms. 
Katzen was a partner in the Washington, DC law firm of Wilmer, Cutler & 
Pickering, specializing in regulatory and legislative matters. While in 
private practice, Ms. Katzen was an adjunct Professor at the Georgetown 
Law Center and served in various leadership roles in the American Bar 
Association (including Chair of the Section on Administrative Law and 
Regulatory Practice and two terms as DC Delegate to the House of 
Delegates of the ABA), as well as President of the Federal 
Communications Bar Association and President of the Women's Legal 
Defense Fund. She graduated magna cum laude from Smith College and 
magna cum laude from the University of Michigan Law School, where she 
was the first woman Editor in Chief of the Law Review. Following 
graduation from law school, she clerked for Judge J. Skelly Wright of 
the United States Court of Appeals for the District of Columbia 
Circuit. She also served in the Carter Administration for two years as 
the General Counsel of the Council on Wage and Price Stability in the 
Executive Office of the President.

    Chairman Miller. Thank you, Ms. Katzen. Mr. Vladeck.

  STATEMENT OF MR. DAVID C. VLADECK, DIRECTOR, INSTITUTE FOR 
 PUBLIC REPRESENTATION; ASSOCIATE PROFESSOR OF LAW, GEORGETOWN 
                     UNIVERSITY LAW CENTER

    Mr. Vladeck. Mr. Chairman, Mr. Sensenbrenner, thank you 
very much for inviting me here to testify before you today. I 
have submitted a detailed testimony outlining my major concerns 
with the new Executive Order, so I would like to use my five 
minutes to outline some of my most pressing concerns.
    Let me begin with the bad news. The bad news is this: our 
regulatory process, and particularly, our health and science 
agencies, have been stretched to the breaking point. Agency 
budgets have been slashed, agency staffing levels have been cut 
to the bone, agency scientists have been demoralized by the 
blatant politicization of science, and not surprisingly, our 
agencies are fraying at the seams. It now takes OSHA a decade, 
a decade to issue standards to protect workers from 
occupational safety and health threats. The FDA, long the gold 
standard of our health and safety agencies, has experienced 
substantial regulatory failure. Defective medical devices, 
unsafe drugs, slip by the FDA and onto our markets.
    We are now reaping what we have sown: under-resourced, 
underfunded, over-politicized agencies that can't do their job 
of protecting us, but these are the very agencies on which we 
depend to ensure that the food we eat is pure, the drugs we 
take are safe and effective, that the air we breathe is clean, 
and that our workplaces are not unreasonably dangerous.
    Now, this is an Executive Order, and that means something. 
It is not simply a trivial statement of business as usual. 
Presidents use Executive Orders to mark important and dramatic 
steps, in terms of the way they organize the executive branch, 
and Executive Order 13422 is no different. It takes a number of 
steps that are problematic, and which Congress ought to take a 
very careful look at.
    The first problem with the Executive Order that I see is 
that it usurps Congressional authority by directing agencies to 
justify regulatory action on the basis of market failure. And 
make no mistake, an agency, particularly if it is developing a 
regulation or guidance that OIRA deems significant, is going to 
have to do business with market failure. To be sure, there is 
an escape valve left in the Executive Order, but that escape 
valve is operative at OIRA's insistence, not the agency's, and 
so agencies, if they want to get their rules approved, if they 
want to go ahead with guidance, they are going to have to at 
least do business with OIRA on market failure bases.
    The problem with this, of course is that, as Sally has just 
said, agencies have been given just an enormous number of 
analytic requirements that they have to navigate through in 
order to take regulatory action. Now, not simply binding 
regulatory action, but non-binding regulatory action. The 
executive branch seems to think that there is no limit to the 
number of analytical requirements that they can impose on the 
process. This process is already broken, and putting another 
straw on the camel's back is going to further undermine the 
ability of agencies to deliver the protection that Congress has 
decreed they deliver to us.
    But the second problem--the expansion of OIRA's authority 
to guidance documents--makes no sense. Guidance documents, by 
their nature, are non-binding. The courts have been very clear 
in holding that a guidance document does not impose a binding 
requirement on a regulated industry. There is--there are 
arguments to be made about whether centralized review is a good 
idea or not. I disagree with my colleague Sally. I have always 
thought centralized review was bad, whether practiced by 
Republicans or Democrats, Mr. Sensenbrenner, but this is a 
completely unwarranted step, and oddly, a step that is going to 
hurt regulated business.
    Mr. Sensenbrenner, you talked about small business. Small 
businesses need guidance from agencies about how to comply with 
federal mandates. Now, if they pick up a phone and call a 
regulatory officer at the FDA, for example, they are going to 
have to say, wait, I've got to do a market failure analysis 
before I can give you guidance? That kind of interaction is 
covered by this Executive Order. You are handcuffing the 
ability of our agencies to interact with the people they 
regulate, and interposing OIRA between them is not sound 
government policy.
    The last point I want to make is this. I am very troubled 
by, and I would urge Congress to take a hard look at this, the 
Executive Order requiring a Presidential appointee to run the 
regulatory offices at the agencies. If you look and here--I 
hate to do this, because I have such respect for Mr. Copeland, 
but if you--and I disagree with him on this point--if you look 
at the way the agencies structure their regulatory compliance. 
In many agencies, particularly at the sub-cabinet level, the 
regulatory officers are political, but not Presidential 
appointees, but they are experts in regulation. They know the 
details, the arcane aspects of our regulatory process that now 
is all-enveloping.
    To force the agency to find another employee, a 
Presidentially-appointed person, who may or may not be subject 
to Senate confirmation, is bad policy, and it is a threat to 
Congress, because when you give an agency authority to exercise 
regulatory power, you delegate that authority not to the 
agency, the statute doesn't read: ``We ask the Department of 
Transportation to do something.'' You tell the Secretary of 
Transportation to do it. Why? Because that person is 
accountable to you as well as the President.
    I am fearful that this Executive Order seeks to end-run 
that kind of accountability that Congress has always demanded.
    I see my time is up. Thank you very much.
    [The prepared statement of Mr. Vladeck follows:]
                 Prepared Statement of David C. Vladeck
    Mr. Chairman and Members of the Science and Technology Committee, 
thank you for inviting me to be here today to share with you my views 
about the January 18, 2007 revisions to Executive Order 12866, which 
are set forth in Executive Order 13422, 72 Fed. Reg. 2763 (January 23, 
2007). I am the Director of the Institute for Public Representation and 
an Associate Professor of Law at Georgetown University Law Center. 
Prior to joining Georgetown's law faculty, I spent nearly thirty years 
at Public Citizen Litigation Group, serving as its director from 1992 
through 2002. I have practiced extensively in the area of 
administrative law, served as a Public Member of the Administrative 
Conference of the United States, the Chair of the D.C. Bar 
Association's Section on Administrative Law, on the Council of the 
American Bar Association's Section on Administrative Law and Agency 
Practice, testified on many occasions before congressional committees 
on administrative law issues--including issues concerning the 
constitutionality and wisdom of centralized regulatory review--and I 
write in the field of administrative law. I also serve as a Scholar 
with the Center for Progressive Reform.
    My testimony today will explain why Executive Order 13422 
represents an important chapter in the Executive Branch's longstanding 
effort to wrest control over administrative agencies from Congress, and 
certainly the most important measure taken by President Bush. To put 
the new Order in context, I will begin by briefly describing the 
problems brought about by Executive Order 12866 and its predecessor, 
Executive Order 12291, and explain why centralized regulatory review 
has seriously impaired the ability of federal agencies to provide 
needed safeguards to the American people.
    I will then turn to Executive Order 13422 and address why it marks 
a further and substantial erosion of Congress' role in the 
administrative process and deals a body blow to the ability of our 
agencies to do their jobs. Here I make a number of points about 
Executive Order 13422:

  The Executive Order Usurps Congressional Authority By 
Directing Agencies to Justify Regulatory Actions on the Basis of Market 
Failure. Under our system of separated powers, it is Congress, not the 
Executive, that sets the substantive standards that guide agencies in 
the performance of their delegated tasks. Executive Order 13422 
disrespects this structural limit in the Constitution. It requires 
agencies, as a precondition to taking any regulatory action at all, to 
justify their proposed action on the basis of ``market failure.'' And 
``significant'' agency guidance may not be issued until the agency 
obtains clearance from the Office or Regulatory Affairs (OIRA) of the 
Office of Management and Budget (OMB). The ``market failure'' super-
mandate appears nowhere in statute. It is not in keeping with the 
decisional criteria that Congress has established, and it cannot be 
reconciled with the dominant thrust of the health and safety statutes, 
which are designed to prevent deaths and injuries by avoiding market 
failure, rather than waiting until it is too late and market failure is 
evident.

  The Executive Order Unwisely Expands OIRA's Authority to 
Guidance Documents. Whatever the wisdom of centralized OIRA review of 
binding agency rules, the same arguments do not extend to centralized 
review of non-binding agency guidance. Hundreds of guidance documents 
are issued each year, often in response to emergencies or other time-
sensitive developments. Requiring agencies to stop dead in their tracks 
to justify the provision of guidance on ``market failure'' grounds 
cannot be defended on policy grounds; nor can giving OIRA the authority 
to meddle in the substance of significant agency guidance.

  The Executive Order Resurrects the Discredited Concept of a 
Regulatory Budget. Amended section 4(c)(1)(B) forbids any agency--even 
the so-called ``independent'' agencies--from commencing any rule-making 
unless the agency's regulatory plan sets forth, among other things, 
``the agency's best estimate of the combined aggregated costs and 
benefits of all its regulations planned for that calendar year.'' These 
estimates give OIRA the ability to effectively cap the amount of 
compliance costs an agency may impose in a calendar year, a power OIRA 
has long coveted. Nothing in the statutes Congress has enacted give 
OIRA the right to ration the protection to be provided to the American 
people through regulation.

  The Executive Order Further Politicizes the Regulatory 
Process. Executive Order 13422 requires each agency ``to designate one 
of the agency's Presidential Appointees'' to serve as the agency's 
regulatory policy officer. At the same time, the Order greatly expands 
the duties of the policy officer, providing that, ``[u]nless 
specifically authorized by the head of the agency, no rule-making shall 
commence nor be included on the [agency's annual regulatory] Plan 
without the approval'' of the policy officer. Nothing in the Order 
suggests that the political appointee must also be subject to Senate 
confirmation. This is a troubling, and no doubt deliberate, omission. 
The statutes Congress enacts to delegate power to agencies designate 
the agency head--and not a subordinate--as the decision-maker. Congress 
does this to ensure that decisions are made by an official accountable 
to Congress as well as the President. The amended Executive Order 
undermines Congress' designation of the agency head as the decision-
maker by requiring that a political employee--accountable to the 
President but not necessarily to Congress--be given control over an 
agency's regulatory output. That, to me, is quite a disturbing 
development and one that should not be accomplished by Executive fiat, 
but, if at all, by legislation.

BACKGROUND

    To understand the significance of Executive Order 13422, it is 
useful to quickly sketch the development of the Executive Order on 
regulatory review and what it requires.\1\ Although all Presidents 
since President Ford have employed some form of centralized review of 
agency regulations, systematic, wholesale review of regulations did not 
begin until the Reagan Administration. Just a month after his 
inauguration, President Reagan issued Executive Order 12291, which 
required agencies to prepare detailed Regulatory Impact Analyses 
specifying the costs and benefits of all proposed ``major'' rules. The 
Order provided that, unless otherwise forbidden by law, an agency could 
not undertake rule-making unless ``the potential benefits to society. . 
.outweigh the costs,'' and the agency selected the regulatory option 
``involving the least net cost to society.'' \2\ The Order further 
required agencies to submit drafts of all proposed and final rules to 
OIRA before publication in the Federal Register, and publication could 
not proceed without OIRA's approval.
---------------------------------------------------------------------------
    \1\ See generally Curtis W. Copeland, CRS Report for Congress: 
Changes to the OMB Regulatory Review Process by Executive Order 13422, 
at 2-3 (Feb. 5, 2007) (hereinafter ``CRS Report'').
    \2\ Exec. Order 12291,  1(b), 7(g)(2); 3 C.F.R. 127 (1981), 
reprinted in 5 U.S.C.  601, at 431 (1982).
---------------------------------------------------------------------------
    From the outset, Congress was troubled by the dominant and often 
obstructionist role OIRA played in rule-makings. OIRA delayed and 
weakened rules, met in secret with industry representatives, overrode 
agency determinations on complex matters of science, and otherwise 
thwarted the ability of the regulatory agencies to do their jobs.\3\ 
During 1982-83, the House held no fewer than seven hearings to examine 
health and safety rules seriously delayed or weakened by OIRA.\4\ And 
when the first challenge to the constitutionality of OIRA's meddling in 
agency rule-making came before an appellate court, the Chairmen of the 
five House Committees having jurisdiction over regulatory agencies 
filed a brief setting forth a blistering critique of OIRA review. Here 
is just a brief sampling of what the five Chairmen said:
---------------------------------------------------------------------------
    \3\ See generally Morton Rosenberg, Beyond the Limits of Executive 
Power: Presidential Control of Agency Rule-making Under Executive Order 
12291, 80 Mich. L. Rev. 193 (1981); David C. Vladeck, Unreasonable 
Delay, Unreasonable Intervention: The Battle to Force Regulation of 
Ethylene Oxide, in Peter L. Strauss, Ed., Administrative Law Stories 
(Foundation Press 2006).
    \4\ See, e.g., OMB Control of OSHA Rule-making, Hearings before the 
Subcomm. on Manpower of the House Comm. on Gov't. Operations, 97th 
Cong., 2d Sess. (1982); Infant Formula: The Present Danger, Hearings 
before the Subcomm. on Oversight and Investigations of the House Comm. 
on Energy and Commerce, 97th Cong., 2d Sess. (1982); EPA: 
Investigations of Superfund and Agency Abuses (Part 3), Hearings before 
the Subcomm. on Oversight and Investigations of the House Comm. on 
Energy and Commerce, 97th Cong., 1st Sess. (1981).

         The amici Congressmen object to the systematic usurpation of 
---------------------------------------------------------------------------
        legislative power by OMB pursuant to Executive Order 12291 *

         * * Executive Order 12291 is the cornerstone of a steadily 
        growing Presidential apparatus, the effect of which is to 
        contravene explicit Congressional delegations of authority, to 
        subvert meaningful public participation in and judicial review 
        of federal regulations, and to impose substantive standards on 
        decision-makers foreign to the statutes they administer. Unless 
        it is checked, the program embodied in Executive Order 12291 
        will fundamentally damage the administrative process by which 
        our laws are implemented, the legislative system by which our 
        laws are enacted and monitored, and the separation of powers 
        upon which our system of government rests.\5\
---------------------------------------------------------------------------
    \5\ Brief of John Dingell, Chair, House Energy and Commerce 
Committee, Peter Rodino, Chair, House Judiciary Committee, Jack Brooks, 
House Government Operations Committee, Augustus Hawkins, Chair, House 
Education and Labor Committee, and William D. Ford, Chair, House Post 
Office and Civil Service Committee, in Public Citizen Health Research 
Group v. Tyson, 796 F.2d 1479 (D.C. Cir. 1986).
---------------------------------------------------------------------------
    In 1993, shortly after taking office, President Clinton issued 
Executive Order 12866 to make a number of significant modifications to 
the Reagan Executive Order. In my view, the most important was to 
inject transparency into the OIRA review process.\6\ The Clinton Order 
cut back on the number of ``significant'' agency rules reviewed by 
OIRA. It also required OIRA, as a general rule, to complete its review 
of proposed and final rules within ninety calendar days. And it 
required all agencies, including the so-called independents, to prepare 
an annual regulatory plan outlining all important regulatory actions 
the agency intended to take during that fiscal year. The plans had to 
be personally approved by agency heads.\7\
---------------------------------------------------------------------------
    \6\ See Executive Order 12866,  6(b) & (c); 58 Fed. Reg. 51,735 
(1993).
    \7\ Harvard Law School Dean Elena Kagan has traced the development 
of the Clinton Executive Order in Presidential Administration, 114 
Harv. L. Rev. 2245 (2001).
---------------------------------------------------------------------------
    Even with the adjustments made by President Clinton, centralized 
review of the regulatory output of administrative agencies has never 
accomplished its objective of making our regulatory agencies better 
serve the public. Indeed, the ultimate irony is that if OIRA's review 
process was subjected to cost-benefit analysis, OIRA review would 
flunk. The amount of time, energy, money and, at times, political 
capital that goes into satisfying OIRA that a rule is worthy of 
publication dwarfs any conceivable benefits that flow from the process. 
We have now had a twenty-five year experiment with centralized review. 
Judged by any legitimate measure, it is time to declare the experiment 
a failure and move on. There are several reasons for my conclusion.
    To begin with, centralized review is a one-way ratchet. OIRA 
presses agencies to do less to protect the public health, not more. 
Agencies do not complain that OIRA is forcing them to do more; they 
complain that OIRA is forcing them to weaken required protections.
    OIRA's insistence that agencies do less, not more, stems from its 
singular focus on ``least net cost options''--or, in other words, 
minimizing regulatory compliance costs. The Executive Order requires 
agencies to perform cost-benefit analysis, which many experts claim is 
inherently anti-regulatory.\8\ My own litigation experience bears this 
out. I have represented workers and labor unions in litigation to force 
OSHA to protect workers from exposure to many highly toxic and 
carcinogenic chemicals, including ethylene oxide, cadmium, hexavalent 
chromium, formaldehyde and benzene.\9\ In each case, OIRA was an 
obstacle to the agency's action. Part of OIRA's objection was its 
unwillingness to place any value on important health benefits of 
regulation--including avoided cancers, miscarriages, genetic damage 
that might cause infertility or birth defects, and kidney failure that 
might require dialysis or transplant--because they were too difficult 
to quantify. While the anticipated costs of regulation are generally 
easier to estimate (and overestimate), the benefits of regulation are 
notoriously difficult to quantify and are often downplayed or ignored 
by OIRA. And when OIRA does place a value on a benefit or regulation, 
it discounts those values heavily. Indeed, lives that are going to be 
lost twenty or thirty years down the road are devalued to the point of 
insignificance.
---------------------------------------------------------------------------
    \8\ See generally Frank Ackerman & Lisa Heinzerling, Priceless: On 
Knowing the Price of Everything and the Value of Nothing (New Press 
2004); Lisa Heinzerling, Regulatory Costs of Mythic Proportion, 107 
Yale L. J. 1981 (1998).
    \9\ See, e.g., Public Citizen Health Research Group v. Auchter, 702 
F.2d 1150 (D.C. Cir. 1983); 796 F.2d 1479 (D.C. Cir. 1986); 823 F.2d 
626 (D.C. Cir. 1987) (decisions requiring OSHA to regulate ethylene 
oxide, a potent carcinogen and teratogen); International Chemical 
Workers Union v. Pendergrass, 958 F.2d 1144 (D.C. Cir. 1992); 830 F.2d 
369 (D.C. Cir. 1987) (decisions compelling OSHA to regulate cadmium, a 
potent lung carcinogen); Public Citizen Health Research Group v. Chao, 
314 F.3d 143 (3d Cir. 2002); 145 F.3d 120 (3d Cir. 1998) (decisions 
forcing OSHA to regulate hexavalent chromium, a potent lung and liver 
carcinogen); UAW v. Pendergrass, 878 F.2d 389 (D.C. Cir. 1989) 
(decision requiring OSHA to regulate formaldehyde).
---------------------------------------------------------------------------
    There is also the problem of competence. The next car you buy is 
almost certain to have a gauge on the dashboard to warn you when the 
car's tires are under-inflated. Congress required this safety feature 
after a spate of deadly roll-over crashes caused, in part, by under-
inflated tires. The National Highway Traffic Safety Administration 
(NHTSA) proposed to require automobile manufacturers to install devices 
that would detect under-inflated tires in virtually all cases. OIRA 
insisted that NHTSA permit the installation not only of the device 
NHTSA's engineers determined was best, but also a far less effective 
(and less expensive) device favored by the auto industry. Not 
surprisingly, NHTSA did what it was told. Empowering OIRA economists to 
second-guess highly technical judgments made by expert agencies is not 
good government. Ultimately, Public Citizen succeeded in getting a 
court to overturn the OIRA-dictated decision and direct NHTSA to 
require the installation of the more effective devices. But the 
introduction of this important, life-saving device was delayed because 
of OIRA's interference. This is hardly an isolated case.\10\
---------------------------------------------------------------------------
    \10\ OIRA's meddling in the tire pressure rule is recounted in 
Public Citizen v. Mineta, 340 F.3d 39 (2d Cir. 2003). For a more 
recent, but equally troubling, example of OIRA's improper meddling, see 
Public Citizen v. FMCSA, 374 F.3d 1209 (D.C. Cir. 2004) (setting aside 
on safety grounds a rule extending the hours truck drivers may drive 
after OIRA intervened on behalf of trucking companies to reverse the 
agency's proposed rule reducing the hours).
---------------------------------------------------------------------------
    There is also enormous delay built into OIRA review which has 
resulted in the ossification of the regulatory process. The regulatory 
process is so overlain with procedural and regulatory requirements that 
agencies cannot get their work done in a reasonable time. It now takes 
OSHA a decade to promulgate a standard to protect workers from exposure 
to toxic substances.\11\ While the rule-making process grinds glacially 
ahead, workers are exposed to unreasonable risks to their health and 
well-being. Other agencies face comparable delays. And much of the 
delay can be traced back to all of the requirements imposed by the 
Executive Order.
---------------------------------------------------------------------------
    \11\ See Public Citizen Health Research Group v. Chao, 314 F.3d 143 
(3d Cir. 2002); 145 F.3d 120 (3d Cir. 1998) (describing pace of 
hexavalent chromium rule-making).
---------------------------------------------------------------------------
    These problems are all well-known, and in fairness to the Clinton 
Administration, and my friend and co-panelist Sally Katzen, some 
efforts were undertaken to address them. But Executive Order 13422 
makes a bad situation worse. Let me now address how Executive Order 
13422 is a significant step backwards, and an affront to the power of 
Congress.

PRINCIPAL DEFECTS IN EXECUTIVE ORDER 13422

    As noted above, although packaged as an innocuous and minor 
amendment to Executive Order 12866, the new Executive Order takes a 
number of dramatic and important steps in the wrong direction. The 
principal ones are these:

1.  The Amendments Impose a ``Super-Mandate'' That Supersedes 
Legislation and Needlessly Burdens Already Overburdened Agencies.

    The amendments to the Executive Order give OIRA a powerful new tool 
to block agency action. Before moving forward with any regulatory 
action, an agency must determine in writing that the action the agency 
wants to take or guidance the agency wants to provide is warranted by 
``market failure.'' There are several problems with the imposition of 
this mandate.
    First, it serves to undermine the criteria that Congress has 
established for agency action. Under our system of separated powers, it 
is Congress, not the Executive, that sets the substantive standards 
that guide agencies in the performance of their delegated tasks. 
Executive Order 13422 is at odds with this rule. No statute requires an 
agency to consider ``market failure'' as a precondition to taking 
action. Nor is the consideration of market failure in keeping with the 
decisional criteria that Congress has established--which generally 
focus on health, safety, and the protection of our environment and 
natural resources. Indeed, the elevation of ``market failure'' as a key 
determinant for agency action cannot be reconciled with the fundamental 
goal of the health and safety statutes, which is to prevent deaths and 
injuries by avoiding market failure, rather than waiting until it is 
too late and market failure is evident.\12\
---------------------------------------------------------------------------
    \12\ I recognize that the Executive Order does not completely 
foreclose the possibility that OIRA will permit an agency to proceed 
with rule-making even if the agency cannot show that its proposed 
action is warranted by market failure. Executive Order 13422,  1(b), 
does allow an agency to make the case to OIRA that a showing of market 
failure is not ``applicable'' to the proposed regulatory action. But 
there are reasons to doubt that an agency intent on skirting the market 
failure analysis will succeed with OIRA. For one thing, the change in 
the language of  1(b) from Executive Order 12866 to Executive Order 
13422 is profound; the former Order required the agency to ``identify 
the problem that it intends to address. . .as well as the significance 
of that problem.'' The new Order deletes that language and says that 
``[e]ach agency shall identify in writing the specific market failure. 
. .or other specific problem that it intends to address. . ..'' That 
substitution plainly signals that, from now on, OIRA will expect to see 
an economic analysis of market failure as a precondition to regulation 
absent a convincing economic argument from the agency that market 
failure is not at the root of the ``other specific problem'' the agency 
intends to address. Moreover, the use of the word ``shall'' underscores 
that agencies have no choice but to engage in this analysis, even if 
the agency ultimately decides not to rest its case on market failure 
grounds.
---------------------------------------------------------------------------
    Second, the mandate adds a burden that will sap the resources of 
already overburdened agencies. To take any regulatory action at all, 
agencies will have to consider ``market failure'' and write a 
justification of the action it seeks to take on that basis. And for 
``significant'' agency action--including ``significant'' non-binding 
agency guidance documents--agencies will have to demonstrate to OIRA's 
satisfaction that the failure of market forces warrants the action the 
agency seeks to undertake. Giving OIRA another tool to block agency 
initiatives is unwise; permitting OIRA to meddle in the substance of 
agency guidance is doubly unwise.
    There is a related problem as well. Where agencies propose to take 
regulatory action, the Executive Order already requires agencies to 
conduct a rigorous cost/benefit analysis as part of the Regulatory 
Impact Analysis it must provide to OIRA. Now the amended Executive 
Order requires a market failure analysis as well. The Executive Branch 
apparently takes the view that it can continue to pile on analytical 
requirements on overtaxed regulatory agencies without limit and without 
Congress' approval. Make no mistake; each of these analytical 
requirements consumes scarce resources that agencies could use to carry 
out the instructions given to them by Congress. At some point--if 
indeed that point has not already been reached--the requirements 
imposed by Executive Order will crowd out those imposed by statute.
    Third, and perhaps most problematic, while there is a modest effort 
in the Executive Order to define ``market failure'' (e.g., 
``externalities, market power, lack of information''), market failure 
is in the eye of the beholder. There is no commonly-accepted definition 
of the term, and, as a result, much will then depend on the definition 
OIRA's staff gives to the term market failure.
    This concern takes on special force when one considers the views of 
Susan E. Dudley, President Bush's nominee to head OIRA. Ms. Dudley's 
writings suggest that she believes markets almost never fail, and that 
government intervention is therefore rarely if ever appropriate.\13\ 
For instance, Ms. Dudley was virtually alone in opposing NHTSA's recent 
advanced air-bag rule. She did so on the ground that, in her view, 
there was no evidence of market failure, and therefore NHTSA's 
``attempt[] to make all vehicles equally safe for occupants'' was 
unwarranted.\14\ Ms. Dudley sees little room for government 
intervention in the market, even for protective health and safety 
regulation. Ms. Dudley's restrictive understanding of market failure 
raises serious questions. If Ms. Dudley saw no evidence of market 
failure with air bags--where the evidence of continual market failure 
is overwhelming--would she have insisted on clearer evidence of market 
failure before she let the EPA order the phase-out of lead in gasoline, 
the Consumer Product Safety Commission ban the use of flammable 
material for children's sleep-wear, or the FDA require that iron 
pills--the single largest cause of poisoning children in the United 
States--be sold in child-proof containers? We ought not wait for 
``market failure'' to exact a toll on human health and safety before we 
permit our agencies to act. In the health and safety context, the only 
way market failure becomes apparent is when the body count gets too 
high. The point of regulation is to prevent market failure, not to try 
to remedy it once the damage is done. The Executive Order subverts that 
fundamental principle.
---------------------------------------------------------------------------
    \13\ Ms. Dudley's writings are explored in depth in a report by 
Public Citizen and OMB Watch entitled The Cost Is Too High: How Susan 
Dudley Threatens Public Health Protections (Sept. 2006) (available at 
http://www.citizen.org/publications/release.cfm?ID=7448&secID= 
2565&catID=126).
    \14\ Susan E. Dudley, Regulatory Studies Program Comments: Advanced 
Air Bags 7 (Dec. 17, 1998) (available at http://
mercatus.org.repository/docLib/MC-RSP-PIC1998-
04-NHTSA-AirBags-981130.pdf).

2.  The Amendments Inappropriately Expand OMB's Authority and Entrench 
---------------------------------------------------------------------------
Gridlock.

    Whatever the wisdom of centralized OIRA review of binding agency 
rules, the same arguments do not extend to centralized review of non-
binding guidance. Agencies provide guidance constantly, in literally 
hundreds of guidance documents or interpretative missives each year. 
Consider just one agency. The most recent listing of the titles of 
guidance documents used by the Food and Drug Administration was 
published in January 2005. It runs nearly ninety pages in the Federal 
Register.\15\
---------------------------------------------------------------------------
    \15\ 70 Fed. Reg. 824-913 (Jan. 5, 2005); see also FDA Center for 
Drug Evaluation and Research List of Guidance Documents (Feb. 1, 2007) 
(33-page document setting forth currently in force guidance documents) 
(available at http://www.fda.gov/cder/guidance/
CompList02-2007.pdf). The CRS Report cited above, supra n.1, 
notes that the Occupational Safety and Health Administration reported 
in 2000 that it had issued 3,374 guidance documents since March 1996, 
thus averaging around 1,000 guidance documents a year. CRS Report at 
10, n.22.
---------------------------------------------------------------------------
    Agencies often use guidance documents to help industry meet 
regulatory obligations in time-sensitive or emergency situations. For 
example, OSHA's most recent guidance document provides employers with 
advice about how to address an influenza pandemic,\16\ one of the FDA's 
most recent guidance documents advises clinical laboratories on how to 
address public health problems that resulted from the failure of 
certain laboratories to properly conduct tests on human donors,\17\ and 
one of the EPA's most recent guidance documents provides advice to 
manufacturers of antimicrobial agents on how to properly test and 
register their products with the EPA.\18\
---------------------------------------------------------------------------
    \16\ OSHA, Guidance Document for Preparing Workplaces for an 
Influenza Pandemic (2007) (available at http://www.osha.gov/
Publications/influenza-pandemic.html).
    \17\ FDA, Center for Biologics Evaluation and Research, Certain 
Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/Ps) 
Recovered From Donors Who Were Tested For Communicable Diseases Using 
Pooled Specimens or Diagnostic Tests (Jan. 23, 2007) (available at 
http://www.fda.gov/cber/gdlns/hctppool.htm).
    \18\ EPA, Regulating Antimicrobial Pesticides (Jan. 25, 2007) 
(available at http://www.epa.gov/oppad001).
---------------------------------------------------------------------------
    Congress has long understood that, when it comes to the provision 
on guidance and advice, it is unwise to erect barriers between agencies 
and regulated entities and the public. Government must be accessible to 
those it regulates and to those who benefit from regulation. For that 
reason, when Congress enacted the Administrative Procedure Act, it 
exempted guidance documents and interpretative pronouncements from all 
of the informal and formal rule-making requirements of the Act.
    Executive Order 13422 upsets Congress' judgment on that balance. 
Before issuing any guidance document, an agency must address in writing 
the question of ``market failure''--an analytic requirement that will 
delay the issuance of sorely needed guidance. The Executive Order is 
also highly prescriptive about the contents of guidance documents. 
Rather than permit agencies to retain flexibility and tailor guidance 
documents to their audiences, the Executive Order instructs agencies 
that every guidance document must (a) be based ``on the best reasonably 
obtainable scientific, technical, economic, and other information;'' 
(b) be compatible and not duplicative of guidance given by other 
agency; (c) be ``simple and easy to understand;'' and (e) be tailored 
``to impose the least burden on society, including individuals, 
businesses of different sizes, and other entities. . .taking into 
account, among other things, the costs of cumulative regulations.'' 
\19\
---------------------------------------------------------------------------
    \19\ Executive Order 13422,  1(b)(1), 1(b)(7), 1(b)(10), 1(b)(11) 
& 1(b)(12).
---------------------------------------------------------------------------
    Not only do ``significant'' guidance documents have to survive that 
gauntlet,\20\ but also subjecting them to full-bore OIRA review invites 
additional, substantial delays. There is a conspicuous and undoubtedly 
deliberate omission in the new Executive Order. Although the amended 
Order retains the long-standing time constraints on OIRA to act on 
agency regulatory proposals, there is no similar time limit on OIRA's 
review of guidance documents.\21\ If OIRA takes months or longer to 
review a guidance document OIRA deems significant, the agency has no 
recourse under the Executive Order. If the past is prologue, OIRA 
review process will certainly delay, often substantially, the issuance 
of needed significant guidance.\22\
---------------------------------------------------------------------------
    \20\ There is a definitional ambiguity embedded in the Executive 
Order that gives OIRA broad authority to designate virtually any 
guidance document ``significant,'' triggering mandatory OIRA review. In 
section 3(h)(1)(A), the Order defines the term ``[s]ignificant guidance 
document'' as one that ``may reasonably be anticipated to. . .[l]ead to 
an annual effect of $100 million or more or adversely affect in a 
material way the economy, a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local or tribal governments or communities.'' Because guidance 
documents are by definition non-binding, it is difficult to see how one 
could ``lead to an annual effect of $100 million or more,'' although 
the phrase ``lead to'' permits OIRA to claim that even the most 
indirect action by the agency could have a substantial effect on the 
economy. OIRA has already suggested that it will take this view. See 
OMB, Final Bulletin for Agency Good Guidance Practices, 72 Fed. Reg. 
3432 (Jan. 25, 2007). But aside from the indirect effects point, the 
definition is written in the disjunctive and it is easy to see how one 
could argue that virtually any guidance document that addresses broad 
public health questions, such as OSHA's guidance on pandemic influenza 
or the EPA's guidance on antimicrobial agents, might be said to 
``adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety.'' Thus, it is difficult to tell what guidance 
documents might be deemed ``significant.'' It could be that hundreds or 
thousands of guidance documents each year would qualify under this 
potentially sweeping definition--a concern heightened because OIRA, not 
the agency, will have the final say on what constitutes a 
``significant'' guidance document.
    \21\ Compare Executive Order 13422,  9 (requiring agency 
consultation with OIRA on significant guidance documents but not 
setting any time limit for such consultation) with id.  6 & 8 
(setting strict time limits for OIRA/agency consultation on 
regulations).
    \22\ The CRS Report, supra n.1, raises another question of 
omission: Executive Order 13422 does not clearly extend the 
transparency requirements applicable to rule-makings to OIRA review of 
guidance documents. CRS Report at 11-12. As I read the new Order, CRS's 
concerns are well-founded. There is nothing in the Order that makes 
explicit that the transparency and accountability provisions relating 
to OIRA clearance of rule-makings apply to OIRA review of guidance 
documents, and one may reasonably conclude that omissions of this sort 
are not inadvertent. Congress, of course, has at times been critical of 
OIRA's penchant for behind-close-door dealings in the past, and the 
apparent decision to shield agency-OIRA interactions over guidance 
documents from public view appears to be an unwarranted return to the 
past.

---------------------------------------------------------------------------
3.  Rationing of Health and Safety Protection.

    Executive Order 13422 also sets the stage for the resurrection of 
the discredited concept of a ``regulatory budget.'' Under the new 
Order, ``no rule-making may be commenced'' unless it appears on the 
agency's Regulatory Plan and the agency sets forth ``the agency's best 
estimate of the combined aggregated costs and benefits of all its 
regulations planned for that calendar year.'' \23\ These estimates give 
OIRA the ability effectively to cap the amount of compliance costs an 
agency may impose in a calendar year--or set a ``regulatory budget''--a 
power OIRA has long coveted.
---------------------------------------------------------------------------
    \23\ Executive Order 13422,  4(c)(1)(B).
---------------------------------------------------------------------------
    The goal of this amendment is quite clearly to limit industries' 
exposure to regulatory costs. OIRA could wield this tool regardless of 
whether the compliance costs will be absorbed by different industries, 
regardless of the benefits that flow from regulation, and regardless of 
the mandates Congress has set for the agencies. If Congress believes it 
is appropriate to experiment with regulatory budgeting, that is one 
thing. It is quite another for the Executive Branch to arrogate that 
power to itself.

4.  Further Politicization of the Regulatory Process.

    Executive Order 13422 breaks from past practice in another 
important respect: It requires each agency to designate a political 
appointee to head its regulatory policy office. In many agencies, the 
regulatory policy office has traditionally been headed by a career 
civil servant who is an expert in the arcane details of regulation.\24\ 
But in all agencies, regulatory action is reviewed and approved by the 
agency head, or his designee, to ensure that there is political 
accountability for agency actions.
---------------------------------------------------------------------------
    \24\ On this issue in particular, I want to endorse the views of 
Columbia University Law Professor Peter L. Strauss, who is testifying 
on Executive Order 13422 today before the House Judiciary Committee's 
Subcommittee on Commercial and Administrative Law. Professor Strauss 
suggests that Congress, not an agency head or the White House, ought to 
select the regulatory officer, a suggestion I endorse. The CRS Report, 
supra n.1, also suggests that this portion of the Executive Order might 
run afoul of the Appointments Clause on the ground that with the 
enhanced powers provided by the Executive Order, the policy officer 
must be seen as a principal officer of the United States, requiring 
Senate confirmation under Buckley v. Valeo, 424 U.S. 1, 126 (1976). 
Although the courts have been wary about Appointments Clause claims, 
the CRS Report raises serious constitutional questions that should be 
explored fully by Congress.
---------------------------------------------------------------------------
    The amendments to the Executive Order, however, undermine the 
authority Congress has conferred on the agency head. This is a 
troubling development that Congress ought to care deeply about. The 
statutes Congress enacts to delegate decisional power to agencies 
explicitly designate the agency head--and not a subordinate--as the 
decision-maker. Congress is careful to designate the agency head to 
ensure that decisions are made by an official accountable to Congress 
as well as the President. To be sure, the President retains the power 
of appointment and removal, but Cabinet Secretaries and agency heads 
are presumed to have the power to decide questions independently, even 
at the risk of removal. Disputes between the White House and Cabinet 
officers and agency heads have emerged and, at times, the White House 
has relented.
    The amended Executive Order strips Congress' designation of much of 
its force by giving a different political appointee--accountable to the 
President but not necessarily to Congress--substantial control over the 
agency's regulatory output. This is not hyperbole. The Order expands 
the duties of the policy officer, providing that, ``[u]nless 
specifically authorized by the head of the agency, no rule-making shall 
commence nor be included on the [agency's annual regulatory] Plan 
without the approval'' of the policy officer.\25\ Under the new Order, 
the policy officer--who has ties with and owes his allegiance to the 
White House--will be the gatekeeper of the agency's regulatory output. 
As The New York Times put it, ``[t]he White House will thus have a 
gatekeeper in each agency to analyze the costs and benefits of new 
rules and to make sure the agency carries out the president's 
priorities,'' \26\ which are not necessarily Congress' priorities.\27\
---------------------------------------------------------------------------
    \25\ Executive Order 13422,  4(c)(1) (emphasis added).
    \26\ Robert Pear, Bush Directive Increases Sway on Regulation, N.Y. 
Times, A1 (Jan. 30, 2007).
    \27\ The CRS Report, supra n.1 at 7 & n.16, suggests that the 
problems I see in this provision of the Order may be more theoretical 
than real, because many of the presidential appointees in the major 
agencies are subject to Senate confirmation. I am skeptical of this 
assertion. For years, the White House has used non-career SES slots to 
place presidential appointees in high-level, non-confirmation positions 
at many agencies, such as the non-career deputy commissioners at the 
Food and Drug Administration. The CRS Report recognizes the possibility 
that these appointees will qualify under the Executive Order and 
concedes that if these appointees qualify ``then the agency heads would 
have a wider range of 'presidential appointee' positions from which to 
designate regulatory policy officers.'' Id. Because the White House 
alone will decide which appointees qualify as ``presidential 
appointees'' under the Executive Order, I do not believe that the 
narrow view of what constitutes a ``presidential appointee'' expressed 
in the CRS Report will be the one chosen by the White House, which has 
strong incentives to ensure that its operatives are appointed agency 
regulatory officers.

---------------------------------------------------------------------------
5.  The Push to Formal Rule-making.

    Executive Order 13422 amends section 6 of Executive Order 12866 by 
adding the following: ``In consultation with OIRA, each agency should 
also consider whether to utilize formal rule-making procedures under 5 
U.S.C. 556 and 557 for the resolution of complex determinations.'' To 
administrative law scholars, the suggestion that the White House is 
pushing agencies to undertake formal rule-making under sections 556 and 
557 of the Administrative Procedure Act is both stunning and stunningly 
ill-advised. To begin with, it betrays a misunderstanding of 
administrative law to call sections 556 and 557 ``rule-making'' 
provisions; they are not, they are ``hearing'' provisions. Rule-making 
under the APA is generally governed by section 553, which calls for 
notice and comment rule-making, not rule-making based on a formal 
hearing. Sections 556 and 557 establish procedures for formal agency 
adjudicatory hearings (a) where adjudications are required under 
section 554 of the APA or (b) in those rare instances in which Congress 
has specified that an agency must hold a hearing as part of its rule-
making process. But agencies do not voluntarily hold hearings in rule-
making proceedings. Formal hearings are notoriously cumbersome, labor-
intensive, and time-consuming and agencies have long sought to avoid 
them by any means possible--a stratagem largely endorsed by the 
Courts.\28\ Moreover, in the rare instances in which agencies engage in 
formal hearings under sections 556 and 557, the hearing is used to 
resolve matters of dispute between two parties, or among a small number 
of discrete parties--such as a proceeding to confer a license on one of 
two or more competing parties. Unless mandated by Congress, formal 
hearings have not been used to establish regulatory policy or rules of 
general applicability for decades, and no one has advocated otherwise, 
until the issuance of Executive Order 13422.\29\
---------------------------------------------------------------------------
    \28\ See generally United States v. Florida East Coast R.R. Co., 
410 U.S. 224 (1973); Chemical Waste Management, Inc. v. EPA, 873 F.2d 
1477 (D.C. Cir. 1989) (rejecting claim for formal hearing in part on 
efficiency grounds).
    \29\ See generally ACUS Recommendations 72-5, Procedures for the 
Adoption of Rules of General Applicability, 38 Fed. Reg. 19782 (1972) 
(arguing that proceedings under section 556 and 557 should be sharply 
circumscribed).
---------------------------------------------------------------------------
    The inclusion of this provision in the Executive Order heightens 
concern about the purpose of the Order. As I have explained, one 
inevitable consequence of Executive Order 13422 is that it will lead to 
the further ossification of an already overburdened administrative 
process. As an instrument of delay, formal rule-making has no peer; it 
is the American version of Dickens' nightmarish Jardynce v. Jardynce. 
Empowering OIRA to push agencies to employ formal rule-making to make 
complex determinations sends a disturbing signal, namely that delay and 
not resolution is the real goal.

CONCLUSION

    Executive Order 13422 constitutes an unprecedented consolidation of 
power over our regulatory agencies in the White House. It also 
constitutes an unprecedented assault on the ability of Congress to set 
the substantive standards that guide agencies in the performance of 
their delegated tasks. The consequences of this shift are far-reaching 
and tragic. Effective regulation is essential to our nation's well-
being. For that reason, administrative agencies were created to bring 
expertise, independence, and transparency to the regulatory process. 
This Executive Order undermines those values. It gives a small group of 
generalists at OIRA the power to second-guess and undermine the expert 
and impartial judgments of the scientists, physicians, epidemiologists, 
engineers, and toxicologists who staff our health and safety agencies. 
It holds health and safety regulation hostage to economic 
considerations of market failure and cost/benefit analysis. It puts 
partisan politics at the center of our regulatory process by giving the 
White House substantial control over the day-to-day work of our 
agencies. And it undermines transparency by establishing an off-the-
record process for OIRA review of significant guidance documents.
    Congress has acquiesced in this accretion of power to the 
President. I would urge that the time has come for Congress to consider 
reclaiming its authority. Thank you.\30\
---------------------------------------------------------------------------
    \30\ I would like to acknowledge the assistance of Sandra C. 
George, a third-year student at Georgetown University Law Center, in 
the preparation of this testimony.

                     Biography for David C. Vladeck
    David C. Vladeck is the Director of the Institute for Public 
Representation and Associate Professor of Law at Georgetown University 
Law Center. He teaches courses in federal courts, civil procedure, and 
first amendment litigation, and co-directs the Institute for Public 
Representation, a clinical law program at the Law Center where he 
handles a broad array of civil rights, civil liberties, first 
amendment, open government, and regulatory litigation.
    Prior to joining the Georgetown faculty in 2002, Professor Vladeck 
spent nearly 30 years with Public Citizen Litigation Group, serving as 
its Director from 1992 to 2002. He has handled a wide range of complex 
litigation, including first amendment, health and safety, civil rights, 
class actions, preemption and open government cases. He has argued a 
number of First Amendment and civil rights cases before the United 
States Supreme Court, and more than 60 cases before the federal courts 
of appeal and state courts of last resort.
    Professor Vladeck also testifies before Congress, advises Members 
of Congress on legal matters, and writes on administrative law, first 
amendment, legal ethics, and access to justice issues. He serves as a 
Scholar with the Center for Progressive Reform and on the boards of 
various non-profit organizations. He has also served on the Council of 
the Administrative Law and Regulatory Practice Section of the American 
Bar Association, as a Public Member of the Administrative Conference of 
the United States, and as the Chair of the Administrative Law Section 
of the District of Columbia Bar. Professor Vladeck received his 
undergraduate degree from New York University, his law degree from 
Columbia University School of Law, and an LL.M. degree from Georgetown 
University Law Center.

    Chairman Miller. Thank you, Mr. Vladeck. Mr. Kovacs. I 
wasn't paying attention.

      STATEMENT OF MR. WILLIAM L. KOVACS, VICE PRESIDENT, 
 ENVIRONMENT, TECHNOLOGY, AND REGULATORY AFFAIRS, U.S. CHAMBER 
                          OF COMMERCE

    Mr. Kovacs. Thank you, Mr. Chairman, and Ranking Member 
Sensenbrenner.
    It is really a privilege to be here today, and to discuss 
oversight issues with federal agencies. The Chamber cares about 
this issue probably more than any other issue. The regulatory 
mill, contrary to what has been stated, has not stopped. There 
are about 110,000 regulations out there right now. There are 
4,000 new regulations a year. The cost to the American economy 
is about $1.1 trillion, and to put it in perspective, there are 
only $857 billion in individual income taxes, and another $226 
billion in corporate taxes, so it is one significant mandate. 
It costs small business about 45 percent more than it costs a 
large business to comply with it.
    So, the regulatory mill, and the regulation mill, hasn't 
stopped. Executive Order 13422, you know, there is a lot of 
hyperbole and a lot of rancor about this, but this Executive 
Order contains nothing that hasn't been contained in an 
Executive Order since the Presidency of Richard Nixon, and 
through Nixon, with his quality of life, and Jimmy Carter, with 
his regulatory reform, right through Reagan and Bush and 
Clinton, have all issued something like this. And it is an 
attempt by the Administrations to get some management structure 
in the agencies, because what does it ask them to do? It asks 
them to--asks to state a purpose for the rule. It asks that 
they have a cumulative cost benefit, which some people would 
say is new, but it actually came in Carter's time, and to have 
a regulatory appointment. That also came in Carter's time.
    And during this same 30 year time period, it hasn't been as 
if the agencies were just off, or the executive was off trying 
to manage the agencies. Congress has gone through the 
Regulatory Flexibility Act, where you have asked the agencies 
every seven years to come back and talk about the regulations 
that should be eliminated, or Small Business Regulatory 
Fairness Act (SBREFA) with Congressional review, or negative--
or reg negs. You can go through a whole list. This has been a 
bipartisan effort for 30 years, and it is an attempt to manage.
    The Good Guidance Practices, yeah, we did comment on it, 
and most of the comments were very positive. But what does it 
ask the public to do? It asks the public and the agencies that 
if you have a significant guidance document, and some of these 
guidance documents are very significant, because on top of the 
110,000 regulations, you have several--tens of thousands of 
guidance documents. What does it ask them to do? It says if it 
has got significant guidance, of general applicability to the 
entire regulated community, what should you do? You should put 
it on your website? That is corrupting government? You should 
put it on your website, and allow the public to comment? You 
should give them a list of documents, and put it on your 
website, so that the public knows what the guidance is? 
Everyone feels sorry--oh, the poor small business can't speak 
to a regulatory officer. That is foolish. They--it has got to 
be of general applicability, and it requires notice and comment 
on the website.
    The second part of it is if it is an economically 
significant rule, which imposes costs of $100 million or more, 
then they have to put a notice in the Federal Register, and 
they have to accept comments from the public. I don't know that 
these are huge burdens, but what it does do is it opens up the 
transparency. Think about it. You are a small business in North 
Carolina, and you have got a set of regulations that are four 
feet long and six feet high, going up to the ceiling, and you 
have to deal with health issues, pensions, environmental 
issues, OSHA issues, and everything else, and you have got to 
deal with it every day, and you have ten employees.
    And so, what this is doing is it is making the process more 
transparent, and it is putting, yes, a political figure, 
someone who works for the President of the United States, who 
is the executive officer of the United States, and is trying to 
manage a government that he really has a very difficult time 
controlling. There are all these buildings that you look at, 
with all these regulations coming out of these buildings, and 
what is he asking the political officer to do? He is saying: 
``Look, I have got a policy here, I want regulations that have 
some compliance with my Executive Orders. Would you tell me if 
the agency is not going to comply with my Executive Order?'' I 
don't think that that is an unreasonable request.
    And then, finally, over the years, the courts have been 
very clear on Executive Orders and guidance documents. I mean, 
on the guidance documents, Appalachia Power, the D.C. Court of 
Appeals made it very clear, if it has got the force and effect 
of law, it is a regulation, whether you call it guidance or 
regulation. All this Executive Order is trying to do is say it 
doesn't matter whether it is guidance or regulation, let us 
have the public have the right to comment.
    And then, finally, even on the scope of the Executive 
Order, the courts have dealt with these for years, since Harry 
Truman and the Steel Seizure case, if the President is 
legislating, then it is unconstitutional. If the President is 
managing government, then it is within his prerogative, and I 
think that this is--I really thank you for having this hearing, 
because I think that having a discussion over the role of 
agencies and government is really crucial, and I think you are 
doing a great service to everyone.
    Thank you.
    [The prepared statement of Mr. Kovacs follows:]
                Prepared Statement of William L. Kovacs
    Chairman Miller, Ranking Member Sensenbrenner, and Members of the 
Subcommittee, thank you for inviting me here today to testify 
concerning the Administration's amendment to Executive Order 12866 
(which is in the form of E.O. 13422) and the Office of Management and 
Budget's (OMB) Final Bulletin for Agency Good Guidance Practices. I am 
William Kovacs, Vice President of Environment, Technology, and 
Regulatory Affairs at the U.S. Chamber of Commerce. The U.S. Chamber is 
the world's largest business federation, representing more than three 
million businesses and organizations of every size, sector, and region. 
More than 96 percent of the U.S. Chamber's members qualify as small 
businesses.

WHY WE CARE

    As a business federation, the U.S. Chamber is all too familiar with 
the overwhelming regulatory burdens our members face at the hands of 
government regulators. Each year approximately 4,000 new regulations 
are issued by federal agencies, and the Federal Register exceeds 73,000 
pages annually.\1\ Currently, there are more than 110,000 regulations 
in existence,\2\ not including the thousands of guidance documents that 
implement them! Since 1995, more than 44,000 new final rules have been 
issued. The annual cost to implement the Nation's regulatory system 
exceeds the amounts collected from individual income taxes.\3\
---------------------------------------------------------------------------
    \1\ Ten Thousand Commandments: An Annual Snapshot of the Federal 
Regulatory State, by Clyde Wayne Crews, Vice President for Policy and 
Director of Technology Studies at the Competitive Enterprise Institute 
(June 28, 2006).
    \2\ John D. Graham, Administrator of the Office of Information and 
Regulatory Affairs, Testimony before the Subcommittee on Energy Policy, 
Natural Resources, and Regulatory Affairs, U.S. House of 
Representatives (Nov. 17, 2004).
    \3\ Ten Thousand Commandments: An Annual Snapshot of the Federal 
Regulatory State, supra, pg. 6. The amount of individual income taxes 
collected in 2005 was $894 billion, and the amount of corporate income 
taxes collected was $226 billion.
---------------------------------------------------------------------------
    Moreover, the cost of federal regulations to the public is 
estimated to be as high as $1.13 trillion\4\--a cost which equals 
almost half the amount of last year's entire federal budget! \5\ And 
the impact of federal regulations is especially severe on small 
businesses. For example, the annual cost of all federal regulations is, 
on a per employee basis, $7,647 for firms with fewer than 20 
employees--nearly 45 percent higher than the $5,282 for companies with 
500 or more employees.\6\
---------------------------------------------------------------------------
    \4\ The Impact of Regulatory Costs on Small Firms, Report RFP No. 
SBHQ-03-M-0522, by W. Mark Crain, Lafayette College, for The Office of 
Advocacy, U.S. Small Business Administration (Sept. 2005).
    \5\ Budget of the United States Government, Fiscal Year 2005, 
Office of Management and Budget. Accessible at: http://
www.whitehouse.gov/omb/budget/fy2005/.
    \6\ Ibid, footnote 2, page 5.
---------------------------------------------------------------------------
    In addition, the number of paperwork burden hours--hours spent by 
businesses in preparing paperwork imposed by federal regulations--has 
skyrocketed. Last year alone, the number of paperwork burden hours 
imposed on the public exceeded an extraordinary 10.5 billion hours--the 
highest in history--and 2.5 billion hours more than just two years 
ago.\7\
---------------------------------------------------------------------------
    \7\ Paperwork Reduction Act: New Approaches Can Strengthen 
Information Collection and Reduce Burden, U.S. Government 
Accountability Office Report, GAO-06-477T, pg. 7, Washington, DC (Mar. 
8, 2006).
---------------------------------------------------------------------------
    With the regulatory process so increasingly complex and expensive, 
it is easy to understand why Presidents and Congress--both Democrat and 
Republican--have tried, albeit unsuccessfully, to exercise some 
management responsibility over the system. And, similarly, it is hard 
to understand the current fervor over Executive Order 13422 and OMB's 
Final Bulletin for Agency Good Guidance Practices (GGP). The E.O. and 
GGP are merely the latest efforts in a long-term, bipartisan attempt to 
exercise oversight of the regulatory process. Congress certainly would 
not want guidance documents masquerading as regulations, adding cost 
and complexity to the regulatory process and without appropriate public 
review and comment as required by the Administrative Procedure Act 
(APA).
    In my testimony today, I want to make three key points:

        1.  Regulatory reform is not new--rather it has been an ongoing 
        bipartisan effort for more than 30 years;

        2.  E.O. 13422 and GGP are essential tools for the executive 
        branch to exercise oversight over the regulatory process; and

        3.  E.O. 13422 and GGP are part of a larger government effort 
        to ensure and maximize the quality, utility, integrity, and 
        objectivity of information disseminated by the Federal 
        Government.

BACKGROUND

    One of the fundamental cornerstones of good government is ensuring 
that the public has the opportunity to participate in the policy-making 
process. This participation allows the public to have a voice in the 
making of the laws that regulate them. Public participation protects 
citizens from arbitrary decisions by federal agencies by enabling 
citizens to effectively engage in the rule-making process.
    Citizens cannot participate effectively, however, without knowing 
all the facts. Why do we need this rule? How much will it cost to 
implement? How does it fit in with other regulations? Without such 
basic information, citizens are precluded from intelligently voicing 
their concerns. Rules do not operate in a vacuum. As such, their cost 
and impact must be considered in conjunction with other rules.
    Likewise, federal agencies exclude the public by issuing documents 
that are not legally binding, yet effectively regulate people's 
behavior. By calling such documents ``guidance,'' they circumvent the 
public participation requirements guaranteed by the APA. By law, agency 
advisory opinions and guidance documents have no legally binding 
effect. They are merely an agency's interpretation of how the public 
can comply with a particular rule or regulation. Unfortunately, 
however, the use of guidance documents to regulate the public has 
become a common practice. That is, even though guidance documents do 
not have legally binding effect, they have practical binding effect 
when the agencies use them to establish criteria that affect the rights 
and obligations of private persons.
    It is far easier to issue a guidance document than to undergo the 
rigors of rule-making. Consider that rule-makings require internal 
agency review, public participation (including notice and comment under 
the APA), compliance with the analytical requirements of Executive 
Order 12866, the Regulatory Flexibility Act, and the Unfunded Mandates 
Reform Act, OMB review, Congressional review, and potentially judicial 
review. Because of these stringent requirements, agencies have a strong 
incentive to issue rules as less procedurally onerous guidance 
documents that--intentionally or not--cut the public and the regulated 
community out of the process.
    The problem with regulations and guidance documents is symptomatic 
of a larger problem concerning the entire regulatory system. But, over 
the years, efforts have been made to address it.

I.  REGULATORY REFORM HAS BEEN A BIPARTISAN EFFORT

    For years, the Executive and Legislative branches of government--
regardless of party or politics--have tried hard to exercise oversight 
over a cumbersome, complex, and often times inequitable regulatory 
system.\8\ Through a vast array of executive orders and statutes, 
efforts to inject sanity into the regulatory process have made slow, 
but noticeable, progress.\9\ As guidance document abuse became more and 
more prevalent,\10\ however, Congress again intervened to try to 
correct the inequity. In 2000, the House Committee on Government Reform 
adopted a report titled ``Non-Binding Legal Effect of Agency Guidance 
Documents,'' which highlighted agency abuse of guidance documents and 
severely criticized the use of such so-called ``backdoor regulation.'' 
\11\ Still, agencies continued to issue guidance to effectively 
regulate the public. The judicial branch eventually weighed in, with 
courts alerting congress to the problem, and encouraging legislation to 
correct it:
---------------------------------------------------------------------------
    \8\ For example, Executive Order 12044, Improving Government 
Regulations, signed by President Carter in 1978, established 
requirements for centralized review of regulations and the preparation 
of regulatory analyses, and mandated that agencies ``periodically'' 
review existing regulations. Executive Order 12866, Regulatory Planning 
and Review, was signed by President Clinton in 1993 and required 
agencies to review existing regulations to identify which could be 
modified or eliminated. Section 610 of the Regulatory Flexibility Act 
requires federal agencies to review regulations every 10 years to 
determine whether they are meeting their objectives and if they should 
be rescinded.
    \9\ See Appendix A.
    \10\ Perhaps the most notorious example of an agency guidance 
document regulating behavior is EPA's ``Interim Guidance for 
Investigating Title IV Administrative Complaints Challenging Permits'' 
(the so-called ``Environmental Justice'' guidance), which a GAO 
investigation subsequently concluded was a rule disguised as guidance.
    \11\ H. Rep. 106-1009 (106th Cong., 2d Sess. 2000).

         The phenomenon we see in this case is familiar. Congress 
        passes a broadly worded statute. The agency follows with 
        regulations containing broad language, open-ended phrases, 
        ambiguous standards and the like. Then as years pass, the 
        agency issues circulars or guidance or memoranda, explaining, 
        interpreting, defining and often expanding the commands in 
        regulations. One guidance document may yield another and then 
        another and so on. Several words in a regulation may spawn 
        hundreds of pages of text as the agency offers more and more 
        detail regarding what its regulations demand of regulated 
        entities. Law is made, without notice and comment, without 
        public participation, and without publication in the Federal 
        Register or the Code of Federal Regulations.\12\
---------------------------------------------------------------------------
    \12\ Appalachian Power Co. v. EPA, 208 F.3d 1015 (D.C. Cir. 2000) 
(striking down emissions monitoring guidance as legislative rule 
requiring notice and comment). See also, Chamber of Commerce v. Dept. 
of Labor, 174 F.3d 206 (D.C. Cir. 1999) (striking down OSHA Directive 
as legislative rule requiring notice and comment); General Electric Co. 
v. EPA, 290 F.3d 377 (D.C. Cir. 2002) (striking down PCB risk 
assessment guidance as legislative rule requiring notice and comment). 
Even the American Bar Association, recognizing the problem with 
guidance documents, stated in its Annual Report Including Proceedings 
of the Fifty-Eighth Annual Meeting, August 10-11, 1993, Vol. 118, No. 
2, at 57: ``Before an agency adopts a non-legislative rule that is 
likely to have a significant impact on the public, the agency must 
provide an opportunity for members of the public to comment on the 
proposed rule and to recommend alternative policies or interpretations, 
provided that it is practical to do so; when non-legislative rules are 
adopted without prior public participation, immediately following 
adoption, the agency must afford the public an opportunity for post-
adoption comment and give notice of this opportunity.''

    While presidential and Congressional efforts at regulatory reform 
---------------------------------------------------------------------------
have improved the system, much work remains to be done.

II.  THE E.O. AND GGP ARE ESSENTIAL TO EXERCISING OVERSIGHT OVER THE 
REGULATORY PROCESS

    a. E.O. 13422

    When President Bush signed Executive Order 13422, he was expanding 
the scope of E.O. 12866, issued under President Clinton, to include not 
just rules, but also, for the first time, guidance documents. This 
would serve to correct the abuse of guidance documents by federal 
agencies seeking to avoid public participation in the policy-making 
process. Far from being radical, E.O. 13422 merely instructs federal 
agencies to:

        1.  State the reason for the regulation;

        2.  State the cost of the regulation, and an estimate of the 
        combined costs and benefits of all of its regulations planned 
        for that calendar year (to assist with the identification of 
        agency priorities); and

        3.  Have a Regulatory Policy Officer ensure that these 
        requirements have been followed by the agency.

    Perhaps the most talked about requirement in E.O. 13422 has been 
the appointment of a Regulatory Policy Officer (RPO) by the President. 
Critics have declared that this provision is an illegal expansion of 
executive authority because it allows the President to control the 
regulatory agenda. Yet what is it the RPO is tasked to do? First, the 
RPO ensures that any guidance document is not actually a rule--one that 
will regulate public behavior. Second, the RPO ensures that the agency 
has explained the need for a rule, and has looked at the costs and 
benefits of the proposed rule, and the aggregate costs and benefits of 
all the rules being issued by that agency for the year. If it hasn't, 
then the RPO can notify OMB. Is it really so insidious to require 
accountability in our rule-making process?
    Nevertheless, critics continue to decry E.O. 13422 as an 
unwarranted (and possibly unconstitutional) expansion of executive 
power. Yet, without delving into a constitutional law treatise on the 
subject--which is beyond the scope of this testimony--it is certainly 
well settled that the President has the power to make political 
appointments of officers within his own executive agencies.\13\ 
Hysterical claims of unconstitutional ``power grabs'' only serve to 
distract us from the important and sizable problems with the regulatory 
process that E.O. 13422 is intended to address.
---------------------------------------------------------------------------
    \13\ Article II, U.S. Constitution.

---------------------------------------------------------------------------
    b. GGP

    The final version of OMB's GGP bulletin, released simultaneously 
with the President's E.O. 13422, establishes policies and procedures 
for the development, issuance and use of significant guidance documents 
in order to increase the quality and transparency of internal agency 
practices. The purpose of GGP is to ensure that guidance documents of 
Executive Branch departments and agencies are developed with 
appropriate review and public participation, accessible and transparent 
to the public, and not improperly treated as legally binding. The GGP 
also provides a distinction between what does and does not constitute a 
guidance document to provide greater clarity to the public.
    Such criteria are not new. In fact, there is a strong foundation 
for establishing standards for the initiation, development, and 
issuance of guidance documents to improve their quality and 
transparency. The former Administrative Conference of the United States 
(ACUS), for example, developed recommendations for the development and 
use of agency guidance documents.\14\ In 1997, the Food and Drug 
Administration (FDA) created a guidance document distilling its good 
guidance practices.\15\ Congress then codified aspects of the FDA 
document into the Food and Drug Administration Modernization Act of 
1997.\16\ Much of GGP is modeled on the FDA's early efforts.
---------------------------------------------------------------------------
    \14\ ACUS, Rec. 92-2, 1 C.F.R. 305.92-2 (1992).
    \15\ Notice, ``The Food and Drug Administration's Development, 
Issuance, and Use of Guidance Documents,'' 62 FR 8961 (Feb. 27, 1997).
    \16\ Public Law No. 105-115.

III.  E.O. 13422 AND GGP ARE PART OF A LARGER GOVERNMENT EFFORT TO 
INCREASE TRANSPARENCY AND MAXIMIZE THE QUALITY, UTILITY, INTEGRITY, AND 
---------------------------------------------------------------------------
OBJECTIVITY OF INFORMATION DISSEMINATED BY THE FEDERAL GOVERNMENT

    E.O. 13422 and the GGP are part of a long effort by Congress and 
several Administrations to improve the transparency and quality of 
government data and provide effective parameters to guide the 
regulatory activities of federal agencies.\17\ These efforts finally 
coalesced in the passage of the Information Quality Act (IQA) in 2001, 
which serves as the basis for the issuance of the GGP. Were it not for 
a unified commitment to quality data by this and former Administrations 
and Congresses--as exemplified in the passage of the IQA--the GGP would 
not exist today.
---------------------------------------------------------------------------
    \17\ See Appendix A.
---------------------------------------------------------------------------
    In order to understand the connection between GGP and IQA, it is 
helpful to understand what the IQA really is.
    More than any law before it, the IQA served to promote integrity in 
the agency decision making process, and to enhance the accuracy of the 
data underlying government regulatory decisions. It does this by 
creating a mechanism by which the public can challenge poor data. In 
this way, the IQA is a tool for everyone--from industrialists to 
environmentalists--providing equal opportunity to correct faulty 
government data.
    Data quality is a matter of great importance to all of us. For me 
to have confidence that my decisions are sound, I must have good 
information. This is just plain common sense. Similarly, Members of 
Congress must be able to rely on their staff to provide good 
information. Why shouldn't we be able to expect United States 
government agencies to do the same, that is, rely on good information 
when developing regulations and guidelines?
    The IQA seeks to assure that this expectation can in fact be 
realized. It requires federal agencies to ensure and maximize the 
quality, objectivity, utility, and integrity of disseminated 
information and establishes a system whereby interested parties can 
seek correction of erroneous, disseminated information. Ideally, the 
Act improves information quality, and in so doing, provides a firmer 
basis for regulatory authorities to make sound policy decisions. This 
is why the Chamber has been one of the strongest proponents of the IQA.
    At the time of its passage, just like now with the issuance of E.O. 
13422 and the GGP, many critics insisted that the IQA would ``shut 
down'' the regulatory process, result in thousands of regulatory 
challenges, and ultimately rollback environmental, health and safety 
protections in this country. Of course, nothing of the sort occurred. 
In fact, in FY 2005 only 27 IQA petitions were filed with federal 
agencies. And only 12 IQA appeals were handled by federal agencies that 
year--two new appeals, and 10 from FY 2003 and FY 2004.\18\
---------------------------------------------------------------------------
    \18\ 2006 Report to Congress on the Cost and Benefits of Federal 
Regulations and Unfunded Mandates on State, Local, and Tribal Entities, 
OMB's Office of Information and Regulatory Affairs. January 2007.
---------------------------------------------------------------------------
    Nevertheless, even faced with these facts regarding the IQA, there 
are still people that claim the law is an underhanded attempt by 
industry to stymie the regulatory system. It is difficult to understand 
why people wouldn't want regulations based on the most accurate and 
objective available data. It is likely they are the same people that 
are currently decrying E.O. 13422 and GGP, and, consequently, time will 
again prove them wrong. But more importantly, it is essential that 
federal agencies clearly explain to the American public why they are 
issuing rules, and the cost of these rules. For after all, it is the 
American public that must live under these rules, and as a society of 
laws, not of men, it is not unreasonable to ask that our government 
clearly explain to us what they are asking us to obey, particularly 
when disobedience results in severe civil and criminal penalties.

CONCLUSION

    The long-standing debate over regulatory reform will not end today. 
The U.S. Chamber strongly believes that the regulatory reform process 
is critical to ensuring that regulations and guidance documents are 
sound, balanced, cost-effective, and open to the public. Congress must 
not abandon its oversight role in this area, and the U.S. Chamber 
applauds this committee for this hearing today.
    The U.S. Chamber is grateful for the opportunity to present its 
views about this important topic.
                    Biography for William L. Kovacs
    Bill Kovacs provides the overall direction, strategy, and 
management of the Environment, Technology & Regulatory Affairs division 
of the U.S. Chamber of Commerce, the world's largest business 
federation representing more than three million businesses of every 
size, sector, and region.
    Since assuming the position of Vice President in March 1998, Mr. 
Kovacs has transformed a small division that has focused on a handful 
of issues and committee meetings into one of the most significant in 
the institution. Presently, the Environment, Technology & Regulatory 
Affairs division initiates and leads complex, multi-dimensional, 
national issue campaigns for such significant issues as comprehensive 
energy legislation, the permanent storage of spent nuclear fuel, 
telecommunications reform, and the systematic application of sound 
science to the federal regulatory process.
    Throughout his tenure at the U.S. Chamber, Kovacs has focused on 
finding new leadership opportunities for the institution. He pioneered 
the use of cybercasting for Chamber events in 1998, recruited and 
assembled the first science team to work in tandem with policy staff to 
ensure that federal regulations are based on sound science, formed and 
chaired the Chamber's Technology Coordinating Group, and helped to 
develop numerous national coalitions in the areas of environment, 
energy, regulatory affairs, and technology.
    Prior to joining the U.S. Chamber, Kovacs was Director of worldwide 
legal affairs for Sunshine Makers, Inc., manufacturer of the Simple 
Green line of non-toxic cleaning products. Additionally, Mr. Kovacs 
held the position of partner in several Washington, D.C. law firms 
where his practice focused on environmental law.
    As for government service, Kovacs served as Vice Chairman and 
Chairman of the Commonwealth of Virginia's Hazardous Waste Facilities 
Siting Board, as Chief Counsel and Staff Director for the U.S. House of 
Representatives Subcommittee on Transportation and Commerce, and as 
Legislative Director and Counsel for a member of Congress.
    During his tenure as Chief Counsel, Mr. Kovacs was the primary 
counsel on two landmark laws that were enacted in a single session of 
Congress: the Resource Conservation and Recovery Act, the primary 
federal law that regulates solid and hazardous waste; and the Rail 
Revitalization and Regulatory Reform Act that re-organized the bankrupt 
Penn Central Railroad into Conrail, the largest corporate 
reorganization in the United States at the time.
    Mr. Kovacs is a frequent commentator on national environmental, 
energy, and regulatory issues that impact the business community. He is 
regularly quoted in the Nation's leading newspapers and appears on talk 
radio and television as a spokesperson for American business. He is 
listed in Who's Who in the World, Who's Who in America, Who's Who in 
American Law, and Who's Who in Emerging Leaders.
    Mr. Kovacs holds his law degree from the Ohio State University 
College of Law and his Bachelor of Science degree from the University 
of Scranton, magna cum laude.



    Chairman Miller. Thank you, Mr. Kovacs. The Chair, on 
behalf of the Subcommittee, welcomes that endorsement.
    Dr. Melberth.

STATEMENT OF MR. RICK MELBERTH, DIRECTOR OF REGULATORY POLICY, 
                           OMB WATCH

    Mr. Melberth. Thank you, Mr. Chairman.
    You have heard testimony about the Executive Order 
amendment, so I would like to focus my comments on the tools of 
the regulatory process that Mr. Vladeck referred to.
    A great deal of attention has been given to things like 
cost-benefit analysis, risk assessment, peer review and federal 
advisory committees have been the focus of more recent 
attention. The Administration has consistently used regulatory 
tools like risk assessment, peer reviews, and federal advisory 
committees to manipulate science for its own ends, attempted to 
impose a one size fits all framework on the agencies' use of 
these tools, and has shifted the criteria for defining when 
regulations are necessary away from a health and safety problem 
and toward a market-based criteria.
    Cost-benefit analysis is often touted by the Administration 
and conservative think tanks as a neutral tool in policy-
making, but recent studies by legal scholars show that the CBA 
is inherently political. There are several shortcomings in the 
way CBA is used, and these deficiencies have been exacerbated 
by actions during the Bush Administration.
    A second regulatory tool that OIRA tried to manipulate was 
the use of risk assessments. In January 2006, John Graham 
issued OMB's proposed Risk Assessment Bulletin, which contained 
a set of one size fits all guidelines to govern all risk 
assessments, and included technical standards for all federal 
agencies to use when conducting risk assessments, as well as 
other scientific documents.
    The National Research Council's review of the Bulletin 
called for its withdrawal. The rebuke by the NRC is one of the 
strongest commentaries issued on a trend over the last six 
years to centralize power over the regulatory process. The 
strongly worded NRC evaluation should provide a Congress 
interested in executive oversight with a strong example of the 
dangers of this regulatory trend.
    OMB again attempts a one size fits all approach that 
doesn't consider different agency functions and expertise 
required to implement legislation in its use of peer review. 
OMB is a political office working directly for the 
Administration, not an unbiased scientific office, yet the 
agency places itself in the role of supervisor for implementing 
scientific peer review.
    The science community has often argued that by appointing 
people from the regulated industries as members of federal 
advisory committees, as the Bush Administration has 
consistently done, the advice the committees offer to an agency 
might create real dangers to public health and safety. This is 
one example of the growing influence of regulated industries in 
the rule-making process.
    Like the tools discussed above, federal advisory committees 
specifically, and the processes in which they are used, are 
being manipulated to achieve results desired by political 
considerations, not science, health, safety, or environmental 
protection.
    OMB Watch has several concerns about the trends in the 
regulatory process that have occurred over the last few 
decades, such as the reduced governmental role, devolving 
responsibility to the states, and privatization. The Bush 
Administration has further reduced the role of the Federal 
Government's general welfare protections by putting special 
interest concerns above the general public's concerns.
    There has been a sustained attack upon scientific 
integrity, on the quality of scientific information, on the 
scientific expertise of agency professionals, and on the 
integrity of the scientific process. The tools have been 
manipulated, and the Executive Order amendments just issued, 
coupled with the Good Guidance Practices Bulletin, have further 
established control over the regulatory process in the 
executive branch, and OIRA especially, at the expense of both 
Congressional power and agency discretion.
    The real loser, however, is the public. In the end, less 
regulation means less protection. Every year, more than 40,000 
people die on our nation's highways; food-borne illnesses kill 
an estimated 5,000, and sicken 76 million; nearly 6,000 workers 
die as a result of injury on the job, with an additional 50,000 
to 60,000 killed by occupational disease; and asthma, linked to 
air pollution, is rising dramatically, afflicting 17 million, 
including 6 million children.
    I want to leave you with just one example of the danger of 
this regulatory process. The Transportation Recall Enhancement 
Accountability and Documentation Act, TREAD, passed by Congress 
in November 2000, required that ``The Secretary of 
Transportation shall complete a rule-making for a regulation to 
require a warning system in new motor vehicles to indicate to 
the operator when a tire is significantly under-inflated.'' 
Yet, the tire pressure alert system regulations that were 
significantly--that were required by law to be in place by the 
end of 2000 have not been adequately developed, although the 
National Highway Transportation Safety Administration 
determined in its rule-making that a direct tire pressure 
monitoring system should be installed in new vehicles.
    But OMB sent a letter to NHTSA, after meeting with the auto 
industry, directing--deciding that the direct system was 
inappropriate, claiming its cost-benefit calculations provided 
a basis for delaying the requirement of the direct systems. The 
final rule, issued May 2002, would have allowed lawmakers, I am 
sorry, would have allowed automakers to install ineffective 
tire pressure monitoring systems, and would have left many 
drivers unaware of the dangerously under-inflated tires. NHTSA 
was sued because its final rule would have allowed 
manufacturers to choose to install either an effective direct 
system or an inferior indirect system.
    In August 2003, the U.S. Court of Appeals for the Second 
Circuit ordered NHTSA to rewrite the rule, because NHTSA acted 
in an arbitrary and capricious manner by writing a standard 
that would allow installation of a clearly faulty indirect 
system.
    Thank you, Mr. Chairman. I see my time is up.
    [The prepared statement of Mr. Melberth follows:]
                  Prepared Statement of Rick Melberth
Mr. Chairman and Members of the Subcommittee:

    Thank you for the opportunity to testify before you today. I am 
Rick Melberth, Director of Regulatory Policy for OMB Watch. OMB Watch 
is a nonprofit, nonpartisan research and advocacy center promoting an 
open, accountable government responsive to the public's needs. Founded 
in1983 to remove the veil of secrecy from the White House Office of 
Management and Budget, OMB Watch has since then expanded its focus 
beyond monitoring OMB itself. We currently address four issue areas: 
right to know and access to government information; advocacy rights of 
non-profits; effective budget and tax policies; and the use of 
regulatory policy to protect the public.
    My testimony focuses on 1) the amendments to E.O. 12866 and the 
impacts of the amendments, 2) the manipulation of the analytical tools 
used in the regulatory process as part of a broader assault by this 
administration, and 3) a brief description of actions Congress might 
take to minimize the impact of the changes just enacted.

I.  Amendments to E.O. 12866: Executive Order 13422

    On January 18, President Bush issued amendments to Executive Order 
(E.O.) 12866, which further centralize regulatory power in the Office 
of Information and Regulatory Affairs (OIRA) in the Office of 
Management and Budget (OMB) and shift it away from the federal agencies 
given this power by legislative enactments. It is another brick in the 
foundation this administration has been building for a unitary theory 
of the presidency, one in which the executive is superior to the other 
branches in our constitutional system and one in which the White House 
exhibits significant control.
    We are particularly concerned with three aspects of the amendments: 
the identification of ``market failure'' as the first principle in 
promulgating regulations, the designation of a presidential appointee 
as the Regulatory Policy Officer in each agency covered by the E.O., 
and the requirement that significant guidance documents undergo nearly 
the same OIRA review process required of significant regulations. 
Attached to this testimony is a copy of our analysis of the amendments. 
I want to focus on these three aspects here.

A.  The Market Failure Criterion

    Through amending the regulatory process, the President is 
institutionalizing an anti-regulatory approach by using a market 
failure criterion in place of actually identifying threats to public 
health and safety. It diminishes standards Congress may require 
agencies to use, such as the best control technology, by elevating a 
new market failure standard that Congress has never required.
    The market failure criterion is yet another layer added to the 
agency analysis. The agency must comply with statutory criteria (such 
as best available technology) as well as perform an analysis 
demonstrating market failures. If the agency meets OMB's standards for 
assessing ``whether any new regulation is warranted,'' then the agency 
must also comply with other standards in the E.O., including cost-
benefit analysis. We believe this new standard decidedly favors the 
regulated community and places another hurdle for agencies to 
promulgate health, safety, and environmental regulations, and creates 
more delay.
    In addition, the language of the amendments makes clear that this 
economic test is front and center in the review process. Compare the 
language:



    Not only is the market failure test a primary consideration, but 
the agency's description of the problem will be used to ``enable 
assessment of whether new regulation is warranted.'' This clearly 
forces the agency to think again about whether the best course is to do 
nothing and provides OIRA with another justification, or assessment, 
for halting or delaying regulations. The regulatory process set out in 
the executive order applies after Congress has passed legislation 
having determined that a problem existed and needed to be addressed. 
Under the amendments, agencies are directed to ask that same question 
again: is the problem worth addressing? Moreover, OIRA's assessment of 
whether any new regulation is warranted raises the question of whether 
OMB intends to supersede legislative intent when the market failure 
test does not met OIRA's satisfaction. Although Congress may have 
already legislated, without the implementing regulation, the 
legislation may not be able to be executed. Thus the executive branch 
has assumed a legislative function.
    Adding the market failure criterion challenges the role of 
Congress. Theoretically, employees could contract with employers for a 
certain level of risk in their jobs. Nevertheless, Congress has passed 
workplace safety regulations (as well as consumer protections, 
environmental protections, and economic protections to help markets 
function better for businesses) where markets might have resolved 
problems if given time. As Georgetown University law professor Lisa 
Heinzerling wrote: ``Judging regulations implementing these laws based 
on whether the regulations respond to 'market failure' misunderstands 
the premises of many of the laws Congress enacts.'' In short, there are 
multiple contexts in which Congress might justify taking legislative 
action, market failure being only one.
    The supporters of using the market failure criterion believe the 
free market will supply the protections the American people want 
without government intervention. Susan Dudley, one of these free market 
advocates and the nominee to head OIRA, would have preferred to leave 
safety to the unsteady hand of the market, hypothesizing that ``[i]f 
air bags protect lives, and consumers demand them, it is reasonable to 
assume that automobile manufacturers would have installed air bags in 
the absence of federal requirements to do so.'' \1\ According to 
Dudley, federal action requiring air bags in cars was unnecessary 
because the market would have provided air bags to the public absent 
regulation.
---------------------------------------------------------------------------
    \1\ Susan E. Dudley, Regulatory Studies Program Comments: Advanced 
Air Bags 7 (Dec. 17, 1998), available at http://mercatus.org/
repository/docLib/MC-RSP-PIC1998-
04-NHTSAAirBags-981130.pdf.
---------------------------------------------------------------------------
    OMB Watch believes that the market failure criterion is a 
furtherance of the economic criteria which OIRA has increasingly 
required as justification for taking regulatory action. OIRA has 
substituted economics for all other values the American public has 
consistently said to be important to them.

B.  The Regulatory Policy Officer (RPO)

    The amendments require each agency to have a Regulatory Policy 
Office run by a political appointee and that ``no rule-making shall 
commence nor be included'' for consideration in the agency's regulatory 
plan without the political appointee's approval. This will further 
politicize the rule-making process and provide more White House control 
over the agency rule-making process.
    Section 4(c) The Regulatory Plan, is amended to place this 
regulatory planning authority directly in the RPO's hands. The language 
is changed from

         The Plan shall be approved personally by the agency head and 
        shall contain at a minimum:

to

         Unless specifically authorized by the head of the agency, no 
        rule-making shall commence nor be included on the Plan without 
        the approval of the agency's Regulatory Policy Office, and 
        shall contain at a minimum:. . .

                 (B) A summary of each planned significant regulatory 
                action including, to the extent possible, alternatives 
                to be considered and preliminary estimates of the 
                anticipated costs and benefits of each rule as well as 
                the agency's best estimate of the combined aggregate 
                costs and benefits of all its regulations planned for 
                that calendar year to assist with the identification of 
                priorities; [emphasis added].

    The amendments add the highlighted language which requires not only 
significantly more analysis by the agencies because of the ``best 
estimates'' requirement, but also provides a basis to allow the RPO to 
establish priorities.
    A similar approach was attempted by President Reagan through his 
E.O. 12498, the Regulatory Planning Process, which was issued January 
4, 1985. Under E.O. 12498, agencies were to get approval from OMB prior 
to starting a rule-making--a pre-rule-making review. Many in the 
business community thought this would be a wonderful approach for 
choking off agency ideas before they ever really got going. That 
approach, however, proved too cumbersome and difficult to administer. 
In short order it failed.
    The new Bush E.O. amendments have the same objective, but put the 
choke-hold in the agencies, instead of at OMB. To ensure that the 
process works, the amendments grant authority to these new political 
appointees to be the eyes and ears for OMB. And it again mounts a 
challenge to congressional authority. In writing legislation, Congress 
often directs agencies to initiate a rule-making. The presence in the 
agencies of these appointees by whom rule-making must now be initiated 
creates a process that is as if Congress had not directed the agencies 
to act, or as if that direction is irrelevant if the White House 
appointees disagree with it.
    A civil servant reacting to the new amendments provided an agency 
perspective (http://fromthearchives.blogspot.com/2007/01/long-and-
esoteric-twice-in-one-day-just.html).

         From the perspective of a low level bureaucrat looking up the 
        line, there are two big problems with this, independent of 
        ideology.

         The first is simple. I just don't want to add a single step 
        that adds time to management review. Honestly, you'd be shocked 
        how long it takes for us to get anything through management 
        review. Anything we release to the public, including our non-
        controversial, small scale documents, must go through six (6) 
        levels of review. We schedule three to four weeks for 
        management review. Yeah. Three days on each desk, if we give 
        them advance notice that our stuff will be coming. If we were 
        doing controversial stuff, it would be longer. If we had to 
        route through one additional back-logged office? If they were 
        far away, and my boss man couldn't chat with them to prep them 
        for the document, and we were just another insignificant office 
        on the west coast? I can't even guess.

         But the more important reason is that a distant political 
        appointee, even assuming that she is not a partisan hack and 
        that she is interested in the topic and not using the office as 
        a stepping stone, would know exactly the wrong amount. Anyone 
        at a distance from the process can only know enough to be 
        dangerous. When we go to write anything that tells people what 
        they have to do, there is an intricate multi-year negotiation 
        between everyone involved. There are drafts, and comments, and 
        drafts, and workshops, and drafts, and internal meetings, and 
        drafts, and formal written comment, and more drafts. Usually, 
        in the end, you will come down to very awkwardly written 
        compromises that no one will sue you for.

         Every word in there was hard fought. People snorted and sat 
        back at the table with their arms crossed. We changed it until 
        no one threatened to call their congress person any more. We 
        explained to them why we have to implement the law that way, 
        and caved when we couldn't get more, or when we were wrong. We 
        brought in someone's good idea. I know how people laugh at 
        ridiculous regulations, but I swear they didn't get to be 
        ridiculous because no one was thinking. They're ridiculous 
        because the topics are complicated, and we have to accommodate 
        widely divergent views, and because there were so many 
        iterations.

         Anyway, a political appointee who wasn't there for the painful 
        years of writing regulations can only disrupt a very precarious 
        balance. . .. Unless she was there, she can only make things 
        worse. I don't want her in the loop.

    Even worse, if the political appointee is a ``partisan hack,'' then 
the integrity of the science may be compromised. The regulatory process 
is a complex one that involves agency experts of all types. Imagine if 
a political appointee were to shape the regulatory options from the 
start: invariably the outcomes would be skewed.
    There are two concerns with the Regulatory Policy Officer approach. 
First, OIRA may be creating political outposts in each agency thereby 
magnifying its impact. The amendments to the E.O. allow OIRA to play an 
active role during the pre-rule-making stage when agencies are 
formulating annual plans for regulatory activities. OIRA will be able 
to quash any contemplated regulatory or guidance issues before agencies 
propose them for the Regulatory Plan. Under the amended E.O., OIRA can 
now engage the agency, along with other government personnel (as 
provided for in one amendment), in reaching a ``common understanding'' 
on regulatory efforts.
    Second, the content to be collected raises questions about 
priorities. Collecting cumulative costs and benefits leads to little 
more than comparing apples and oranges. And what value does this 
information provide to policy-makers? We believe this is leading to the 
creation of regulatory budgets which would be used to determine the 
regulatory agenda without congressional approval. Using these budgets, 
regulation proceeds on a cost effectiveness basis only, with agencies' 
budgets ranked by total costs and benefits. It completely divorces 
policy-making from the need for health, safety and environmental 
protections.

C.  Guidance Document Review

    The amendments issued to E.O. 12866 require review by OIRA of 
agencies' guidance documents for the first time. These documents are 
issued to clarify how regulated parties are expected to implement 
legally binding regulations. By subsuming guidance documents into a 
review process almost identical to the review process OIRA uses to 
review and approve regulations, the extent of OIRA's reach into 
agencies' responsibilities will be at an all-time high.
    By requiring agency guidance documents to come under OIRA review, 
and to treat ``significant'' guidance in the same way as 
``significant'' regulations, the E.O. amendments will lead to further 
delay in providing information to the public about compliance with 
regulations, as well as with general guidance on agency policies.
    If it is true that more and more agencies are using guidance as a 
means of avoiding the regulatory process, then that should be a signal 
to Congress and the public that the rule-making process is seriously 
flawed. If agencies are looking for faster ways of doing their job and 
have turned to guidance, the solution is certainly not to require 
guidance to go through the same regulatory process that agencies were 
trying to avoid in the first place.
    The Final Bulletin for Agency Good Guidance Practices, issued the 
same day as the E.O., defines guidance documents to include 
``interpretive memoranda, policy statements, guidances (sic), manuals, 
circulars, memoranda, bulletins, advisories, and the like.'' Federal 
agencies issue thousands and thousands of guidance documents each year 
relating to hundreds of different types of activities. All of these 
documents deemed significant will now come under review by OIRA's staff 
of 55 people.
    The fourth part of the ``significant guidance document'' 
definition, whether the issue raises ``novel legal or policy issues 
arising out of legal mandates, the President's priorities, or 
principles set forth in this Executive order,'' is nearly broad enough 
to permit OIRA to sweep into its review any guidance it wishes to 
review.
    Section I.5 of the Bulletin adds a further category of guidance 
document, the ``economically significant guidance document'' which is:

         ``a significant guidance document that may reasonably be 
        anticipated to lead to an annual effect on the economy of $100 
        million or more or adversely affect in a material way the 
        economy or a sector of the economy, except that economically 
        significant guidance documents do not include guidance 
        documents on federal expenditures and receipts.''

    The definitions of both significant and economically significant 
guidance documents include documents that ``may reasonably be 
anticipated to lead to'' certain conditions. The Bulletin ``makes clear 
that the impacts of guidance often will be more indirect and attenuated 
than binding legislative rules.'' In other words, it will be even 
easier to reasonably anticipate that a guidance document will have a 
significant effect on the economy than will a regulation. The 
reasonable people doing the anticipating no doubt work for OIRA.
    Furthermore, according to the Bulletin, the ``relevant economic 
impacts include those that may be [emphasis added] imposed by federal 
agencies, State, or local governments, or foreign governments that 
affect the U.S. economy, as well as impacts that could arise from 
private sector conduct.'' This creates a largely speculative analysis 
to be conducted by the agencies even assuming reasonably anticipated 
effects by a third parties. The Bulletin does not, however, require a 
formal regulatory impact analysis, so it is unclear just how this 
determination is to be conducted.
    The example cited in the Bulletin of an economically significant 
guidance document is an agency pronouncement that a particular product 
or substance is unsafe. In this instance, ``Unless the guidance 
document is exempted due to an emergency or other appropriate 
consideration, the agency should observe the notice-and-comment 
procedures.'' The determination that a substance or product is unsafe 
involves some scientific assessment. This provides an example of OIRA 
reviewing a scientific conclusion and having the opportunity to 
substitute an economic analysis for a scientific one. This 
substitution, or even second-guessing the scientific judgment, could 
lead to substantial delays in protecting the public.
    In the end, the review of guidance documents by OIRA will simply 
result in more delay and more White House control over the substantive 
work of the agencies. It will inevitably lead to a usurpation of 
agencies' powers.

II.  Manipulation of Regulatory Tools

    A great deal of attention has been given to the tools of the 
regulatory process, especially cost-benefit analysis (CBA). More 
recently, risk assessment (RA), peer review, and federal advisory 
committees (FAC) have also been the focus of attention from a 
regulatory standpoint. I want to address each of these briefly and to 
convey to the members that these tools have been manipulated by OIRA 
and Administration appointees to achieve results-oriented processes and 
biased decisions that have delayed, dismantled or diminished public 
protections.

A.  Cost-benefit Analysis

    CBA is a policy-making tool by which the costs of imposing a 
regulation are weighed against the potential benefits of reducing the 
harm. For example, in the case of pollution regulation, cost is 
generally construed as the cost of implementing technology to comply 
with regulation. These costs are more easily quantifiable than other 
factors, although some evidence exists that costs are often inflated.
    The benefits of a regulation require two separate analyses: an 
assessment of the risk posed by the harm in question as well as a 
monetization of the potential benefits. Both factors prove to be 
difficult to calculate; many benefits resist monetization, and risk 
assessments can be hindered either through incomplete data sets or a 
large degree of indeterminable factors. In order to estimate the health 
effects of a regulation, for example, agencies generally must rely on 
laboratory data on other species or on human experience with much 
higher levels of exposure. To extrapolate from this data the potential 
benefits of a regulation requires a large degree of guesswork, and 
agencies often come up with wide ranging numbers on the potential 
health benefits.
    CBA is often touted by the Administration and conservative think 
tanks as a neutral tool in policy-making, but recent studies by legal 
scholars show that CBA is inherently political and may even advise 
against what we consider our most immutable public protections.\2\
---------------------------------------------------------------------------
    \2\ See, for example, Lisa Heinzerling, Frank Ackerman and Rachel 
Massey's ``Applying Cost Benefit Analysis to Past Decisions: Was 
Environmental Protection Ever a Good Idea?,'' David Driesen's ``Is 
Cost-Benefit Analysis Neutral?,'' and Richard Parker's ``Is Government 
Regulation Irrational? A Reply to Morall and Hahn.''
---------------------------------------------------------------------------
    I would argue that there are several shortcomings in the way that 
CBA is used, and these deficiencies have been exacerbated by actions 
during the Bush Administration:

          The overriding criterion of CBA is efficiency, but 
        efficiency doesn't mean fairness. The net benefit calculation 
        that results from using CBA is without regard for who wins and 
        who loses, and without regard for any public participation. 
        This focus on efficiency is critical to business but doesn't 
        work for government because there is no single, public sector 
        measurement comparable to profit maximization in the private 
        sector.

          CBA tends to overestimate costs for a variety of 
        reasons. Agencies generally rely on the regulated industries to 
        provide them with costs of compliance over a certain number of 
        years. Studies show compliance costs drop after regulation due 
        to the decline in the costs of technology (like pollution 
        controls), management efficiencies, and business innovations. 
        These cost savings, however, are not calculated into the 
        analysis generally; and CBA takes a snapshot of one point in 
        time resulting in a static analysis.

          The major objection I have to relying on CBA as the 
        determinative factor in rule-making is that it does such poor 
        job of calculating benefits. How do you monetize benefits like 
        clean drinking water, good health, being alive? There are 
        certain values we hold dear that cannot be adequately 
        monetized. A decision making process that doesn't provide for 
        the expression of these non-quantifiable benefits is critically 
        flawed.\3\
---------------------------------------------------------------------------
    \3\ See for example, Heinzerling and Ackerman's Priceless: On 
Knowing the Price of Everything and the Value of Nothing. NY: The New 
Press, 2004. Chapter 2.

    CBA has been part of the rule-making process since the Reagan 
Administration. Prof. Sally Katzen spoke at a September 2006 panel on 
presidential rule-making and stated that, although E.O. 12866 kept the 
CBA requirements of the earlier Reagan era executive orders, during her 
---------------------------------------------------------------------------
tenure as OIRA Administrator,

         we explicitly recognized that non-quantifiable costs and 
        benefits are essential to consider. That not everything can be 
        counted and it is very important to take into account those 
        things which can't be counted. We also made it clear that this 
        economic analysis was not dispositive, but simply 
        informative.\4\
---------------------------------------------------------------------------
    \4\ Panel 4: A PRESIDENTIAL REVIEW OF RULE-MAKING: REAGAN TO BUSH 
II. Part of a symposium on ``Presidential, Congressional, and Judicial 
Control of Rule-making,'' conducted at the Congressional Research 
Service on September 11, 2006 as part of the Administrative Law project 
of the Subcommittee on Commercial and Administrative Law of the House 
Judiciary Committee.

    In the hands of the Bush Administration, and particularly in those 
of John Graham, OIRA Administrator from 2001-2006, CBA has risen to a 
position of primacy in the rule-making process. In September 2003, OIRA 
issued final guidance that instructed federal agencies on specific 
analytical methods for regulatory decisions. This guidance committed 
agencies to increased emphasis on cost-effectiveness analysis as well 
as benefit-cost analysis and raised the bar on new health, safety and 
---------------------------------------------------------------------------
environmental protections. Specifically, the guidance

          pushes for health and safety benefits to be expressed 
        in terms of dollars and cents, so agencies can calculate and 
        demonstrate ``net benefits'' (benefits minus costs);

          uses cost-effectiveness analysis which does not 
        monetize benefits. Rather, it looks at the ratio of costs to 
        units of benefits (i.e., number of lives saved). The Clinton 
        guidance allowed agencies to use cost-effectiveness analysis in 
        place of a ``net benefits'' analysis if they have difficulty 
        monetizing. The new guidance requires both types of analyses 
        for all major health and safety rules.

          requires discounting of lives saved in the future. 
        ``Discounting''--already common practice in monetizing 
        benefits--rests on the premise that a life saved today is worth 
        more than a life saved tomorrow. The further in the future a 
        life is saved as a result of regulatory action today, the more 
        it will be discounted from its ``present value,'' and the less 
        likely the action will pass a cost-benefit test.

          promotes use of ``life years'' in evaluating fatality 
        benefits. Agencies commonly base benefit estimates on the 
        ``value of a statistical life'' (VSL), drawn from the number of 
        lives expected to be saved by regulatory action. On top of VSL 
        estimates, OIRA's guidance asks agencies to consider using 
        ``value of statistical life years'' (VSLY), which looks at the 
        number of life years saved as opposed to the number of lives. 
        This would skew against protections for the elderly, who have 
        fewer life years remaining.

    These CBA and cost-effectiveness requirements are offensive for the 
devaluation of lives, health and safety. Elderly and minority 
communities frequently suffer the consequences of a lifetime's exposure 
to industrial contaminants, including heart or lung failure from smog 
and soot, and cancer from toxic chemicals. Tens of thousands die 
prematurely every year as a result. They are offensive also for their 
elevation of economic and statistical manipulation that results in 
extremely high barriers to implementing public protections under the 
guise of regulatory relief for special interests.

B.  Risk Assessment (RA)

    A second regulatory tool that OIRA tried to manipulate was the use 
of risk assessments. In January 2006, Graham issued OMB's Proposed Risk 
Assessment Bulletin (RAB) which contained a set of guidelines to govern 
all risk assessments and included technical standards for all federal 
agencies to use when conducting risk assessments, as well as other 
scientific documents. The OMB guidelines would apply to risk 
assessments conducted as part of issuing or revising health, safety and 
environmental rules, as well as important scientific studies. OMB asked 
the National Research Council (NRC) to review the document after its 
release. NRC suggested the Bulletin be withdrawn completely.
    The NRC defined RA as ``the qualitative or quantitative 
characterization of the potential health effects of particular 
substances on individuals or populations.'' There are components to 
conducting a public health RA: hazard identification, dose-response 
assessment, exposure assessment, and risk characterization.\5\ Even 
without knowing the scientific definitions of these terms, it's clear 
from the definition and its elements that a risk assessment is an 
evaluative process.
---------------------------------------------------------------------------
    \5\ National Research Council. 1983. Risk Assessment in the Federal 
Government: Managing the Process. Washington, DC: National Academies 
Press. This publication established the parameters for using RA.
---------------------------------------------------------------------------
    In its review of the RAB, the Council found that OMB's new 
definition of risk assessment was ``too broad and in conflict with 
long-established concepts and practices.'' The Bulletin defined a risk 
assessment as a document instead of a process and the goals outlined, 
when considered together, indicated ``that a risk assessment should be 
tailored to the specific need for which it is undertaken.'' The 
emphasis, according to the NRC evaluation, was on efficiency over 
quality and stated that the goals outlined did not ``support the 
primary purpose of the bulletin--to enhance the technical quality and 
objectivity of risk assessments.''
    The report also recommended that OMB leave technical risk 
assessment guidelines and standards to each federal agency because one 
size does not fit all when it comes to risk assessments. The Council 
stressed concerns over ``the likely drain on agency resources, the 
extended time necessary to complete risk assessments that are 
undertaken, and the highly likely disruptive effect on many agencies.''
    As OMB has done with other regulatory tools, the risk assessment 
approach called for in this release would have created unnecessary 
delays in the rule-making process by adding to the already cumbersome 
process that OMB oversees. The ability of government agencies to 
protect the public would be compromised by attempts to manipulate 
science and the risk assessment process. For example, the proposed 
standards called for the use of central estimates or tendencies instead 
of statistical ranges. Using this approach puts the most vulnerable 
populations, who fall outside these ``central estimates,'' at risk in 
some analyses.
    The rebuke by the NRC is one of the strongest commentaries issued 
on the trend over the last six years to centralize power over the 
regulatory process within OMB and move it away from agencies 
responsible for protecting health, safety and the environment. The 
Administration has consistently used regulatory tools like RA to 
manipulate science for its own ends, attempted to impose a one-size-
fits-all framework on the agencies' use of these tools, and has shifted 
the criteria for defining when regulations are necessary away from a 
health or safety problem and toward market-based criteria. The 
strongly-worded NRC evaluation should provide a Congress interested in 
executive oversight with a strong example of the dangers of this 
regulatory trend.

C.  Peer Review

    As happened with the two tools described above, OMB developed a 
bulletin establishing government-wide requirements for scientific peer 
review. The Final Information Quality Bulletin for Peer Review was 
issued December 2004 after OMB took comments from the public regarding 
a proposed bulletin that was issued in April 2004. OMB again attempts a 
one-size-fits-all approach that doesn't consider different agency 
functions and expertise required to implement legislation. In the final 
bulletin, OMB asserts that its authority for the peer review policies 
is implied in the Information Quality Act and OMB's general 
authorities. None of the laws or executive orders referenced provide 
any specific instructions on peer review. No new authority is 
referenced by the agency and OMB did not seek any clarifying or 
supporting language from Congress.
    In OMB Watch's comments on the proposed bulletin, we argued that 
OMB had not identified a peer review problem that justified this 
government-wide approach. OMB implied that a problem had been 
identified and defined by citing several studies and reports. However, 
none of these documents actually claim that an overarching problem or 
failure of peer review policies has occurred at federal agencies. Nor 
do the studies recommend the establishment of uniform requirements for 
scientific peer review. Instead, the referenced materials address the 
importance of peer review, the need for changes at certain agencies, or 
types of reviews. Yet, without a clear understanding of any problem in 
peer review standards, OMB finalized these policies assuming they will 
do more good than harm.
    OMB granted itself an oversight role in the peer review process. 
OMB has never overseen peer review and holds very little scientific or 
peer review expertise--only a handful of recently-hired scientists. 
This grant of authority involves OIRA personnel in the technical and 
scientific discussions that often lead to a pre-rule-making process. 
This part of the regulatory process is already dominated by OIRA's 
gatekeeper function by which it develops acceptable agency rule-making 
submissions even before the public process.
    OMB is a political office working directly for the Administration, 
not an unbiased scientific office. Yet, the agency places itself in the 
role of supervisor for implementing scientific peer review. OMB Watch 
recommended oversight authority to an objective scientific body, such 
as the National Academy of Sciences or an interagency review panel.
    In the final peer review bulletin, OMB solidified its new oversight 
role for scientific peer review. OMB has the authority to grant 
exemptions, approve alternative peer review processes, and designate 
information for stricter review requirements. The final proposal also 
adds a stipulation that all federal agencies submit an annual report to 
OMB detailing the use of peer review for the fiscal year. OMB Watch 
continues to believe that the bulletin grants far too much influence 
over the scientific peer review process to the politically motivated 
offices of OMB and the Office of Science and Technology Policy. Such 
power would enable an administration to easily influence peer reviews 
and in turn, the rule-makings that follow.
    For the most important peer reviews, OMB created a double standard 
in which agency employees, who may peer review more basic information, 
are essentially barred from serving as reviewers. However, experts 
associated with affected industries are allowed to serve as peer 
reviewers with only a requirement that their affiliations be disclosed. 
Highly influential scientific information has much stricter peer review 
requirements, and OMB explicitly states that government employees 
should rarely be used as reviewers. The final proposal bans any experts 
from the sponsoring agency from reviewing information, but makes an 
exception for the ``rare situation in which a scientist from a 
different agency of a Cabinet-level department other than the agency 
that is disseminating the scientific assessment has expertise, 
experience and skills that are essential but cannot be obtained 
elsewhere.'' The unequal standards for private sector scientists 
remains, but the final bulletin instructs agencies to ``consider 
barring participation by scientists with a conflict of interest.''
    The peer review process outlined in the final bulletin creates 
delay by excessive bureaucratic information requirements and 
certifications, and rounds of public comments. While we generally 
support providing public access, the very definition of a peer review 
is to collect assessments from experts. Adding repeated public comment 
periods is inappropriate for peer reviews and can only result in 
delaying important research.

D.  Federal Advisory Committees (FAC)

    There are many instances during the Bush Administration in which 
candidates for advisory panels have been passed over, or members 
replaced, or resigned. While it is common for new administrations to 
replace members of these committees, there is a trend towards making 
sure that those people who might disagree with the Administration's 
opinions are not appointed. The scientific community has often argued 
that by appointing people from the regulated industries as members of 
these committees, as the Bush Administration has done consistently, the 
advice the committees offer to an agency might create real dangers to 
public health and safety.
    In the fall of 2002, a series of reports and articles began to be 
published charging the Administration with manipulation of these 
committees to assist hazardous substances manufacturers especially.\6\ 
According to DefendingScience.org, a website of The Project on 
Scientific Knowledge and Public Policy,
---------------------------------------------------------------------------
    \6\ David Michaels, Eula Bingham, et al. ``Advice Without 
Dissent,'' Science, Vol. 298, 25 October 2002. p.703. 
(www.sciencemag.org, or http://www.defendingscience.org/
public-health-regulations/upload/Advice-Without-
Dissent.pdf).

         Groups accused the Bush Administration of manipulating 
        activities in two federal committees advising the Centers for 
        Disease Control and Prevention's National Center for 
---------------------------------------------------------------------------
        Environmental Health (NCEH).

                  Several well-respected scientists were 
                dropped from the Pediatric Lead Poisoning Prevention 
                Panel. Nominees suggested by staff scientists at CDC 
                were rejected and replaced by individuals who later 
                reported that the lead industry had contacted them 
                initially to ask if they would be willing to serve on 
                the committee.

                  Scientists employed by the chemical industry 
                or industry advocacy groups, including the Heritage 
                Foundation and the Annapolis Institute (established in 
                1993 by the National Association of Manufacturers to 
                challenge EPA proposed regulations) replaced 15 of 18 
                renowned university-based scientists on the advisory 
                committee to the Director of NCEH.

    We've begun to see more resignations by respected scientists as 
these FACs have become more politicized. For example, last October, 
three of the fifteen members of the EPA's National Pollution Prevention 
and Toxics Advisory Committee (NPPTAC) resigned because they felt major 
problems with the Toxic Substances Control Act were not being addressed 
due to industry influence.
    The impacts of this political approach to using FACs are real 
dangers to public health, safety and the environment. One example was 
provided in the February 6, 2007 testimony before the Senate Committee 
on Environment and Public Works of Dr. John Balmes, testifying on 
behalf of the American Lung Association.\7\ The focus was on the 
changes EPA has made to the scientific review process for the National 
Ambient Air Quality Standards (NAAQS). EPA's Clean Air Scientific 
Advisory Committee (CASAC) participates in the review process of these 
standards. The review was a multi-step process the end of which was a 
Staff Paper reviewed by CASAC and open to public comment. According to 
Dr. Balmes testimony, `` [m]any regard the preparation and finalization 
of the Staff Paper, which is done by EPA's scientific staff, as the 
most crucial step'' because it is the final analysis of the scientific 
information on which standards are based. It is not a political 
process.
---------------------------------------------------------------------------
    \7\ Dr. John Balmes testimony before the U.S. Senate Environment 
and Public Works Committee, February 6, 2007. Available at http://
epw.senate.gov/public/
index.cfm?FuseAction=Hearings.Hearing&Hearing-ID=78a52250-
802a-23ad-4274-59a54b06a447
---------------------------------------------------------------------------
    According to Dr. Balmes testimony:

         It is the elimination of the Staff Paper that we fear will 
        lead to the diminishment of science in the standard setting 
        process. The staff paper is to be replaced with a ``Policy 
        Assessment'' which according to a memorandum by EPA's Deputy 
        Administrator Peacock, ``reflect the Agency's views, consistent 
        with EPA's practice in other rule-makings.'' However, the EPA 
        does not set standards exclusively based on the protection of 
        health using the latest scientific research in any other rule-
        making. In sum, a unique standard demands a unique process, not 
        EPA's ``usual'' practice. We believe the elimination of the 
        Staff Paper is being done precisely because the science 
        underlying protection of public health from air pollution is in 
        conflict with what policy-makers in EPA want to do in the 
        implementation of the Clean Air Act. The elimination of the 
        Staff Paper will make it easier for policy staff to fuzz the 
        lines in public health protection and present the basis for 
        alternative standards and the alternatives themselves in a way 
        that favors the outcomes they are seeking rather than what the 
        science says is needed. Substituting an Advanced Notice of 
        Proposed Rule-making for the Staff Paper will put policy 
        make[r]s (sic) at EPA and the White House in the driver'[s] 
        (sic) seat by enabling them to review and edit before it is 
        reviewed by CASAC and the public.

    The process has been specifically influenced by the American 
Petroleum Institute which suggested the Staff Paper be replaced with an 
Advanced Notice of Proposed Rule-making, which the EPA has adopted. And 
the lead industry recommended that the Staff Paper be replaced by a new 
Policy Assessment which argues that lead should be eliminated as a 
criteria pollutant.
    This is one example of the growing influence of regulated 
industries in the rule-making process. Like the tools discussed above, 
FACs specifically, and the processes in which they are used, are being 
manipulated to achieve results desired by political considerations, not 
science, health, safety, or environmental protection.

E.  Information Quality Act

    The final issue I would like to address briefly is the Information 
Quality Act (IQA), or as it is often called, the Data Quality Act 
(DQA). This is an issue in the discussion of manipulation of regulatory 
tools because the guidelines issued by OMB regarding the use of the DQA 
has led to delays in the promulgation of public protections through 
challenges to the science agencies rely on to fulfill their mandates.
    The DQA allows challenges to the information disseminated by 
agencies that can dilute, dismantle and remove essential pieces of the 
scientific information that go into creating a body of scientific 
knowledge. OMB published a report in 2004 evaluating the first year of 
implementation of DQA, a report that OMB Watch criticized as 
``inaccurate,'' ``misleading,'' and ``flawed.'' OMB understated the 
number of challenges, the source of those challenges (mostly industry), 
and drew conclusions about the impact of the DQA without the data to 
support its conclusions. OMB Watch's analysis shows that the Act has 
had a significant impact on agency actions, yet the law was added as a 
last minute rider without Congressional hearings.\8\
---------------------------------------------------------------------------
    \8\ OMB Watch. The Reality of Data Quality Act's First Year: A 
Correction of OMB's Report to Congress. July 2004. Available at http://
www.ombwatch.org/info/dataqualityreport.pdf.
---------------------------------------------------------------------------
    A report issued by the Congressional Research Service (CRS) calls 
for oversight and investigation of the impacts of DQA, a call OMB Watch 
argued for in our report as well. CRS recommends

         either Congress or OMB could better define the scope of the 
        act or the issues to be included in any future report. 
        Clarification could also be provided regarding whether 
        correction requests that the agencies determine to involve 
        issues outside the scope of the IQA (e.g., a challenge to the 
        minutes of a federal advisory committee meeting) should be 
        included in a report that is supposed to list correction 
        requests under the act.\9\
---------------------------------------------------------------------------
    \9\ Congressional Research Service The Information Quality Act: 
OMB's Guidance and Initial Implementation. September 17, 2004. p. CRS-
18. Available at http://www.defendingscience.org/
public-health-regulations/upload/Congressional-
Research-Service-Information-Quality-Act-Report-2004.pdf

---------------------------------------------------------------------------
III.  Congressional Action

    OMB Watch has several concerns about the trends in the regulatory 
process that have occurred over the last few decades. Societal problems 
have become more complex and their solutions are often less obvious and 
straight forward than, for example, a command and control approach. The 
role of the federal government has become more limited in its 
perspective of what is appropriate for government action. 
Responsibility has increasingly devolved to the states, or been the 
target of privatization. We believe that the time has come to change 
this limited government perspective to one in which the government 
plays a more positive role in protecting health, safety, environmental 
and civil rights safeguards. A major part of this movement to positive 
government must be a focus on the regulatory process.
    The Bush Administration has further reduced the Federal 
Government's general welfare protections by putting special interests' 
concerns above the general public's concerns. The problems outlined in 
this testimony have eroded the government's role in public protections. 
They have delayed, diminished or destroyed regulations that agencies 
are mandated to promulgate. There has been a sustained attack on 
scientific integrity--on the quality of scientific information, on the 
scientific expertise of agency professionals, and on the integrity of 
the scientific process. The tools have been manipulated and the 
executive order amendments just issued, coupled with the good guidance 
practices bulletin, have further established control of the regulatory 
process in the executive branch, and OIRA especially, at the expense of 
both congressional power and agency discretion.
    The real loser, however, is the public. The regulatory process is 
highly partisan and politicized. In the end, less regulation means less 
protection. Instead of a regulatory ``cop on the beat,'' we have none. 
Instead of addressing regulatory gaps, we operate based on whether 
these gaps have political consequences. Unfortunately, now government 
doesn't act until there is national news about people being hurt or, in 
the case mine workers, dying. If you are parents, you don't want to 
gamble that the weekend barbecue results in your child becoming ill or 
dying from E. coli. The point is, there are real consequences from 
these actions and inactions. Our government should be doing more, not 
less, to protect the public. The amended E.O. moves in the wrong 
direction.
    Every year, more than 40,000 people die on our nation's highways. 
Food borne illnesses kill an estimated 5,000 and sicken 76 million. 
Nearly 6,000 workers die as a result of injury on the job, with an 
additional 50,000 to 60,000 killed by occupational disease. And 
asthma--linked to air pollution--is rising dramatically, afflicting 17 
million, including six million children.
    There is real danger to our constitutional system from this 
arrogation of power. Equally significant, in our opinion, is the real 
danger presented to the American public from the delay or refusal to 
regulate dangerous activities. I want to leave you with just one 
example of the danger.
    The Transportation Recall Enhancement, Accountability and 
Documentation (TREAD) Act, passed by Congress in November 2000, 
required that ``Not later than one year after the date of the enactment 
of this Act, the Secretary of Transportation shall complete a rule-
making for a regulation to require a warning system in new motor 
vehicles to indicate to the operator when a tire is significantly under 
inflated. Such requirement shall become effective not later than two 
years after the date of the completion of such rule-making.'' \10\
---------------------------------------------------------------------------
    \10\ Public Law 106-414, The Transportation Recall Enhancement, 
Accountability and Documentation Act, Nov. 2000. Section 13.
---------------------------------------------------------------------------
    The National Highway Transportation Safety Administration (NHTSA) 
determined that a direct tire pressure monitoring system should be 
installed in all new vehicles. OMB sent a return letter to NHTSA, after 
meetings with the auto industry, deciding this action was an 
inappropriate one, claiming its cost-benefit calculations provided a 
basis for delaying a requirement for direct systems. The final rule, 
issued May 2002, would have allowed automakers to install ineffective 
Tire Pressure Monitoring Systems (TMPS) and would have left too many 
drivers unaware of dangerously under-inflated tires. NHTSA was sued 
because its final rule would have allowed manufacturers to choose to 
install either an effective (direct) system or an inferior (indirect) 
system. In August 2003, the U.S. Court of Appeals for the Second 
Circuit ordered NHTSA to rewrite the rule because NHTSA acted in an 
arbitrary and capricious manner by writing a standard that would allow 
installation of a clearly faulty (indirect) system.
    In July 2004, the groups that had sued NHTSA returned to court 
because the agency had not issued a revised rule. In April 2005, NHTSA 
finally issued a rule requiring automakers to install tire pressure 
systems in all new passenger cars and trucks by the 2008 model year, 
beginning a phase-in with 2006 model year vehicles. The new rule, 
however, still does not meet the requirements set by Congress. Although 
better systems exist, the TPMS could allow tires to be 30 percent below 
proper inflation before the alert is provided, costing approximately 
150 lives and countless injuries each year. In June 2005, Public 
Citizen, the Goodyear Tire & Rubber Company, Bridgestone Firestone 
North American Tire, Cooper Tire & Rubber Co., Pirelli and the Tire 
Industry Association, filed suit in the U.S. Court of Appeals for the 
District of Columbia, arguing that the new rule is inadequate and 
should be overturned. Tire pressure alert systems regulations that were 
required by law to be in place by the end of 2003 have, as the tire 
manufacturers legal action implies, not been adequately developed.\11\
---------------------------------------------------------------------------
    \11\ For another example of the danger to the public from 
regulatory manipulation, see the testimony of John B. Stephenson, 
Director of Natural Resources and Environment, GAO, before the Senate 
Committee on Environment and Public Works, February 6, 2007. Available 
at www.gao.gov/cgi-bin/getrpt?GAO-07-464T. The summary findings read:

      Although we have not yet completed our evaluation, our 
      preliminary observations indicate that EPA did not adhere 
      to its own rule-making guidelines when developing the 
      proposal to change TRI reporting requirements. We have 
      identified several significant differences between the 
      guidelines and the process EPA followed. First, late in the 
      process, senior EPA management directed the inclusion of a 
      burden reduction option that raised the Form R reporting 
      threshold, an option that the TRI workgroup charged with 
      analyzing potential options, had dropped from consideration 
      early in the process. Second, EPA reviewed this option on 
      an expedited schedule that appears to have provided a 
      limited amount of time for conducting various impact 
      analyses. Last, the decision to expedite final agency 
      review, when EPA's internal and regional offices determine 
      whether they concur with the final proposal, appears to 
      have limited the amount of input they could provide to 
      senior EPA management.
    So what can Congress do address this process? First, if Congress 
concurs that the amendments to the Executive Order are as bad as we 
believe they are, it should act. Here are three areas to explore.

          Congress should explore the legality of the Executive 
        Order amendments and their implementation.

          OIRA will need to provide guidance to agencies on 
        implementing the market failure criteria. Congress could 
        provide much needed oversight on this guidance to ensure OIRA 
        does not create new standards or irresponsible requirements on 
        agencies.

          Congress has the ability to alter the implementation 
        of these amendments through a variety of vehicles, including 
        the appropriations process. Congress should take a hard look at 
        limiting agencies' and OIRA's spending on the specific elements 
        of the amendments.

    Second, we believe it is time for the debate over regulatory policy 
and process to turn toward the real need to increase public protections 
not protect special interest access and influence. Because this 
regulatory process has real consequences for our health and safety, 
Congress should explore legislative actions that put the regulatory 
presumption on safety first. Why should products and substances be 
approved for use before they have been determined to be safe? Why 
should the economics of regulation be the overriding, to the point of 
being nearly determinative, consideration to the exclusion of 
protecting the vulnerable populations like the elderly, the frail, 
children, and minorities exposed to flawed siting processes? Government 
and businesses have a responsibility to the public to uphold their 
parts of the social contract. Congress can lead the way by providing 
its critical oversight responsibilities and considering legislative 
proposals that renew the Federal Government's protection of the general 
welfare.
    Thank you, Mr. Chairman, for providing me this opportunity to 
appear before you. I'm happy to respond to Members' questions.

Appendix:

                     Undermining Public Protections

               Preliminary Analysis of the Amendments to
        Executive Order 12866 on Regulatory Planning and Review
    On January 18, President Bush issued amendments to Executive Order 
(E.O.) 12866, which further centralize regulatory power in the Office 
of Management and Budget (OMB) and shift it away from the federal 
agencies given this power by legislative enactments. Among the changes 
to the E.O.:

          It shifts the criterion for promulgating regulations 
        from the identification of a problem like public health or 
        environmental protection to the identification of ``. . .the 
        specific market failure (such as externalities, market power, 
        lack of information). . .that warrant new agency action.''

          It requires guidance documents to go through the same 
        OMB review process as proposed regulations before agencies can 
        issue them.

          It also requires ``significant'' guidance documents 
        (those that are estimated to have at least a $100 million 
        effect on the economy, among other criteria) to go through the 
        same OMB review process as ``significant'' regulations.

          It makes the agencies' Regulatory Policy Officer a 
        presidential appointment and gives that person the approval 
        authority for any commencement or inclusion of any rule-making 
        in the Regulatory Plan unless specifically authorized by the 
        agency head.

          It requires each agency to estimate the ``combined 
        aggregate costs and benefits of all its regulations planned for 
        that calendar year to assist with the identification of 
        priorities,'' which will be overseen by the Regulatory Policy 
        Officer.

By-Passing Congress With New Policies

    Through amending the regulatory process, the President is 
institutionalizing an anti-regulatory approach by using a market 
failure criterion in place of actually identifying threats to public 
health and safety. It diminishes standards Congress may have required 
agencies to use, such as the best control technology, by elevating a 
new market failure standard that Congress never required. This standard 
has been advocated by Susan Dudley, Bush's current nominee as 
administrator of the Office of Information and Regulatory Affairs 
(OIRA). Dudley's extreme views on the use of free market standards were 
well-documented during her failed confirmation last year. Despite the 
failure to confirm her, the Administration has used the Executive Order 
as a backdoor means to implement the Dudley philosophy.
    The market failure criterion is yet another layer added to the 
agency analysis. The agency must comply with the statutory criteria 
(such as best available technology) as well as an analysis 
demonstrating market failures. If the agency meets OMB's standards for 
assessing ``whether any new regulation is warranted,'' then the agency 
must also comply with other standards in the E.O., including cost-
benefit analysis.
    This new standard decidedly favors the regulated community and 
places yet another hurdle for agencies to issue regulations in pursuit 
of protecting the public.

More White House Control; More Delay

    By requiring agency guidance documents to come under OIRA review, 
and to treat ``significant'' guidance in the same way as 
``significant'' regulations, the E.O. amendments will lead to further 
delay in providing information to the public about compliance with 
regulations, as well as with general guidance on agency policies.
    It may be true that more and more agencies are using guidance as a 
means of avoiding the regulatory process. But that should be a signal 
to Congress and the public that the rule-making process is seriously 
flawed. Agencies are looking for faster ways of doing their job and 
have turned to guidance. The solution is certainly not to require 
guidance to go through the same regulatory process that agencies were 
trying to avoid in the first place.
    In the end, this will simply result in more delay and more White 
House control over the substantive work of the agencies. It will 
inevitably lead to a usurpation of agencies' powers.

The Foxes Controlling the Hen Houses

    The Bush Administration has regularly appointed industry 
representatives or allies to oversee agency regulatory activities. 
Often this has been dubbed ``foxes in the hen house.'' The E.O. 
amendments add a new dimension by having the foxes control the hen 
houses.
    The amendments require each agency to have a Regulatory Policy 
Office run by a political appointee and that ``no rule-making shall 
commence nor be included'' for consideration without the political 
appointee's approval. This will further politicize the rule-making 
process and provide more White House control over the agency rule-
making process.
    A similar approach was attempted by President Reagan through his 
E.O. 12498, the Regulatory Planning Process, which was issued January 
4, 1985. Under E.O. 12498, agencies were to get approval from OMB prior 
to starting a rule-making--a pre-rule-making review. Many in the 
business community thought this would be a wonderful approach for 
choking off agency ideas before they ever really got going. That 
approach, however, proved too cumbersome and difficult to administer; 
in short order, it failed.
    The new Bush E.O. amendments have the same objective, but put the 
choke-hold in the agencies, instead of at OMB. To ensure that the 
process works, OMB grants authority to these new political appointees 
to be the eyes and ears for OMB.

Laying the Groundwork for a Regulatory Budget

    The E.O. amendments also require regulatory proposals that are to 
be submitted to the Regulatory Policy Officer to include ``aggregate 
costs and benefits'' during the calendar year. Most experts agree that 
aggregating all costs and benefits is like comparing apples and 
oranges--and in the end has little value except to create large numbers 
intended to scare the public.
    Another possible reason to require such information is to begin 
laying the groundwork for establishing a regulatory budget. This 
concept, proposed by conservatives since the Reagan Administration, has 
been criticized by Congress and never approved. Yet the amended E.O. 
begins to move in this direction.

Pre-Rule-making Review

    The amendments to the E.O. allow OIRA to play an active role during 
the pre-rule-making stage when agencies are formulating annual plans 
for regulatory activities. By having OIRA involved in agencies' 
planning process, OIRA can quash any contemplated regulatory or 
guidance issues before they get proposed for the Regulatory Plan. Under 
the amended E.O., OMB can now engage the agency, along with other 
government personnel (as provided for in one amendment), in reaching a 
``common understanding'' on regulatory efforts.

Conclusion

    The revised Executive Order that results from these amendments is a 
further threat to public protections from an administration committed 
to elevating special interests over public interests. It codifies 
regulatory delay, further removes agency discretion over legislative 
implementation, and centralizes control over the regulatory process 
into a small executive office. It substitutes free market criteria for 
the public values of health, safety, and environmental protections, and 
substitutes executive authority for legislative authority.
    We can only speculate as to why the President has issued these 
amendments at this time in his presidency. With Congress now in control 
of Democrats, it is unlikely that further anti-regulatory efforts will 
be supported or ignored by a compliant Congress. It is a surprising 
action to take in light of the Dudley nomination now pending before the 
Senate. It may be an admission by the Administration that the 
nomination is not likely to succeed, and that the President has decided 
to advance the Dudley philosophy through the back door.

    Prepared on January 18, 2007
                      Biography for Rick Melberth
    Rick joined OMB Watch in November 2006 as the Director of Federal 
Regulatory Policy, the program which works to protect and improve the 
government's ability to develop and enforce safeguards for public 
health, safety, environment, and civil rights. He directs all 
activities related to policy advocacy, analysis, research, monitoring, 
and public education. Rick comes to OMB Watch from Vermont Law School 
where he was Director of Internal Planning and formerly the Associate 
Director of the Environmental Law Center. He helped design the 
curriculum and taught courses in the Master's program.
    Rick has written several pieces about decision-making in government 
and environmental issues during his academic career and while working 
as an independent consultant and policy analyst. He started his own 
used and rare book business which he ran for more than a dozen years. 
He also worked in the solid waste management field as the manager of a 
solid waste division and a program to implement a waste-to-energy 
facility in county government in Ohio. This led to the opportunity to 
co-author a book for local governmental officials, Decision-making in 
Local Government: the Resource Recovery Alternative.
    Rick completed his doctorate in public administration and public 
policy at the University of Cincinnati in 1982. His Master of 
Environmental Science (M.En) and AB in political science are from Miami 
University.

                               Discussion

    Chairman Miller. I thank all of you.
    There are only two Members here, so the rules do allow 
waiving the five-minute limits to some extent. Mr. 
Sensenbrenner has graciously offered to help teach me how to be 
a Chairman.
    Mr. Sensenbrenner. That is called push the button when 
somebody starts speaking.
    Chairman Miller. I am sorry. Okay.
    Mr. Sensenbrenner. I do have questions. It won't last five 
minutes.
    Chairman Miller. Actually, so did I.
    Mr. Sensenbrenner. Okay. You are the Chairman. You go 
first.

                              Role of OIRA

    Chairman Miller. All right.
    Mr. Kovacs, in Mr. Vladeck's testimony, his written 
testimony, he said that the role of OIRA was a one-way ratchet. 
It always resulted in weaker regulations. Dr. Melberth cited 
one example, the gauge on tire pressure, where OIRA had--their 
role had resulted in a weaker regulation that was overturned by 
the courts.
    Can you give examples of when agencies have sent proposed 
rules to OIRA in the last six years, during the Bush 
Administration, where the Bush Administration has sent back the 
rule, and said this is not tough enough? We really need to do 
more to protect public health, to protect safety, to protect 
the environment, to protect privacy rights, or civil rights, or 
whatever. Can you cite examples of when OIRA has sent 
regulations back to the agency from which they came, and said 
make it stronger?
    Mr. Kovacs. I don't have any list of the rules that they 
have sent back to the agencies, and I don't even know that one 
is public. I do know that the first year and a half, when John 
Graham was head of OIRA, he did send a number of rules back, 
and I believe one of them was the particulate matter rule. So 
the first couple of years, about 18 months, he did it, and 
then, for some reason, it all of a sudden stopped. They weren't 
sending as many back, but it was a standardized process during 
that time period.
    Chairman Miller. Ms. Katzen, are you aware of circumstances 
in the last six years that OIRA has sent regulations back and 
asked the agency to toughen them up?
    Ms. Katzen. No, I am not. The return letters are public, 
because they are posted on the website, and I think OIRA has, 
under the Bush Administration, increased the transparency by 
greater use of the website for that purpose. I have read all of 
the return letters, and I have not seen any requiring, 
requesting, entreating greater protection or more stringent, 
achieving better benefits.
    Chairman Miller. Mr. Vladeck, you obviously want to answer.
    Mr. Vladeck. The statistics are public, and in fact, Curtis 
Copeland of the CRS has published an article in the 33 Fordham 
Urban Law Journal which discusses all of the statistics which 
are public since 1994, including those from 2000 to 2005. You 
will see there are an awful lot of return letters. There are a 
lot of changes made. One of the categories is ``consistent with 
change,'' those are changes pushed by OIRA, and the numbers are 
quite large, and I look at the return letters, as does Ms. 
Katzen, I have never seen one returned to beef up the rule, in 
a way that would protect the public health.

                        Transparency Provisions

    Chairman Miller. Okay. Ms. Katzen, you obviously played an 
important role in the Clinton Administration in drafting the 
original Executive Order 12866, and you spoke a moment ago of 
transparency in the role of OIRA, and I understand that 
transparency was part of that Executive Order. It required 
communication between the agencies and OIRA to be public, 
subject to a FOIA request. It required, as I understand it, any 
changes, the return letters, to be public as well, and 
communications between OIRA and outside agencies, who are 
urging a change in the rules, whether it is entirely proper 
urging of an industry to say this is unworkable, but it made 
those communications public, so that the public could decide 
whether any changes that OIRA made were appropriate, or an 
appropriate response to legitimate concerns raised by those 
most familiar with what the agencies would do, what the 
regulations would do, or whether it was caving to pressure.
    Is that, essentially, are those the----
    Ms. Katzen. There were a number----
    Chairman Miller.--transparency provisions?
    Ms. Katzen. Yes. I mean, Mr. Kovacs talked about going back 
to Richard Nixon, and I do discuss this in my written 
testimony, President Reagan took a dramatic step forward, and 
that was highly controversial, because it was opaque, at best. 
It was just not transparent.
    When we drafted 12866, we were highly sensitive to that, 
and wanted to make sure that we met that one head-on. In fact, 
it was in part because Members of Congress had spoken out so 
forcefully, calling for openness and accountability, that we 
responded by including the provisions that you mentioned in the 
Executive Order. That is the role that I think Congress should 
have, which is to make sure that the executive is aware that 
there is--are two branches of government involved, since it is 
the Congress that delegates to the agencies in the first 
instance the authority to regulate.
    The other comment, if I may, sir, the thought that we, that 
this is simply a logical progression from what the Clinton 
Administration did cannot be substantiated. I was there for six 
years. I never saw a guidance document. I never asked to see a 
guidance document. The concept that this is just business is 
usual, and you know, President Clinton did it, he might as well 
do it, too, just couldn't be further from the truth.
    Chairman Miller. Thank you. I have more questions, but I 
will save them for a later round. Mr. Sensenbrenner.

                     Outside Comment on E.O. 12866

    Mr. Sensenbrenner. Thank you very much, Mr. Chairman.
    First, let me put on the record that the Executive Order 
that President Bush issued amending Executive Order 12866 was 
signed on January 18, 2007, just 28 days ago. So, the process 
that we are talking about and the issuance of the regulations 
are all done pursuant to Clinton's Executive Order, because I 
don't think there have been any major regulations that have 
been issued as a result of the amendment.
    The amendment of the President's most recent Executive 
Order talks about process. It doesn't talk about the bottom 
line of the regulation, and I guess I would kind of like to 
find out why three of the four witnesses did not send any--in 
any comments relative to the amendment when it was under 
consideration.
    Ms. Katzen. If I may, Executive Orders are not typically 
put out for notice and comment. The comments that were filed 
were filed on the Good Guidance document, rather than on the 
amendment to the Executive Order.
    Mr. Sensenbrenner. I stand corrected on that, but where the 
comments were solicited and received, Mr. Kovacs had some input 
on it, but none of the other three of you did, and why is that?
    Ms. Katzen. He represents an entity that is an interested 
participant. I am an academician, and I write scholarly 
articles, unless I am asked to testify in Congress, I----
    Mr. Sensenbrenner. Well, I think you are really interested 
in that, given what I have heard you say.
    Ms. Katzen. I am very interested, yes, sir.
    Mr. Sensenbrenner. Okay. But you didn't comment. Now, Mr. 
Vladeck.
    Mr. Vladeck. The two organizations with which I am 
affiliated did comment, Public Citizen and OMB Watch. I am on 
the Board of Directors of OMB Watch, and I still have a 
relationship with Public Citizen. They both did comment.
    I did not personally comment on the guidance----
    Mr. Sensenbrenner. Dr. Melberth.
    Mr. Melberth. Mr. Sensenbrenner, we did submit comments on 
the proposed GGPB bulletin, under Citizens for Sensible 
Safeguards. It is signed by members of the coalition that we 
lead, and my predecessor as Director of Regulatory Policy was 
one of those signees.

                         Cost-Benefit Analyses

    Mr. Sensenbrenner. Yeah. Now, you know, with respect to 
market failure, using market forces the Regulatory Reform Act 
that was signed by President Clinton, and was a part of the 
Contract With America, and passed by Congress in 1995, did 
require cost-benefit analyses to be applied during the 
regulatory process.
    Do you think that was a good idea? I will start with you, 
Dr. Melberth.
    Mr. Melberth. Yes, sir. I think cost-benefit analysis is an 
appropriate tool to be used, not----
    Mr. Sensenbrenner. Mr. Vladeck.
    Mr. Melberth.--as a----
    Mr. Vladeck. I don't believe centralized review is a good 
idea to begin with, and requiring all agencies to do cost-
benefit analysis, even for significant rules, in my view is a 
bad idea.
    Mr. Sensenbrenner. Okay. Ms. Katzen.
    Ms. Katzen. I am a proponent of cost-benefit analysis as an 
input to decision-making, not as dispositive of the outcome.
    Mr. Sensenbrenner. Now, do you think that the cost-benefit 
analyses should be just as transparent as some of the other 
things that you have testified on, so that the public and 
perhaps the Congress can see if there is a proposed regulation 
that it has about this much benefit at that much cost?
    Ms. Katzen. Yes, and in fact, during the Clinton 
Administration, there were many occasions when the cost-benefit 
analysis was larger, more paper, more analysis, than actually 
the rule-making, to provide the kind of information that people 
should have.
    It is also very important to emphasize that agencies are 
not free agents. They are able to regulate only because 
Congress has delegated them the power to do so.
    Mr. Sensenbrenner. But the agencies are----
    Ms. Katzen. And we have----
    Mr. Sensenbrenner.--headed by someone who is appointed by 
the President of the United States.
    Ms. Katzen. Absolutely. All I am saying is that we had 
several instances, while I was the Administrator of OIRA, 
where, on the basis of a cost-benefit analysis, we saw that the 
costs were larger than the benefits, but that the Congress had 
given us no discretion, and that we had to proceed. In at least 
one instance, we made that finding loud and clear, and sent a 
letter to the Congress saying please amend the law, so we don't 
have to do that. And Congress did.
    Mr. Sensenbrenner. It does work.
    Ms. Katzen. Yes, how it should work.
    Mr. Sensenbrenner. Yes. I yield back the balance of my 
time.
    Chairman Miller. Thank you, Mr. Sensenbrenner. Mr. Baird.
    Mr. Baird. I thank the Chairman.
    First of all, Dr. Melberth, you were going to continue your 
thought. I would like to ask you if you would like to do that. 
Earlier, you were asked a question by Mr. Sensenbrenner, and 
gave a partial answer, and were in the middle of continuing. 
You care to elaborate?
    Mr. Melberth. Thank you, Mr. Baird.
    I do think cost-benefit analysis is a good thing to have as 
part of the decision-making process. I have several problems 
with cost-benefit analysis, but however it is used, it should 
only be one aspect of that decision-making process. It should 
not be dispositive. It should not be the driving mechanism, in 
my opinion, in that decision-making process, which does not, if 
you use cost-benefit analysis as dispositive, include any of 
the non-quantifiable aspects that are so often underestimated 
in cost-benefit analysis.
    Thank you, sir.

                       Market Failure Provisions

    Mr. Baird. I appreciate your expansion on that point.
    I am a little puzzled by one of the core issues here, and 
it has to do, this market--as a market process. Apparently, the 
issue is that we don't need regulations if the market would 
already regulate itself, and I am just puzzled, I am completely 
puzzled about how one operationalizes that. I don't know that 
the marketplace in general, as currently structured, 
incentivizes many industries to engage in responsible behavior, 
except fiduciary responsibility to their stockholders. I am not 
saying that is a bad thing, but I don't think the market 
intrinsically is designed to protect workers, public health, 
environmental issues, so if any of you care to enlighten me 
about what the heck this means, and if it is the metric by 
which OMB or other executive branch offices are going to 
evaluate regulations, I would sure like to operationalize that 
metric.
    Ms. Katzen. You want me to try this one?
    The concept is that regulations will be necessary where 
there is a failure of the marketplace, and the terms that are 
often thrown around are ``externalities,'' ``lack of 
information,'' ``market power.'' If you are an agency, and you 
can demonstrate that there are one of these externalities, 
market power, lack of information, then you are kind of home 
free. The point I think some of us were making is that there 
are often good reasons for regulations that do not involve 
market failures, where the market can be functioning absolutely 
the way a market should, and I am thinking of areas such as 
civil rights or privacy, where market failure is irrelevant to 
the underlying issue, and there is a need for something to be 
done.
    The way the original Executive Order was drafted, it was an 
instruction to the agency to identify the problem that you were 
trying to address, parenthetically, was it attributable to a 
market failure or something else, close parentheses, and how 
you plan to fix it. Now, it does tell us about the market 
failure, and maybe it is a failure of a public institution, and 
then, go on and worry about the rest of it.
    It is a different emphasis on a different syllable. It 
comes out different, and that is what I am reacting to, I 
think.
    Mr. Vladeck. Well, let me jump in.
    The best way to understand the pitfalls of this is just 
look at the regulation of airbags. Detroit waged what the 
Supreme Court called the regulatory equivalent of war to 
forestall regulatory and Congressional action requiring the 
installation of airbags. So, if you talk about market failure, 
where exactly is the market failure? People were still buying 
cars. And even once GM, which was the first company to 
introduce airbags, started to introduce them, they have sold 
them as an add-on, not as part of the car. They were very 
expensive. And even today, when you have certain kinds of 
airbags, some of the side curtain airbags, that are, you know, 
that are not required by federal law, the marketing of them is 
done in, you know, for the American companies, they are add-
ons, they are very expensive add-ons. Now, is the market 
working?
    The introduction of airbags in the United States was 
delayed for about 15 years because of the battle that the 
industry fought to keep airbags off the market, and provided 
that no one was offering them, they weren't suffering any 
economic consequence. Now, if you look at the new Executive 
Order, it substitutes the question that was from the Reagan 
Executive Order, carried forward to the Clinton Executive 
Order, which is tell us, tell OIRA, why it is you want to 
regulate. That is all you have got to do.
    Now, let me just read you what the new Executive Order 
substitutes in its place. It says: ``Each agency shall 
identify, in writing, the specific market failure that warrants 
the new rule.'' The word ``shall'' is a word of command. It is 
not if you feel like it. And so, what this change to the 
Executive Order does, is it places the lens of the agency and 
OIRA on market failure. Yes, there is an escape clause. You 
will hear a lot about that. But it is a substitute for market 
failure analysis, and OIRA, not the agency, ultimately calls 
the shots.
    Mr. Kovacs. Let me see if I could take a crack at it, 
because we have talked about market failure quite a few times, 
and one of the advantages of not being a law professor is the 
only thing I know is what I read, and what the statement says 
is: ``Each agency shall identify, in writing,'' as the 
Professor suggests, ``the specific market failure,'' but then, 
it says ``such as externalities, market power, lack of 
information, or another specific problem that it intends to 
address,'' again, brackets, ``including, where applicable, the 
failure of public institutions, that warrant new agency action, 
as well as the ability to assess the significance of the 
problem.''
    So, it is not just market failure. It is a variety of 
failures that might occur. I think it goes back to the simple 
concept that was raised 35 years ago, which is tell us what the 
problem is, and tell us how you are trying to address it. I 
don't think we can impute that this is only just market 
failure, when they give all of that other explanatory language.
    Mr. Baird. My question is that that sounds nice, but if 
someone actually wishes to use the language as a smokescreen to 
push a different agenda, that is where the rub is. And if we're 
all well-intentioned, sincere, honest, earnest people, with a 
similar shared value-set and agenda-set, I don't know that 
there would be a problem.
    My concern is does the rewrite, and I think some of the 
other witnesses seem to be hinting at it, saying pretty 
directly, the problem is that this new language puts the onus 
and the decision-making in a different area than it used to be, 
and that that opens the door for potential shenanigans and 
actions contrary to the public interest. That is my read of it.
    Mr. Kovacs. I guess, you know, there are theoretical ways 
to look at the regulatory process, and we went over, you know, 
what it looks like from a small business point of view, but you 
know, if it were up to the Chamber, you know, we don't just 
want peer review, we want open peer review, so that we can have 
all the brilliant minds comment. We want complete transparency, 
because we think that that is the easiest way to deal with the 
agencies. Unfortunately, we are in a political situation that 
the agencies have always opposed that much transparency.
    So, I think what you have here is a very practical 
situation. You have one President of the United States who is 
responsible for the executive branch of government, and he has 
to have some management authority. This President has decided, 
through the Executive Order, and through these guidance 
documents, that this is the kind of transparency he has.
    We participate in that process. Are we happy with it all 
the time? No. But I don't think you can, as some of the 
panelists suggest, that there is some manipulation here, or 
something sinister. The regulatory process is extremely 
complicated. There are a lot of laws, and a lot of people 
trying to work this process. All we have ever asked when we go 
through on these kind of situations is that we have some 
mechanism, if the problem isn't addressed and assessed, that we 
can get back into the process. And I think----

                    More on Transparency Provisions

    Mr. Baird. Mr. Kovacs, I appreciate very much the insight.
    If I could ask just one last question. When Vice President 
Cheney was drafting the energy policy, he invited a number of 
folks, I think, from oil and gas, to the White House. Many of 
us were curious as to who those folks were. From what you have 
just said, the Chamber of Commerce is very interested in 
transparency. Was it the Chamber's official position back then, 
and is it now, that the Vice President of the United States 
should share information about who consulted with him on energy 
policy?
    Mr. Kovacs. Our--well, I don't know about any particular 
issue, but our policy has always been transparency, and I think 
there are logs out there, as to who signs it--certainly, when I 
go over to any meeting over at the White House, I sign in, give 
my Social Security number, date of birth, and everything else, 
so that information should be there.
    If it were up to me personally, this isn't the Chamber, I 
mean, I would have all schedules of all public officials open 
to----
    Mr. Baird. Well, for the record, then, I would just request 
that you would report back to this committee on--last year, I 
had a conversation with your leadership of the organization, 
and if that is the case, if there is a consistency of value 
here, that we want open public information, please send us a 
letter, which we will convey to the Vice President, asking him, 
on behalf of the Chamber of Commerce, to share the names of the 
people who helped draft his energy policy.
    Mr. Kovacs. I wasn't addressing it to any particular 
policy. What I said, just from my words, is we think that 
government in general should be open.
    Mr. Baird. And I agree with that entirely. I agree with 
that entirely. What I am saying is it may be a fairly selective 
belief. If that is your belief, I don't know how many things 
are more important in this country than our energy policy, and 
if that is your belief, share that belief with us, and apply it 
equitably across, not just to this particular proposed 
regulation, but equitably across the activities of the 
executive branch, and we will convey that the Chamber of 
Commerce formally believes the Vice President of the United 
States, consistent with this policy of openness advocated by 
the Chamber of Commerce, shares with the American public the 
names of the people who developed this energy policy.
    Mr. Kovacs. Just so we are on the same page--I am very 
willing to go back and make that request, just so we are sure 
it is going to be a general statement. How you use it is 
completely up to you.
    Mr. Baird. I will look forward to the statement.
    Mr. Kovacs. Well, we would hope that you would extend that 
to all of the other agencies, and how all of the other rules, 
like PM and ozone and----
    Mr. Baird. Right.
    Mr. Kovacs.--everything else are made.

                   More on Market Failure Provisions

    Chairman Miller. Mr. Kovacs, Mr. Baird, I am struggling to 
continue to chair this subcommittee meeting without the 
tutelage of Mr. Sensenbrenner, but we will have time for a 
second round of questions, although I understand the Judiciary 
Committee has claimed this room beginning at 2:00.
    I did have a couple of questions, before turning to Mr. 
Rohrabacher, kind of on the doctrine of hot pursuit, about the 
market failure issue.
    Mr. Sensenbrenner said that in 1995, Congress passed and 
the President signed regulatory reform legislation that did 
place into law cost-benefit analysis. Mr. Vladeck, you are 
shaking your head no to that, but does market failure appear in 
statute? Is that a criterion for the approval of regulations, 
or for a regulatory agency to act or not to act, that Congress 
has ever placed into federal law?
    Ms. Katzen?
    Ms. Katzen. Not that I am aware of. I think what Mr. 
Sensenbrenner was referring to was the Unfunded Mandates Act, 
which refers to an analysis of the costs and the benefits, and 
there is no mention, no mention of market failure in that, or 
in SBREFA, the Small Business Regulatory Flexibility Act, which 
was also passed at that time, nor in the Congressional Review 
Act, which was another product of that Congress.
    So, it is not legislative language, sir.
    Chairman Miller. Okay.
    Mr. Vladeck. That is consistent with my understanding, as 
well. And the Unfunded Mandates Act is a limited statute. It 
doesn't require cost-benefit analysis across the board.
    Chairman Miller. Mr. Kovacs, do you----
    Mr. Kovacs. Again, I am not reading it as just market--as 
that being the only criteria. I mean, I just don't think the 
language gets you there.
    Chairman Miller. Okay. Mr. Vladeck, in his written 
testimony, said that the woman appointed or nominated to be 
chair or to head the OIRA, Susan Dudley, who I have never met, 
and I have not read her writings, but--strongly believes that 
the market seldom fails, that there is almost always a market 
mechanism that corrects any societal ill.
    If we now place into the regulatory framework a criterion, 
not established by Congress, that is going to be administered 
by someone who believes, apparently, or according to Mr. 
Vladeck, almost as dogma that the market seldom, if ever fails, 
Mr. Kovacs, is that the distribution of authority between the 
branches of government you think the Framers of the 
Constitution intended?
    Mr. Kovacs. Well, first of all, being--or having worked on 
the Hill for years, I am a very fervent believer, personally, 
in the prerogatives of the Congress as a separate branch of 
government, and the agencies have a Constitutional obligation 
to implement the laws as you pass them.
    And granted, within that, there is some discretion, based 
on a lot of different factors, whether it be budget or 
personnel, or how it is, but I am not, you know, I am not here 
saying market failure is the only criteria. There are other 
criteria here which I would hope that the agency would 
recognize.
    I am taking a position as I read it that the agency has to 
identify, because of all of these different conditions, what 
the specific reason is that they are going to move forward with 
a regulation, not that it can only be market failure, because 
obviously, there are reasons you would implement a regulation 
other than market failure, civil rights, for example.
    Chairman Miller. Okay. Mr. Vladeck, do you wish to address 
that?
    Mr. Vladeck. Yes. Let me just use as an example the 
upgraded airbag rule, which Ms. Dudley was virtually alone in 
opposing. As you know, when Congress required the introduction 
of airbags, it did not set performance standards, and as a 
consequence, the first generation of airbags were very 
inexpensive, and not as effective as they should have been.
    Congress told NHTSA to go out, and to improve the quality 
of airbags that are available to the American people. Ms. 
Dudley's comments opposing the revisions to the airbag standard 
took the position, quite strongly, that market failure had not 
been shown by NHTSA, the agency, and therefore, the agency 
shouldn't proceed.
    The reason why I think this is germane is that phrases like 
``market failure'' can mean different things to different 
people, and if the Administrator of OIRA can block a 
significant rule, or return a significant rule, because she 
believes that the agency has not made a case for market 
failure, it gives OIRA a tool to block important developments 
to protect the public safety and health.
    Chairman Miller. I do want to preserve time for another 
round of questions, and that was not one of my rounds, by the 
way.
    Mr. Rohrabacher.

                   Regulation and the Public Interest

    Mr. Rohrabacher. Thank you very much, Mr. Chairman.
    Let us get--this obviously goes to the way we look at 
things fundamentally, and not--there is a fundamental 
philosophical issue, and whether--how that philosophy relates 
to reality, and how it impacts on people's lives, and let me 
note that people who believe in the market are not just 
philosophizers, we believe in the end, it means that people's 
lives will be better off.
    Some fundamental questions, then, apply here. We must note 
fundamentally, that at times, it is difficult to determine 
exactly what the public interest is. This is not where there is 
an omnipotent group of people who are commanded by God, who 
understand exactly what the public interest is, whether or not 
resources should go, for examples, into airbags, or whether or 
not resources should go someplace else. And I think it is 
somewhat of a--to the degree that we are talking about public 
assets, the air, the water, the soil, then we need to sit down 
and determine for the public how those publicly held assets 
will be, you know, will be used, and regulation and certainly 
government intervention in those areas, is justified. But in 
terms of how much the public is willing to pay for their safety 
or something else that they might want, they might want a 
higher proportion of this, as compared to what the regulators 
think is best for them. And that is one issue that I would like 
to throw on the table.
    Another thing, let me note that my observation over the 
years has been that every time that we have people who move 
forward in a regulatory process, in the name of protecting the 
general public, quite often, they are influenced by special 
interest groups, and the more, the further away from the 
consumer, and the further--where they have choice in the 
matter, or by elected officials, who are by their very nature, 
dependent on the voters or the consumers, to approve of the job 
they have done, once you go to a regulatory approach, it 
becomes less responsive to the public need, and more responsive 
to people who can work their way into the regulatory process, 
meaning people who can hire the lobbyists down here who know 
the system, and especially, the system that happens in a 
regulatory process.
    So, I just thought I would throw those ideas out. Let me 
just ask you, maybe if we could have it from both sides of the 
spectrum here, on your analysis of what I just said, or your 
reaction.
    Mr. Melberth. First of all, the use of willingness to pay 
as a measure of public interest, to determine the relative 
costs.
    Mr. Rohrabacher. Yeah. A car, you know, may--people may 
well be willing to spend more money for an airbag in a car, but 
they may not. It may deter people from buying new cars. It may 
leave the poor people on the outs, because they don't have any 
airbags in their cars, and et cetera. So--would--by the way, 
let us get into that. Would you mandate that all cars be 
retrofitted with airbags? Isn't that--wouldn't that be 
something, if you have the public interest--and why don't you 
do that? You don't do it because there is a cost factor. If 
there is a cost factor with older cars, why is that cost factor 
not important with newer cars? So, just a thought. Go right 
ahead. Be--I am sorry I interrupted you.
    Mr. Melberth. Well, what I understand by the willingness to 
pay is the use of that in some kind of cost, economic 
assessment. And the problem with using that kind of willingness 
to pay is it puts people in a hypothetical situation of trying 
to judge the risks that they face.
    Mr. Rohrabacher. Right.
    Mr. Melberth. That seems to be highly unrealistic, and if 
you put people in a situation in which they are actually faced 
with a danger, a drowning child, are they going to jump and 
save the child? Of course they are.
    Mr. Rohrabacher. Right.
    Mr. Melberth. There are those kinds of situations, and yet, 
you know, the willingness to pay doesn't go anywhere----
    Mr. Rohrabacher. Well, let us go--let us argue a 
hypothetical--specifically. I have triplets. My wife had 
triplets. Everybody knows that. And I am a very proud father, 
and I want those kids safe, and I tell you, I am willing to pay 
the extra money for the gas to have a big, heavy car, because 
when my wife goes to the market, I want to make sure if that 
car is hit, that they are safe. I am willing to pay that extra. 
But mandating that cars get much more miles to the gallon, and 
are much lighter, because they have to make it lighter, 
shouldn't I, as a consumer, be able to do that, rather than 
have a regulator make that decision for me?
    Ms. Katzen. If I could come at this from a slightly 
different way.
    Mr. Rohrabacher. Sure.
    Ms. Katzen. I don't have difficulty with the concepts that 
you are putting on the table. What I think is important is that 
when Congress legislates, and then when the agency regulates, 
it take into account all of the different views. That is why 
the process of rule-making, under the Administrative Procedure 
Act, Section 553, and in reality, is a very open process. It is 
a process that features public participation, be it by special 
interests or by individuals, who can contribute their views, 
their philosophies, their approaches, their data, their 
analyses, to the issue.
    That is what rule-making is all about, which is why it 
takes months, sometimes years, to issue rules. The point I was 
trying to make earlier is that what I find troubling, deeply 
troubling, is if the process is skewed to come out one way or 
the other. If the process is neutral, let us hear your 
thoughts, let us hear your information, we will take into 
account all of these factors, and we will reach a judgment and 
be accountable for that judgment, then, I think it is 
appropriate. But if you have got, as I used the analogy 
earlier, a thumb or a fist on the scale, and you say we are 
going to come out one way or the other----
    Mr. Rohrabacher. Yeah.
    Ms. Katzen.--then you have squashed or squelched, or 
whatever----
    Mr. Rohrabacher. Well--totally legitimate. Obviously, you 
have made a legitimate point there, obviously.
    Mr. Vladeck. Let me try to respond as well, because I think 
I do disagree with your fundamental premise.
    I think it would be, at this point in time, irresponsible 
for government to permit the sale of motor vehicles, cars, to 
transport somebody else's triplets without airbags. I think 
that would be irresponsible, and frankly, you started by 
saying----
    Mr. Rohrabacher. Would you retrofit it?
    Mr. Vladeck. I would----
    Mr. Rohrabacher. Would you demand that all cars be 
retrofitted?
    Mr. Vladeck. I wouldn't, and nor did Congress when it 
decreed that cars have airbags, make that choice. Because 
ultimately, your question was, you know, who decides what is 
the public interest? You guys do. That is why we pay you the 
big bucks. And Congress decided that there should be airbags.
    Now, the more difficult questions are what kinds of 
airbags, and how much safety to impose, and those are delicate 
questions of balancing. There are tradeoffs there. If you want 
a safer car, all cars are not created equal. If you want to buy 
the safest car on the market for your triplets, there are 
better cars and there are less safe cars. And NHTSA has not 
gotten a mandate from Congress to require the maximum degree of 
safety no matter what. Those are the difficult tradeoffs that 
you enlist expert agencies to help you, and what I am concerned 
about is that the executive branch is handcuffing those 
agencies in their ability to do the public business.
    And let us talk about transparency. One of the odd things 
about the new Executive Order is the transparency and time 
limits are not required for guidance documents. OIRA can sit on 
a guidance document for five years, consistent with this 
Executive Order. It can engage in all sorts of non-recorded 
contacts with respect to guidance documents under this 
Executive Order. This Executive Order goes back to the early 
days, where OIRA was allowed to conduct a big part of its 
business in secret, and for someone who cares about openness, 
transparency, the way the markets ought to work, that is 
inimical to the way government ought to function.

                    More on Transparency Provisions

    Chairman Miller. Thank you. Thank you, Mr. Rohrabacher. If 
you would hang around for a minute, you may get another round 
of questions.
    But I want to pursue the discussion that we were just 
having about transparency, and that I had begun in my earlier 
round of questions.
    Mr. Kovacs, you spoke a great deal about transparency, 
openness of government, and seemed to take the pro position 
with respect to that, the position in favor of that. All the--
all that Ms. Katzen described about the earlier Executive Order 
by President Clinton, the transparency, the public availability 
of documents by--OIRA documents or communications with the 
agency, their communications with outside parties who are 
advocating for some change in the regulations, any changes in 
the regulations, you support all of those, all those 
transparency requirements?
    Mr. Kovacs. Oh, certainly. We have--well, I will go, you 
know, one step further. We, actually, were probably the primary 
advocate for the Information Quality Act, which is going to, 
you know, turn everyone sort of bright red here.
    But you know, what that says is, is that, what the Congress 
ordered is that the agencies have to use the most accurate, up-
to-date information, and that if the information, if someone in 
the public believes that the information is incorrect, that 
they can file a petition to correct the information. Again, you 
heard the same arguments. This is trying to slow the agencies 
down, this is trying to put everything in secret.
    We have been very clear. We don't believe just in peer 
review. We believe in open peer review. Just open it up. Why 
should four or five scientists have a say over what the issue 
is? So, when you come to the openness, the only way we are 
going to get the kind of information in, from the public into 
the agency is if we know what the agency is doing, and we are 
able to put it in, and that is what the guidance documents do.
    Chairman Miller. Okay. Thank you, Mr. Kovacs.
    Ms. Katzen, under the new Executive Order, under the old 
Executive Order, OIRA was a gatekeeper, and now, the gatekeeper 
has a gatekeeper, the public regulatory officers within each 
agency. All of the openness requirements with respect to OIRA's 
deliberations, do those apply, under the new Executive Order, 
to the conduct of the public regulatory officer? What are the 
requirements for transparency at the agency level for the 
gatekeeper's gatekeeper, the public regulatory officers?
    Ms. Katzen. Those are not addressed in the Executive Order. 
Those would be wholly dependent upon the agency's own internal 
rules for ex parte procedures, for disclosure, for rule-making, 
as the case may be.
    Chairman Miller. Mr. Vladeck, rather than write a note to 
Ms. Katzen, do you just want to answer yourself?
    Mr. Vladeck. Well, I mean, it is worse than that. I mean, 
not only does the Executive Order not apply, but the D.C. 
Circuit, in a case that I helped lose many years ago, it is 
called Wolfe v. HHS, held that communications between officials 
at OMB and the agencies, like the regulatory officer, are 
presumptively not available under FOIA.
    So, there is no--as far as I can see, there is no mechanism 
by which we would be able to see what is going on at that stage 
of the development process, which is a trouble.
    Chairman Miller. I think every Democratic Member of 
Congress not in their first term has in their files letters 
from agencies explaining that FOIA does not reach pre-
decisional discussions, internal agency documents, which 
presumably, the involvement by the NPOs, or----
    Ms. Katzen. RPOs would be.
    Chairman Miller. RPOs, would fall within that exception to 
FOIA. Mr. Kovacs, do you think the conduct of the regulatory 
public officers, the RPOs, should be as transparent as the 
conduct, the involvement of decision-making by OIRA?
    Mr. Kovacs. If you are asking me would we support an 
exempt--would we support removing that exemption from FOIA, it 
is likely. But we would again, remove it for the entire 
process. Let me just give you really one example. For years, 
one of the biggest growth industries that is coming to the 
United States is nanotechnology. They expect in ten years, for 
that to be a $1 trillion plus revenue stream for the United 
States, a huge growth industry.
    Well, floating around EPA are some pre-decisional opinions 
on how EPA is going to regulate nanotech. Well, the business 
community is putting in an enormous amount of money into 
nanotechnology, and we sent a FOIA letter, I don't know, six 
months, eight months ago, and we can't even get a little 
postcard from them. So, it is a frustration that we all share. 
But if you are going to do it, rather than, you know, picking 
on the Vice President, or picking on one--open the process----
    Chairman Miller. Well, looking specifically at the 
regulatory public officers, who are now going to play an 
important role. I mean, a great many regulations are never 
going to make it to OIRA. They will be smothered in the crib, 
at the agency, by the RPO, and all of the requirements for 
transparency for OIRA appear not to apply to the RPOs.
    Mr. Kovacs. Well----
    Chairman Miller. So, if the agency is making the wrong 
decision for the wrong reasons, we are not going to know about 
it. If OIRA makes the wrong decisions for the wrong reasons, we 
are going to know about it. And now, a great many agents--of 
the regulations that the professional staff, the permanent 
professional staff, the experts, the scientists, the 
researchers at regulatory agencies, are never going to make it 
past the gatekeeper's gatekeeper, and none of that will be 
public. Isn't that right?
    Mr. Kovacs. I think it would be consistent, to directly 
answer your question. I think it would be consistent with the 
policies of the Chamber that the entire--that that part of the 
entire agency process, as to how a rule is made, should be made 
public. And it wouldn't start just with the rule, it would 
start with the information that comes in, the studies that they 
rely on, the risk assessments that they rely on. That entire 
process should be open.
    And the political officer, the regulatory officer, is 
only--I am sorry--is only the last person in line. And what I 
would suggest to you, that if you are going to do that, is that 
you start with what you know, the EPA at Research Triangle Park 
does, which is let us look at the risk assessments. What is the 
basic information, and what we would say is rather than just 
taking one spot of the record, take the entire record, because 
then, and that is what the Information Quality Act tried to do, 
it tried to say rather than starting at the end of the rule-
making process, which we are all fighting about today, start at 
the beginning. So--because if the agency uses the wrong 
information in the beginning, five years before the rule 
starts, Sally says ten, you know, these processes can take ten 
years. If you use the wrong information in the beginning, you 
are going to use the wrong information in the end. So open up 
the whole process.

                           Transparency Costs

    Chairman Miller. We really are just about out of time, and 
I apologize to Mr. Rohrabacher, probably not be able to get to 
him for a second round of questions.
    Ms. Katzen, Mr. Vladeck, Dr. Melberth, do you think the 
same transparency requirements that apply to OIRA should apply 
to the internal agency deliberations, of the role of the RPO, 
whether through changes to the Executive Order, or through 
statutory change?
    Ms. Katzen. I am not going to answer your question 
directly, because----
    Chairman Miller. Okay.
    Ms. Katzen.--I spent enough years at OMB to know that 
nothing is cost-free, and one of the points that Mr. Vladeck 
made, that I want to underscore, is that the agencies have not 
only been required to do more analysis, more everything, but 
they have been given less funds. And when you say shouldn't 
things be transparent, even that is not cost-free. Putting up a 
website and maintaining it takes personnel, takes funds, even 
if you outsource it, you have got to have a contractor, you 
have got to update it every 15 days, it takes people, it takes 
time, it takes talent, and we have seen in the last--when I was 
at OMB, we had surpluses as far as the eye could see. Now, we 
don't, and it is coming out of the agencies' budgets, and I 
think that is a real concern. So, I can't truly answer your 
question.
    Chairman Miller. Okay. Mr. Vladeck.
    Mr. Vladeck. I would agree. I think that you have to make 
this process transparent.
    Chairman Miller. Okay. Dr. Melberth. Melberth.
    Mr. Melberth. I would also agree. That is something that 
OMB Watch has called for in most of these instances. Make this 
information public. It should be available. It should be 
accessible.
    Chairman Miller. Mr. Rohrabacher, do you want to have one 
valedictory question?
    Mr. Rohrabacher. Thank you. I am very happy that when--what 
year was that, when you were saying we had the surpluses? I----
    Ms. Katzen. 1999. The year.
    Mr. Rohrabacher. Yeah, I remember that. We Republicans were 
in solid control at that time. You know, here in the House.
    Ms. Katzen. Here.
    Mr. Rohrabacher. Yes.
    Ms. Katzen. Not there.
    Mr. Rohrabacher. Right. There you go. Analyzing stuff. Let 
me note that, years ago, it was a consensus on global cooling. 
Now, it is a consensus on global warming. The regulators 
always--there are things that--trends that could be true or not 
true, that influence these benevolent and not profit-seeking 
regulators, that we want to trust our lives to. One, for 
example, Mr. Chairman, a decision that was made years ago by 
people, I am sure, with very good hearts, wanting to protect us 
all, put severe restrictions on DDT, and now, we have tens of 
millions of people in Africa who have lost their lives because 
DDT has not eliminated the mosquito population, which is 
plaguing them instead of us. There are unintended consequences 
at times, and trendiness, that affects regulators.
    I--Mr. Chairman, it doesn't seem to me that we have a real 
conflict. If you folks are advocating more scrutiny and 
openness, and focusing on this end of the process, and you have 
the Chamber of Commerce just saying that it should be 
transparent all the way through, I don't see a big conflict 
here, and I have learned--I am sorry I was late. I will read 
your testimony, but I have already learned quite a bit just 
from what you have said, and I certainly agree with the idea of 
transparency and accountability. That doesn't seem to be a big 
debate here, but it seems a matter of where you are putting 
your emphasis.
    So, thank you very much.
    Chairman Miller. I want to thank everybody. An excellent 
panel of witnesses, and I think some of you are now going to 
appear, this has been a warm-up for your appearance before the 
Judiciary Committee, and I look forward, for the Subcommittee 
on Administrative Law, that is looking at the same issue.
    And we had earlier tried to have a joint hearing, but were 
not able to pull off the logistics of that, but again, I 
appreciate your appearance, and your very thoughtful responses 
to all of our questions, and with that, our hearing is 
adjourned.
    [Whereupon, at 2:00 p.m., the Subcommittee was adjourned.]
                              Appendix 1:

                              ----------                              


                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions
Responses by Sally Katzen, Adjunct Professor and Public Interest/Public 
        Service Fellow, University of Michigan Law School

Questions submitted by Chairman Brad Miller

Q1.  The testimony Mr. Aitken, Acting Director of OIRA, offered in a 
House Judiciary Committee hearing repeatedly asserts that the new 
executive order amending E.O. 12866 simply memorializes current 
practice and, in particular, practices that began during your time at 
OMB. Do you wish to comment on the assertion that there is no 
meaningful change in policy represented by the provisions in E.O. 13422 
relating to how regulatory proposals shall be prepared.

A1. If there were no meaningful change in policy represented by the 
provisions of Executive Order 13422, then why did the Administration 
invoke the prestige of the President and the authority of an executive 
order to achieve nothing? This President has not issued many executive 
orders and it seems to be inconsistent with his management style to use 
an executive order for a non-event. Finally, the changes in Executive 
Order 13422 do not reflect policies or practices of the Clinton 
Administration. Specifically, the Clinton Administration did not 
elevate market failures to a priority status for justifying rule-
making; it did not require aggregation of projected costs and benefits 
at the pre-notice stage of rule-making; it did not require that 
regulatory policy officers be presidential appointees; it did not 
encourage the use of formal rule-making for resolution of issues; and 
it did not use OMB review for guidance documents which, by definition, 
do not have the force and effect of law.

Q2.  Do you have any other points you wish to make for the record 
regarding E.O. 13422 and its likely application by the Bush 
Administration?

A2. Not at this time, thank you.

Questions submitted by Representative F. James Sensenbrenner, Jr.

Q1.  Did President Clinton's E.O. 12866 require agencies to conduct 
Cost-Benefit Analyses for proposed regulations? If so, what harm would 
come from simply requiring them to report the aggregate of the analyses 
they already conducted? Is this such a big step?

A1. President Clinton's Executive Order required agencies to conduct 
cost/benefit analyses, to the maximum extent feasible, when they were 
proposing or issuing final rules. Executive Order 13422 requires 
agencies to aggregate costs and benefits of items listed in the 
Regulatory Agenda, which includes many items at the pre-notice of 
proposed rule-making stage, when the agency has made no decisions as to 
the course it is likely to pursue.

Q2.  A major criticism of the Market Failure criterion is that some 
believe it elevates economic concerns above those of public health and 
safety, and that this contradicts Congressional guidance. Is this true? 
If so, why don't the following sections give agencies an ``out'' when 
they are presented with conflicting values?

         Sec. 1, end of last sentence: ``unless a statute requires 
        another regulatory approach.''

         Sec. 1(b), end of last sentence: ``to the extent permitted by 
        law and where applicable.''

A2. President Clinton's Executive Order included several references to 
the superiority of applicable law to provisions of an executive order; 
those references were not changed by the provisions of Executive Order 
13422, nor could they be given that wherever there is a conflict, duly 
enacted law would trump a provision in an executive order. The agencies 
therefore have ``an `out' '' where there is a direct conflict. The 
problem that many foresee, however, is that the amendment elevating 
economic concerns increases the burden on the agencies to either 
demonstrate that the law reflects congressional intent with respect to 
the particular issue they are addressing or to justify its proposal on 
economic as opposed to other, possibly more important or pertinent 
grounds.

Q3.  One of the reasons agencies have increasingly turned to guidance 
documents in order to regulate industry is that they do not require 
public notice, public comment, or OMB notice. This has allowed for more 
flexible and reactive policies, but has sacrificed transparency, 
organization, and accountability. Do you believe the recent OMB 
bulletin proposes a reasonable method of balancing these competing 
principles?

A3. The recent OMB bulletin is a good faith attempt to balance these 
and other competing principles. The problem, however, is that in some 
instances and for some agencies, the requirements of the bulletin will 
have the effect of reducing (possibly greatly reducing) the issuance of 
guidance, which tells both the agency staff and the regulated entities 
what is expected of them under existing regulations. Such guidance has 
the salutary effect of providing clarity to regulated entities and 
protecting them from haphazard enforcement of existing regulations by 
agency staff. In other words, there are and will be costs associated 
with the new bulletin.

Q4.  In reference to the Good Guidance Bulletin, you state in your 
testimony (page 9) that, ``While each step can be justified as helping 
to produce better regulatory decisions, the cumulative effect is 
overwhelming.'' If you believe that the Bulletin is ``justified as 
helping to produce better regulatory decisions,'' are your objections 
to the Bulletin related to policy or your view that OIRA has an 
insufficient budget?

A4. The antecedent for ``each step can be justified as helping to 
produce better regulatory decisions. . .'' is the various bulletins, 
circulars, and guidance issued by the Bush Administration over the last 
several years, discussed at pages 6-9 of my written testimony. Each 
step (as in, each bulletin, circular or guidance), standing alone, can 
(as in, one can reasonably argue) be justified. ``[T]he cumulative 
effect is overwhelming'' refers to the agencies, not OIRA, and the fact 
that agency budgets have not kept up with the increasing demands made 
on the agencies by OIRA.
                   Answers to Post-Hearing Questions
Responses by David C. Vladeck, Director, Institute for Public 
        Representation; Associate Professor of Law, Georgetown 
        University Law Center

Questions submitted by Chairman Brad Miller

Q1.  I am concerned about the implications for the public's right to 
know embedded in the changes to the Regulatory Policy Officers. As 
Presidential appointees with the power to ``pre-approve'' even starting 
a regulatory or guidance initiative, what might this mean for the 
ability of the public and public interest groups to know what has 
happened on issues dispensed with by these officers? Might this be an 
indirect way of by-passing some of the much-vaunted transparency that 
has so far marked the OMB E.O. 12866 process?

A1. This question was raised briefly during the hearing, and my answer 
then, as it is now, is that the structure of the new Executive Order 
invites the circumvention of the transparency provisions of the 
Executive Order 12866. As the Committee understands, Executive Order 
12866,  6(b), requires OMB to place on the record its exchanges with 
an agency during the course of a rule-making proceeding. It also 
requires OMB to put on the public record meetings between OMB and non-
governmental parties relating to rule-makings. To be sure, the openness 
requirements of the Executive Order apply only during the rule-making 
process, and do not cover interactions between OMB and agencies, or OMB 
and outsiders, prior to the agency's development of a notice of 
proposed rule-making. But once the rule-making process begins, the 
Executive Order does require a fair degree of transparency.
    Executive Order 13422 undermines the openness guarantee of 
Executive Order 12866 in two important ways. First, OMB review of 
guidance documents is not subject to any of the transparency 
requirements of section 6 of Executive Order 12866, which applies only 
to ``regulatory actions'' for ``new and existing regulations.'' The 
drafters of Executive Order 13422 understood this limitation, but made 
no effort to expand the scope of section 6 to cover OMB review of 
guidance documents. This omission was not inadvertent. Instead, the 
omission was intended to permit OMB and agencies to develop guidance 
documents--and to integrate the input of regulated industry--behind 
closed doors, with no public record at all. Given OMB's history of 
serving as a conduit for industry, which of course led to the Graham 
memorandum and the addition of section 6(b) to the Executive Order, 
Congress ought to be wary of OMB's deliberate effort to exercise 
control over the issue of guidance documents insulated from any 
transparency or openness requirement.
    Second, Executive Order 13422 promotes secrecy because it ensures 
that the pre-rule-making interchanges between OMB and the Policy Review 
Officers at the agencies will be off-the-record. The law is clear that 
dealings between OMB and agency officials that precede the commencement 
of rule-making are not subject to mandatory disclosure under the 
Freedom of Information Act (``FOIA''). Courts have ruled that these 
exchanges are ``predecisional'' and ``deliberative'' in character and 
thus may be shielded from disclosure under Exemption 5 to FOIA. See 
Wolfe v. HHS, 839 F.2d 768 (D.C. Cir. 1988) (en banc). As a result, 
even under Executive Order 12866 pre-rule-making consultations between 
OMB and agencies were not subject to disclosure. But Executive Order 
13422 makes a bad situation worse. Under Executive Order 12866, the 
Regulatory Policy Officers were agency officials selected by the agency 
head, and these Officers owed their loyalty to the agency, not the 
White House. Thus, if OMB sought to force an agency to act in a way 
that was out of step with the desires of the agency head, the agency 
had tools to object, and to do so on the public record.
    Executive Order 13422 reverses that presumption and puts a White 
House agent in charge of the agency's regulatory apparatus, which now 
extends not just to the agency's regulatory output, but also to non-
binding agency guidance. Thus, the ability of the agency to resist OMB 
and follow the course the agency thinks best is diminished, if not 
destroyed. After all, the White House will now have its own appointee 
serving as the gatekeeper of the agency's machinery. And, to make 
matters worse, all of these exchanges will take place off-the-record.
    For these reasons, the answer to Chairman Miller's question--can 
OMB kill off a regulatory or guidance initiative an agency wants to 
take, and do so in a way that will escape public oversight?--is plainly 
``yes'' under Executive Order 13422. And make no mistake, this is not 
an unintentional consequence of inattentive drafting. This is precisely 
the power that OMB has long coveted.

Q2.  The new E.O. elevates market failure as the preferred standard for 
an agency to meet in explaining the rationale for a regulatory or 
guidance document. If you have insights into how the President's 
proposed director of OIRA, Susan Dudley, might apply this standard, 
please share that with the Subcommittee.

A2. There is no need to speculate about how Ms. Dudley would apply the 
new ``market failure'' standard in the Executive Order were she to 
serve as the director or acting director of OIRA. Ms. Dudley has an 
extensive track record on this issue, which I urge the Subcommittee to 
review.\1\ In summary, Ms. Dudley's writings suggest that she believes 
that markets almost never fail, and that government intervention is 
rarely if ever appropriate. Just consider one example. Ms. Dudley was 
virtually alone in opposing the advanced air bag rule-making just 
conducted by the National Highway Traffic Safety Administration. She 
did so on the ground that government intervention was not needed, 
notwithstanding the deaths of and injuries to children and women of 
short stature caused by first-generation air bags, because there was no 
evidence of market failure. Ms. Dudley was willing to disregard the 
deaths and injuries because she was confident--despite years of 
contrary evidence--that, if left alone, the market would provide a 
range of safety options to consumers and we ought to trust the market 
to give consumers adequate protection.\2\
---------------------------------------------------------------------------
    \1\ Ms. Dudley's writings have been extensively critiqued in a 
report by Public Citizen and OMB Watch entitled The Cost is Too High: 
How Susan Dudley Threatens Public Health Protections (Sept. 2006) 
(http://citizen.org/publications/
release.cfm?ID=7448&seeID=2565&catlD=126).
    \2\ Susan E. Dudley, Regulatory Studies Program Comments: Advanced 
Air Bars 7 (Dec. 17, 1998) (http://www.mercatus.org/publications/
pubid.1180/pub-detail.asp).
---------------------------------------------------------------------------
    Ms. Dudley's blind faith in the markets, and her hostility to 
government regulation, would make her an odd choice to head OIRA. If 
Ms. Dudley saw no market failure with regard to one-size-fits-all air 
bags, would she have let the Environmental Protection Agency phase lead 
out of gasoline, the Food and Drug Administration require that iron 
pills, the leading cause of poisonings in the United States, be sold in 
child-proof containers, or the Consumer Product Safety Commission 
outlaw the use of flammable material in children's sleep-wear? The 
point of regulation is to prevent market failure, not to pick up the 
pieces once the damage is done.

Q3.  Do you have any other points you wish to make for the record 
regarding E.O. 13422?

A3. I think that my written statement to the Subcommittee covered the 
important points I want to make about the new Executive Order.

Questions submitted by Representative F. James Sensenbrenner, Jr.

Q1.  Did President Clinton's E.O. 12866 require agencies to conduct 
cost-benefit analyses for proposed regulations? If so, what harm would 
come from simply requiring them to report the aggregate of the analyses 
they already conducted? Is this really a such a big step?

A1. With all respect, I do think that this is a big step. Let me 
explain why. To begin with, the requirement that agencies prepare cost-
benefit analyses for proposed regulations was not an invention of 
President Clinton, but President Reagan, who institutionalized this 
requirement in Executive Order 12291. President Clinton's Order in fact 
modified that requirement in a way that is significant in answering 
your question; namely, it permitted, almost encouraged, agencies to 
cite non-quantifiable costs and benefits of regulation in their 
analyses. As I have previously discussed, agencies generally can 
calculate the likely costs of proposed regulation in terms of dollars 
and cents. But benefits are often far more difficult to quantify, and 
many benefits simply cannot be quantified. For instance, how does one 
assign a dollar value to each I.Q. point a child might lose as a result 
of lead exposure; to each day a family will have to endure a loved one 
on kidney dialysis, caused by the person's exposure to cadmium in the 
workplace; or damage to a wildlife preserve? Regulation also avoids 
unwarranted distributional impacts, protects vulnerable sub-populations 
(children, the elderly, the poor, for example), averts aesthetic harms, 
and seeks to advance social justice. None of these benefits can be 
quantified, let alone monetized in the manner the Executive Order 
contemplates.
    To account for these difficulties, the Clinton Executive Order 
encourages agencies to monetize those benefits that it can monetize, 
but it ``recogniz[ed] that some costs and benefits are difficult to 
quantify'' and therefore told agencies that they should provide a 
``reasoned determination that the benefits of the intended regulation 
justify its costs.'' Executive Order 121866,  1(b)(6).
    The problem with the regulatory accounting provision of Executive 
Order 13422,  4(c)(1)(B), is that it wholly ignores this important 
lesson. By requiring that the agency report its ``best estimate of the 
combined aggregate costs and benefits of all of its regulations planned 
for that calendar year,'' the new Executive Order puts aside all of the 
non-quantifiable benefits that flow from regulation and reduces the 
calculus to hard, cold dollars and nothing more. And make no mistake, 
this reporting requirement will be used by OMB and others to seek 
limits on agency regulation on purely economic grounds, notwithstanding 
the fact that regulatory benefits are often not reducible to dollars 
and cents.

Q2.  A major criticism of the market failure criterion is that some 
believe that it elevates economic concerns above those of public health 
and safety, and that this contradicts Congressional guidance. Is this 
true? If so, why don't the following sections give agencies an ``out'' 
when they are presented with conflicting values?

         Sec. 1, end of last sentence: ``unless a statute requires 
        another regulatory approach.''

         Sec. 1(b), end of the last sentence: ``to the extent permitted 
        by law and where applicable.''

A2. The short answer to this question is yes, the market failure 
criterion in Executive Order 13422 does indeed ``elevate[] economic 
concerns above those of safety and health'' in a way that undermines 
Congress' judgment, and no, the provisions of Section I of the Order, 
cited in the question, do not give agencies an ``out.'' Let me explain 
the basis for my answer.
    To begin with, there can be no serious question that the new 
Executive Order makes ``market failure'' the pivotal consideration in 
regulation. Indeed, it is difficult to see how the drafters of the 
Order could have been clearer or more emphatic about this point. As you 
know, the language in the new Executive Order marks a profound 
departure from that in its predecessor: Section 1(b) of Executive Order 
12866 required the agency to ``identify the problem that it intends to 
address. . .as well as the significance of that problem.'' Executive 
Order 13422 deletes that language and says that ``[e]ach agency shall 
identify in writing the specific market failure. . .or other specific 
problem that it intends to address. . ..'' That substitution plainly 
signals that, from now on, OMB will expect to see an economic analysis 
of market failure as a precondition to regulation. And the use of the 
word ``shall,'' the language of command, only underscores the mandatory 
nature of the requirement. The only ``out'' will be a convincing 
economic argument from the agency that market failure is not at the 
root of the ``other specific problem'' the agency intends to address. 
The problem here is that this is an ``out'' in name only, because OMB, 
and not the agency, makes the final decision as to whether the agency 
has made a sufficient case for regulation.
    Moreover, it is hard to see how health and safety agencies will be 
able to point to ``other specific problem[s]'' unrelated to market 
failure when they seek to impose regulation. Let's not mince words: 
when we speak of health and safety regulation, ``market failure'' is a 
euphemistic way of saying that people have been killed or injured 
because of dangerous products, exposure to toxic chemicals, or some 
other hazard. The point of health and safety regulation is to prevent 
these deaths and injuries, not wait until they occur. Suppose an agency 
wants to impose regulation on food producers to reduce the risk of an 
emerging food-borne illness. Tens of thousands of consumers are made 
ill by food-borne contamination each year, but it is rare that a 
consumer can link his or her illness to the consumption of a single 
food product. Market forces thus place only a weak constraint on market 
behavior of food producers. But with regard to an emerging hazard, 
there is, by definition, no evidence of ``market failure'' because the 
needed evidence has not yet developed. How is that agency going to do 
business with OMB? The agency cannot pretend that it is seeking to 
address some ``other specific problem.'' Nor would OMB permit it to, do 
so. The point here, of course, is that a regulatory system that 
properly functions seeks to avoid market failure, yet the new Executive 
Order appears to require agencies to wait until they can prove market 
failure--by pointing to needless deaths and injuries--before moving 
ahead with regulation.
    Nor do the fragments of two provisions of Section 1 of Executive 
Order 13422 cited in the question give the agencies an ``out,'' as the 
question suggests. Both provisions go to the substance of agency 
regulations, which must be governed by statute where there is an 
inconsistency between the statute and the Executive Order. Neither 
provision addresses the justification an agency must provide to OMB in 
order to proceed with a rule-making, which is the point of the ``market 
failure'' super-mandate imposed by Executive Order 13422. A review of 
the two provisions cited in the question drives this point home.
    The question's first reference is to the last sentence of Section 
1(a), which is quoted only in part. In full, the sentence reads: 
``Further, in choosing among alternative regulatory approaches, 
agencies should select those approaches that maximize net benefits 
(including potential economic, environmental, public health and safety, 
and other advantages; distributional impacts; and equity), unless a 
statute requires another approach.''
    Contrary to the implication in the question, this provision has no 
bearing on the justification the agency must provide to OMB to receive 
OMB clearance to publish a proposed or final rule. The provision 
addresses an altogether different question: If permitted to regulate, 
what regulatory approaches may the agency pursue? But nothing in this 
language relieves an agency of its obligation under the Executive Order 
to satisfy OMB that it may regulate in the first instance. One 
illustration should suffice. The Supreme Court has ruled that in 
promulgating standards to protect workers from exposure to toxic 
substances, the Occupational Safety and Health Administration 
(``OSHA'') must regulate to the limits of technological and economic 
feasibility. American Textile Manufacturers Assn v. Donovan, 452 U.S. 
490 (1981). That standard is arguably at odds with the ``net benefits'' 
standard articulated in Section I of the Executive Order. In such a 
case, OSHA would be free to follow its statutory mandate, not that 
imposed by the Executive Order. But OSHA would nonetheless be bound to 
justify to OMB its decision to proceed with regulation, and under the 
new Executive Order, would not be able to avoid defending its decision 
to act on the basis of market failure. There would be no other bases on 
which to justify regulation, and thus this fragment of Section 1 does 
not provide agencies an ``out,'' as the question suggests.
    Nor does the language at the end of Section 1(b) provide agencies 
an out. That language reiterates the concern set forth in the final 
sentence of Section 1(b), by providing that: ``To ensure that the 
agencies' regulatory programs are consistent with the philosophy set 
forth above, agencies should adhere to the following principles, to the 
extent permitted by law and where applicable.'' Once again, this 
language is a directive, mandated by settled law, that an Executive 
Order cannot trump a statute. For that reason, the Executive Order does 
not purport to, and could not, direct an agency to ignore statutory 
directives when issuing a regulation. But nothing in this language, or 
any other language in the Executive Order, relieves the agency's 
obligation under the Executive Order to explain to OMB on the basis of 
market failure why the agency is choosing to proceed with regulation.

Q3.  One of the reasons agencies have increasingly turned to guidance 
documents in order to regulate industry is that they do not require 
public notice, public comment, or OMB notice. This has allowed for more 
flexible and reactive policies, but has sacrificed transparency, 
organization, and accountability. Do you believe the recent OMB 
bulletin proposes a reasonable method of balancing these competing 
principles?

A3. Before addressing the OMB Bulletin on guidance documents, it is 
necessary to emphasize that I do not agree with several of the explicit 
premises of the question. First, I do not know whether it is true, as 
the question suggests, that ``agencies have increasingly turned to 
guidance documents.'' Having practiced administrative law for thirty 
years, I think that agencies have always used guidance documents, and 
have done so precisely because they can be issued quickly and flexibly, 
as needs arise. Second, I do not believe that agencies use guidance 
documents to avoid transparency and accountability. Unlike enforcement 
policies, which are often kept from public view, the entire point of 
guidance documents is to inform the public of the agency's views, and 
agencies are held accountable for the guidance they give. Woe to an 
agency that brings an enforcement action and seeks to distance itself 
from guidance the agency gave; the agency does so only at its peril. 
Third, I disagree with the question's suggestion that agencies have 
``turned to guidance documents in order to regulate industry.'' 
Guidance documents do not have the force of law; they do not 
``regulate'' in any meaningful sense of the word.
    Having said all of this, I do believe that, at times, agencies 
issue guidance documents instead of embarking on notice and comment 
rule-making, not to avoid giving OMB notice, but because OMB review has 
made the notice and comment rule-making process too time-consuming, too 
cumbersome, and too expensive to justify the commitment of agency 
resources to the issuance of a rule. Nothing in the new Executive Order 
responds to these concerns.
    As to OMB's recent bulletin on guidance documents; I think that, 
because it is designed to carry forward the mandates of the new 
Executive Order, it is deeply flawed--for the reasons outlined in my 
testimony. Formalizing and making uniform the process by which agencies 
give advice is a tremendous mistake and will hamstring the ability of 
agencies to provide advice to regulated parties and the public at 
large. Because the Executive Order the bulletin seeks to implement is 
flawed, so too is the bulletin.
                   Answers to Post-Hearing Questions
Responses by William L. Kovacs, Vice President, Environment, 
        Technology, and Regulatory Affairs, U.S. Chamber of Commerce

Questions submitted by Representative F. James Sensenbrenner, Jr.

Q1.  Did President Clinton's E.O. 12866 require agencies to conduct 
cost-benefit analyses for proposed regulations? If so, what harm would 
come from simply requiring them to report the aggregate of the analyses 
they already conducted? Is this really such a big step?

A1. Yes, President Clinton's E.O. 12866 already requires agencies to 
conduct cost-benefit analyses for proposed regulations that will have a 
significant impact on the economy. E.O. 12866 requires every federal 
agency to determine whether a regulatory action is ``significant'' and 
therefore subject to review by the Office of Management and Budget 
(OMB) and the analytical requirements of the executive order. A 
``significant'' regulatory action is defined as one that is likely to 
result in an annual impact on the economy of $100 million or more.
    Since federal agencies are already required to conduct a cost-
benefit analysis for each proposed significant new regulation, it is 
not a big step for them to simply add up the aggregate cost impact of 
all new regulations for a given year. As I stated in my original 
written testimony, rules do not operate in a vacuum. For an accurate 
assessment of a rule's actual cost impact, it must be considered in 
conjunction with other rules. In the interest of transparency and full 
disclosure, the public should be made aware of the aggregate costs 
associated with an agency's annual rule-makings.

Q2.  A major criticism of the market failure criterion is that some 
believe it elevates economic concerns above those of public health and 
safety, and that this contradicts Congressional guidance. Is this true? 
If so, why don't the following sections give agencies an ``out'' when 
they are presented with conflicting values?

        a.  Section 1, end of last sentence: ``unless a statute 
        requires another regulatory approach,'' or

        b.  Section 1(b), end of last sentence: ``to the extent 
        permitted by law and where applicable.''

A2. Ironically, the ``market failure'' criterion, which has been so 
derided by critics of the new executive order, was first detailed in 
the Clinton Administration's 1996 guidelines for economic analysis 
under Executive Order 12866.\1\ Those guidelines specifically noted 
that market failures, externalities, natural monopolies, market power, 
and asymmetric information are all essential components of any economic 
analysis. As a result, it was the Clinton Administration that 
emphasized the importance of economic analysis in rule-making.
---------------------------------------------------------------------------
    \1\ OMB, ``Economic Analysis of Federal Regulations Under Executive 
Order 12866'' (Jan. 11, 1996).
---------------------------------------------------------------------------
    What President Bush's executive order did was actually broaden the 
scope of the Clinton guidelines to allow for an agency to state 
additional justifications for a rule-making. In that way, the market 
failure criterion would not be elevated above public health and safety 
concerns. In 2003, the Bush Administration clearly delineated the 
additional justifications beyond market failure--which included the 
protection of civil rights, privacy, personal freedom, and other 
concerns.\2\ More importantly--as Rep. Sensenbrenner notes in his 
question--the last phrase in Section 1 and 1(b) of the executive order 
clearly provide agencies with choices when they are presented with 
conflicting values.
---------------------------------------------------------------------------
    \2\ See OMB Circular A-4, at p. 4-6.
---------------------------------------------------------------------------
    It is only logical that federal agencies should be required to 
identify a problem that justifies a regulation before proceeding with a 
rule-making--whether that problem is a market failure or something 
else. In this way, we can be assured that a comprehensive and thorough 
analysis of all potential impacts of a rule-making has been conducted.

Q3.  One of the reasons agencies have increasing turned to guidance 
documents in order to regulate industry is that they do not require 
public notice, public comment, or OMB notice. This has allowed for more 
flexible and reactive policies, but has sacrificed transparency, 
organization, and accountability. Do you believe the recent OMB 
bulletin proposes a reasonable method of balancing these competing 
principles?

A3. Yes. The OMB Bulletin on Good Guidance Practices (GGP) does not 
prohibit agencies from issuing guidance documents. Agencies can, and 
should, continue to utilize guidance documents to provide the public 
with information on how to comply with a particular rule or regulation. 
Rather, the GGP establishes uniform policies and procedures for the 
development, issuance and use of significant guidance documents.
    The purpose of the GGP is to ensure that guidance documents of 
Executive Branch departments and agencies are developed with 
appropriate review and public participation. It requires that guidance 
documents be accessible and transparent to the public, and not 
improperly treated as legally binding. GGP does this by requiring that 
each guidance document contain certain standard elements, such as 
identifying the document as guidance, the name of the issuing office, 
the activity and persons to whom it applies, the date of issuance, and 
the title and docket number. Surely such requirements, which will 
vastly improve transparency and accountability in an agency's 
regulatory activities, are not overly oppressive.
    Perhaps the most important new GGP requirement, however, is that 
agencies avoid ``mandatory'' language in guidance documents. By law, 
guidance documents are advisory only; that is, they do not have legally 
binding effect. Yet they have practical binding effect when the 
agencies use them to establish criteria that affect the rights and 
obligations of private persons. By eliminating mandatory language--
words such as ``must'' and ``shall''--the growing problem of 
``regulation by guidance document'' will finally be addressed.
    The GGP also establishes public access and feedback procedure. 
Agencies are required to maintain a current list of significant 
guidance documents on their web sites and to provide a means for the 
public to electronically submit comments. The Chamber supports, and has 
always supported, efforts to improve the operation of government by 
improving the opportunity for the public to participate in the policy-
making process. Such participation allows the public to have a voice in 
the making of the laws that regulate them, and protects them from 
arbitrary decisions by federal agencies.

Q4.  Does E.O. 13422 (or the Good Guidance Bulletin for that matter 
require any new analysis to be conducted, or does it simply require 
agencies to report the work they have already done? Do you believe that 
reporting this work could lead to ``paralysis by analysis?''

A4. President Bush's E.O. 13422 does not require any new analysis by an 
agency. What it does require is for an agency to have a reason for 
creating a new regulation. It simply asks an agency to state the reason 
for the rule, and estimate how much it will cost, particularly in 
connection with other rules issued that year by the agency. Presumably, 
these are things the agency can readily supply, and therefore are not 
new and onerous requirements.
    Moreover, the argument that E.O. 13422 (and GGP) will lead to 
``paralysis by analysis'' is specious. Similar arguments were made 
regarding the Data Quality Act (DQA)--namely, critics argued that it 
would ``shut down'' the regulatory process by forcing agencies to 
respond to public claims of disseminating faulty information. In 
reality, very few DQA petitions were filed with federal agencies. For 
example, in FY 2006, only 22 DQA petitions were filed with government 
agencies, and only six appeals.
    Clearly, the critics were wrong about the DQA, and they are almost 
certainly wrong about E.O. 13422. The President's actions will serve to 
bring transparency and accountability to an opaque and complex process. 
This effort should be lauded.

Q5.  OMB has stated that they don't know exactly who currently holds 
the position of Regulatory Policy Officer at every agency. Do you think 
the decision to have those duties executed by a Presidential Appointee 
is a responsible way to better organize this process and bring about 
more transparency and accountability?

A5. The fact that OMB--which is responsible for overseeing the 
management of the executive branch agencies--cannot identify an 
agency's regulatory policy person speaks volumes regarding the current 
state of the regulatory process.
    By appointing a Regulatory Policy Officer, the President 
effectively creates a single point-of-contact for all regulatory issues 
within an agency. This appointment will bring organization, 
transparency, and accountability to policy-making in general, and it 
will further improve the President's ability to manage the executive 
agencies in his Administration. The Regulatory Policy Officer also 
brings accountability to the agency by ensuring that the President's 
executive order is implemented.

Questions submitted by Representative Brian Baird

Q1.  ``From what you have just said, the Chamber of Commerce is very 
interested in transparency. Was it the Chamber's official position back 
then, and is it now, that the Vice President of the United States 
should share information about who consulted with him on energy policy? 
. . .For the record, then, I would just request that you would report 
back to this committee on. . .to please send us a letter, which we will 
convey to the Vice President, asking him, on behalf of the Chamber of 
Commerce, to share the names of the people who helped draft his energy 
policy.''--Hearing transcript, page 49-50.

A1. Because Rep. Baird's question is about transparency in government, 
let me first directly state the Chamber's current and historical 
position on this issue, and then I will apply the Chamber policy to 
Rep. Baird's question.
(1) Chamber Policy
    The Chamber's long held position was proposed, voted on and 
approved by our Board of Directors, and codified into official policy:

         A free flow of information from and concerning all branches of 
        government at all levels is a right of the public and is 
        essential to our democratic society. . .. It is the 
        responsibility of government to protect and preserve this 
        constitutional guarantee by a policy of full disclosure of 
        information. Except for matters clearly affecting national 
        security or otherwise covered by statute, all business of 
        government should be fully disclosed to the public. The burden 
        of proof must rest with government in every instance to justify 
        withholding any information from the public.

                         Policy Declarations, U.S. Chamber of Commerce

    As our policy declaration makes clear, the Chamber is one of the 
strongest proponents of an open and accessible Federal Government. This 
is evidenced not just in our policy statements, but also in our public 
activities. Consider, for example, our continuing support of the 
Administration's Electronic Government, or ``E-Gov,'' Initiative, which 
is an effort to make information more accessible to the public through 
advanced technology and the Internet. Or consider the Chamber's 
unfettered support for government ``sunshine'' laws, improved Freedom 
of Information Act legislation, the federal financial grants and 
contracts online database, Data Access and the Data Quality Act --all 
of which promote transparency in government operations.
    Similarly, the Chamber has always supported an open regulatory 
system that would allow the public access to, and a voice in, the 
federal rule-making process. That is why the Chamber testified at the 
February 13, 2007, hearing in support of Executive Order 13422, and the 
Final Bulletin on Agency Good Guidance Practices--because these 
documents broaden public input into and increase responsible management 
of the current regulatory system.
    The purpose of the Subcommittee hearing was ostensibly to discuss 
the scope and impact of the Administration's Executive Order 13422, 
which modifies Executive Order 12866, and specifically whether it 
constitutes an impermissible expansion of executive authority over 
federal agencies. As stated in my oral testimony, E.O. 13422 is not 
only permissible, but also a necessary tool for the President to manage 
his agencies and the regulatory process.
    Executive Order 13422 was issued by President Bush for two reasons. 
First, it was intended to prevent federal agencies from circumventing 
the rule-making process by using guidance documents to regulate the 
public. Guidance documents do not have to undergo the same rigorous 
analytical requirements of the rule-making process as proposed 
regulations, so agencies tend to couch regulatory language in guidance 
documents as a way to compel public compliance. Executive Order 13422 
corrects that abuse by including guidance documents within the scope of 
the analytical requirements of Executive Order 12866. Second, and 
perhaps more importantly, it is an attempt by the President to manage 
his executive agencies. It does this in three ways: (1) by ensuring 
agencies state why a rule is needed, (2) by ensuring agencies give an 
accurate accounting of costs and benefits of an individual rule and the 
aggregate costs and benefits of all rules issued by the agency that 
year, and (3) by creating a Regulatory Policy Officer (RPO) within each 
agency to ensure that the executive order is implemented by the agency. 
The RPO is a political appointee, responsible to the President, who 
must coordinate with OMB.
    In their testimony before the subcommittee, each of the other three 
witnesses\3\ decried the creation of the RPO, claiming that it 
``politicized'' the regulatory process by allowing a political 
appointee--who reports to the President and not Congress--control over 
an agency's regulatory output. Because of this fact, the other 
witnesses believed that the activities of the RPO are intended to be 
opaque and shielded from public scrutiny. In other words, they feared 
that the activities of the RPO will not be subject to the same 
transparency and accountability as, say, an agency administrator, who 
is confirmed by, and reports to, Congress.
---------------------------------------------------------------------------
    \3\ Sally Katzen, David C. Vladeck, and Rick Melberth. Witnesses' 
written testimony is accessible at: http://science.house.gov/
publications/
hearings-markups-detai1s.aspx?NewsID=1269
---------------------------------------------------------------------------
    When asked directly about the accountability and transparency of 
the RPO by the Members of the Subcommittee, I stated that, first and 
foremost, the RPO was most certainly going to be held accountable--to 
the Chief Executive. Much like the agency administrator, the RPO serves 
at the pleasure of the President and is ultimately responsible to him. 
Second, I stated that the Chamber favored extending transparency, not 
just to regulations, guidance documents, and the RPO, but also to the 
entire regulatory process. That is, the Chamber would like to see all 
the reports, studies, white papers, third-party analyses, documents, 
and data that form the underlying basis of an agency's regulatory 
decision-making to be made available for public scrutiny and subject to 
open peer review. No other witness took such a position on 
transparency.
    It is only through an open peer review of such underlying technical 
documents and analyses that we can ensure that:

          The public remains fully informed of the rules that 
        regulate them;

          Documents forming the basis of a rule will be 
        improved through critical review;

          Final regulations will be narrowly tailored to 
        address a specific harm; and

          The public will have had the opportunity to 
        participate at every step in the process.

(2) Application of the Chamber's Policy to Rep. Baird's Question
    Following my statement of ``total transparency,'' Representative 
Baird suggested that the Chamber's support of transparency was actually 
``selective.'' That is, the Chamber claims to want transparency in 
government, but, in fact, doesn't want it extended to the activities of 
the Executive Office. By way of example, Representative Baird cited the 
controversy surrounding Vice President Cheney's National Energy Policy 
Development Group (NEPDG), and whether the identification of the 
participants and substance of the preliminary meetings should be made 
publicly available. ``If [transparency] is what you believe, apply it 
equitably across the Executive Branch,'' Representative Baird stated at 
the hearing.
    Transparency is what the Chamber espouses, and favors its 
application across all three branches of government. Yet, as even 
Representative Baird must agree, the doctrine of open government must 
take a back seat to national security concerns, the laws enacted by 
Congress, and the U.S. Constitution. That is why official Chamber 
policy specifically states that we favor full disclosure of information 
in all matters of government except for matters clearly affecting 
national security or otherwise covered by statute. In other words, if 
there are, for example, national security reasons (terrorist threats), 
constitutional reasons (separation of powers), or legal reasons 
(statutes or court decisions) for restricting transparency, then these 
reasons must be respected.
    In the case of Vice President Cheney's energy task force, the 
question of whether the identification of the participants and 
substance of the preliminary meetings should be made public is governed 
both by separation of power concerns, and more directly, by statute--
namely the Federal Advisory Committee Act (FACA).\4\ Under FACA, the 
work of executive advisory groups that include non-federal employees 
must be publicly disclosed. Yet the Administration has affirmatively 
stated that NEPDG was composed of all federal employees, and therefore 
exempt from FACA. If, in fact, any non-governmental employees 
subsequently are determined to have been present at some of the NEPDG 
meetings, this would not mean that the FACA exemption is lost. The non-
governmental employees would still have to be deemed de facto members 
of the advisory group in order for disclosure to occur, as was the case 
with the health care task force headed by former First Lady Hillary 
Rodham Clinton.\5\ If the courts ultimately determine that this was 
also the case with the NEPDG, then the law would require public 
disclosure.
---------------------------------------------------------------------------
    \4\ 5 U.S.C.S. Appendix Sec. 1, et seq.
    \5\ Association of American Physicians v. Clinton, 302 U.S. App. 
D.C. 208, 997 F.2d 898 (CADC 1993). Court held that, although non-
government employees had not been officially named to the committee, 
they had become so involved in the task force's activities that they 
were ``functionally indistinguishable'' from the designated members.
---------------------------------------------------------------------------
    The Chamber's policy will continue to reflect a respect for the 
laws of this nation--as passed by Congress--including FACA. If the 
language, application, or impact of a particular law is not to the 
liking of Congress, then it is certainly within the power of Congress 
to change that law. Until then, our policy will remain unchanged.

Conclusion

    I hope this helps to clarify the Chamber's position on both E.O. 
13422, and transparency in government. As I have tried to make clear, 
the Chamber strongly supports the President's effort to manage the 
regulatory process, and further advocates opening the entire regulatory 
process to public scrutiny--from the underlying documents and 
discussions that form the basis of regulations, to the final 
regulations themselves. It is only through complete transparency and 
open peer review that we can ensure that regulations and guidance 
documents are sound, balanced, cost-effective, and ultimately fair.
    The Chamber is grateful for the opportunity to present its views 
about this important topic.
                   Answers to Post-Hearing Questions
Responses by Rick Melberth, Director of Regulatory Policy, OMB Watch

Questions submitted by Chairman Brad Miller

Q1.  I am concerned about the implications for the public's right to 
know embedded in the changes to the Regulatory Policy Officers. As 
Presidential appointees with the power to ``pre-approve'' even starting 
a regulatory or guidance initiative, what might this mean for the 
ability of the public and public interest groups to know what has 
happened on issues dispensed with by these officers? Might this be an 
indirect way of by-passing some of the much-vaunted transparency that 
has so far marked the OMB E.O. 12866 process?

A1. The public's right to know what happens to regulatory issues is 
already severely limited in the pre-rule-making process under E.O. 
12866. OIRA's involvement as the gatekeeper in the process means that 
agencies' submissions to OIRA--the first public notice of agencies' 
proposed actions--are already substantially impacted by OIRA's pre-
rule-making negotiations as a 2003 GAO report described.\1\ Proposed 
regulations, however, are at least initiated in the agencies with the 
expertise to recognize that a problem may require regulatory action. 
The process can begin, data may be collected, analyses conducted, and 
some determination may be made of the problem to be addressed. Although 
OIRA's influence is substantial, the final political decisions within 
agencies about moving forward with regulations are made by the agency 
heads.
---------------------------------------------------------------------------
    \1\ General Accounting Office, RULE-MAKING: OMB's Role in Reviews 
of Agencies' Draft Rules and the Transparency of Those Reviews, 
September 2003. Available at www.gao.gov/cgi-bin/getrpt?GAO-03-929.
---------------------------------------------------------------------------
    The installation of Presidential appointees at the agency level 
concentrates OIRA's authority at the expense of agency personnel. It 
shifts the decision to initiate regulations and guidance to someone 
less familiar with the scope of the problem and adds political 
considerations that should only occur at the highest levels of the 
agencies. These appointees can stop regulations from ever being 
considered.
    We believe the most damaging aspect of this political influence 
within agencies is that the public will never know what issues were 
dispensed with inside the agencies. The pre-rule-making stage becomes 
even more remote from the public. While we strongly disagree with this 
change in the Regulatory Policy Officer's responsibility, if it is 
implemented, then the larger question is the near total lack of 
transparency and disclosure during the pre-rule-making stage. The 
public can never know what alternatives were dismissed or what remedies 
were forced onto agencies by political calculations. This process is 
highly undemocratic and secretive.

Q2.  The new E.O. elevates market failure as the preferred standard for 
an agency to meet in explaining the rationale for a regulatory or 
guidance document. If you have an insight into how the President's 
proposed director of OIRA, Susan Dudley, might apply this standard, 
please share that with the Subcommittee.

A2. In September 2006, after President Bush nominated her to be OIRA 
administrator, OMB Watch and Public Citizen issued an analysis of Susan 
Dudley's writings and comments.\2\ In that report we conclude:
---------------------------------------------------------------------------
    \2\ The full report, The Cost Is Too High: How Susan Dudley 
Threatens Public Protections, can be read online or downloaded at 
http://www.ombwatch.org/regs/2006/dudleyreport.pdf.

         Dudley believes that an agency must do more than prove that a 
        regulation's benefits outweigh its costs. Dudley has stated 
        that ``[e]ven policies supported by the best benefit-cost 
        analysis are not likely to be socially optimal substitutes for 
        market forces unless they correct a market failure.'' With her 
        skepticism about whether regulation can serve any goal other 
        than correcting a market failure (which, as she has defined it, 
        would be an impossibility), Dudley would bog the agencies down 
        in endless analysis, stalling regulations and leaving the 
---------------------------------------------------------------------------
        public at risk.

    We believe there are three reasons why Dudley would be a threat to 
public protections if she were the administrator of OIRA. First, she 
has an ideological opposition to regulations which leads her to use 
policy tools in biased ways. In her writings she shifts and sometimes 
uses contradictory reasoning to conclude that regulations are not 
justified. From her record, one can only conclude that she would demand 
impossible requirements agencies could not meet.
    Second, the elevation of additional economic analyses such as 
market failure, senior death discounts, and a free-market-first 
approach under Dudley's direction could result in substituting these 
economic considerations for non-economic ones. Even in policy areas 
where other considerations are mandated as primary considerations, such 
as regulations promulgated by OSHA in which costs are not placed above 
worker safety, we believe Dudley's reliance on economics would be 
determinative.
    Dudley also is a strong advocate for regulatory sunsets which would 
severely weaken public protections. She supports the position that 
agencies should justify a second, and third, and fourth time the need 
for critical regulations as they expire under sunset provisions. Given 
how ossified the regulatory process already is, this position leads to 
a de facto roll back of regulations already implemented.
    Third, we oppose her nomination because of her very close ties to 
corporate interests which have worked strenuously to delay, diminish 
and defeat health, safety, environmental and civil rights protections. 
The regulatory process is already heavily tilted toward special 
interests. We believe Dudley would further tilt the playing field 
toward the interests that have supported her work.
    In light of this record, we believe Dudley would apply market 
failure analyses and other provisions of the amended E.O. to delay if 
not to stop public protections.

Q3.  Do you have any other points you wish to make for the record 
regarding E.O. 13422?

A3. OMB Watch has just completed a final analysis\3\ of the potential 
impacts of E.O. 13422 and OMB's Final Bulletin for Agency Good Guidance 
Practices. In its conclusion, we argue that these regulatory process 
changes further concentrate control in the White House, especially in 
OIRA, at the expense of both the separation of powers and agency 
discretion. OIRA will be able to further delay the issuance of 
regulations and guidance documents. These delays will have real impacts 
on people's lives. And submitting guidance documents to OIRA review 
will hurt regulated entities which rely on agency guidance to conduct 
daily activities.
---------------------------------------------------------------------------
    \3\ OMB Watch, A Failure to Govern: Bush's Attack on the Regulatory 
Process, March 2007. Available at http://www.ombwatch.org/regs/PDFs/
FailuretoGovern.pdf
---------------------------------------------------------------------------
    E.O. 13422 and the good guidance bulletin move the regulatory 
process in the wrong direction and this will have real consequences for 
our nation's public safeguards. Our government should be doing more to 
protect the public, not less.

Questions submitted by Representative F. James Sensenbrenner, Jr.

Q1.  Did President Clinton's E.O. 12866 require agencies to conduct 
cost-benefit analyses for proposed regulations? If so, what harm would 
come from simply requiring them to report the aggregate of the analyses 
they already conducted? Is this really such a big step?

A1. E.O. 12866 requires agencies to conduct cost-benefit analyses of 
proposed regulations. These are individual analyses conducted for a 
very wide range of types of regulations even for those within one 
specific agency like the Department of Agriculture or the Department of 
Labor. The harm that comes from aggregating costs and benefits from 
such diverse analyses is in how those aggregate numbers are used.
    Congress requires OMB to report these aggregated cost and benefit 
totals in its annual Report to Congress on the Costs and Benefits of 
Federal Regulations. The 2007 Draft report just issued March 12th 
states: ``OMB has chosen a ten-year period for aggregation because pre-
regulation estimates prepared for rules adopted more than ten years ago 
are of questionable relevance today.'' But why use ten years? Why not 
five or fifteen? The logic regarding the questionable relevance of pre-
regulation estimates is as valid for regulations conducted at any time. 
The aggregated numbers have little basis in reality.
    U.S. businesses excel at adapting to changing business conditions; 
they adapt technologically, they adapt by learning from experience. 
Thus the pre-regulation cost estimates provided by businesses for use 
in cost-benefit analyses are hypothetical, and possibly biased. A more 
reasonable approach would be to perform ex post studies of costs and 
benefits (to the extent that either can be quantified). These ex post 
numbers are relatively useless in the aggregate.
    The best arguments against aggregating costs and benefits are 
provided in OMB's first annual report in 1997, Report to Congress on 
the Costs and Benefits of Federal Regulations.\4\
---------------------------------------------------------------------------
    \4\ Office of Management and Budget, Report to Congress on the 
Costs and Benefits of Federal Regulations. September 30, 1997. 
Available at http://www.whitehouse.gov/omb/inforeg/rcongress.html

         Third, it is important to ask: What public policy purposes do 
        aggregate estimates serve if the ultimate goal is to develop 
        the information necessary to make decisions about specific 
        regulatory programs or program elements? And, in particular: In 
        what ways can these estimates help support the recommendations 
        to reform the regulatory system required of the Director by 
        Section 645 (a)(4)? Clearly, knowing the costs and benefits of 
        individual proposals for regulatory actions and their 
        alternatives, including the alternative of no action, enables 
        policy officials to make decisions that improve society's well 
        being. But for reasons discussed below, knowing the total costs 
        and total benefits of all of the many and diverse regulations 
        that the Federal Government has issued provides little specific 
        guidance for decisions on reforming regulatory programs. 
---------------------------------------------------------------------------
        [Chapter II, Overview]

    The report goes on to argue that ``it is extremely difficult, if 
not impossible, to estimate the actual total costs and benefits of all 
existing federal regulations with any degree of precision'' because of 
two primary problems. First, is the problem of what baseline to use in 
order to make these aggregate numbers meaningful. ``Could a civil 
society even exist without regulation? In other words, what do we use 
as the baseline for world without any regulation?''
    OMB provides a number of problems with trying to identify a 
baseline for meaningful comparison. Problems include the ex ante vs. ex 
post issue raised above, the dynamic quality of the economy, and the 
dangers of attributing changing behavior to the presence of federal 
regulation as opposed to State and local regulation, tort claims, and/
or public pressure. Businesses simply cannot accurately calculate the 
costs of compliance.
    Second, in aggregating costs and benefits, one is comparing apples 
to oranges to ``kiwis, grapefruit, etc.'' The cost-benefit analyses 
``vary in quality, methodology, and type of regulatory costs 
included.'' And not all regulations are the same. Environmental, social 
(public health, consumer and workplace protections, civil rights), 
economic, transfer payments, and process regulations require very 
different approaches.
    OMB Watch believes that aggregating costs and benefit has no useful 
purpose to policy-makers because there is no connection to a problem 
government is trying to solve. Thus the only uses can be for creating a 
political straw man or for use in developing regulatory budgets which 
advance an already tenuous economic framework over the regulatory 
process. Regulatory budgets cap annual compliance costs of regulations, 
and as we've argued here, there is no reliable way of knowing the 
extent of these costs. Agencies must submit ``combined aggregate costs 
and benefits of all its regulations planned for that calendar year to 
assist with the identification of priorities.'' [emphasis added] This 
language from E.O. 13422 provides further evidence that the intent is 
to use aggregated numbers for policy-making.

Q2.  A major criticism of the market failure criterion is that some 
believe it elevates economic concerns above those of public health and 
safety, and that this contradicts Congressional guidance. Is this true? 
If so, why don't the following sections give agencies an out when they 
are presented with conflicting values?

         Sec. 1, end of last sentence: ``unless a statute requires 
        another regulatory approach.''

         Sec. 1(b), end of sentence: ``to the extent permitted by law 
        and where applicable.''

A2. We believe that economic concerns are already elevated above public 
health, workplace safety, environmental and civil rights concerns. 
Under the Bush Administration, these economic considerations have been 
advanced and politicized beyond the limits they had in previous 
administrations as we have documented for six years. The language 
quoted above from E.O. 12866 might be applicable in a regulatory 
implementation scheme in which OIRA acted as a counselor instead of a 
gatekeeper. These sections may provide a legal exit strategy when an 
agency is challenged. The practical effect, however, is that when one 
agency, OIRA, has the sole responsibility for overseeing an agency's 
proposed rules, has control over the agency's budget, and has the 
ability to keep an agency in an endless loop of regulatory analyses, 
OIRA will get nearly all of what it wants. This situation is 
exasperated by the lack of transparency in OIRA's role in the pre-rule-
making process.

Q3.  One of the reasons agencies have increasingly turned to guidance 
documents in order to regulate industry is that they do not require 
public notice, public comment, or OMB notice. This has allowed for more 
flexibility and reactive policies, but has sacrificed transparency, 
organization, and accountability. Do you believe the recent OMB 
bulletin proposes a reasonable method of balancing these competing 
principles?

A3. We would add to the list of reasons why agencies have turned to 
guidance documents the cumbersome and incredibly slow pace of getting 
regulations promulgated. Focusing on guidance documents ignores the 
real regulatory problems that exist in the process. The process is 
dysfunctional: it is too centralized, OIRA lacks the staff and 
expertise to judge the adequacy of the non-economic aspects of complex 
regulations, and it has increasingly imposed a once-size-fits-all 
approach to the analytical approaches used in the process.
    Far from providing a reasonable method of balancing the principles 
cited above, submitting significant guidance documents to a review 
process similar to that for regulations sacrifices all of the 
principles mentioned. One more aspect of agency action is subject to 
OIRA's black box of regulatory review thus sacrificing transparency and 
accountability; adding more categories for the small staff at OIRA to 
review sacrifices agency flexibility and reactivity to anything more 
than an individual request. That results in providing guidance one 
transaction at a time.
    Instead of implementing good guidance practices, OIRA would have 
served the administration and the public far better if it had attempted 
to fix the problems that drive agencies to issue guidance in the place 
of regulation.
                              Appendix 2:

                              ----------                              


                   Additional Material for the Record








































          Analysis of E.O. 12866 with edits made by E.O. 13422




























                        While on the Home Front

    Missing from the New York Times of January 19--and for that matter 
the Washington Post--was any attention to an executive order the 
President issued quietly on Thursday, that achieves a major increase in 
White House control over domestic government. The executive order, 
issued without explanation or accompanying press release, appears to be 
a series of technical amendments to an existing regime by which the 
White House coordinates the activities of federal agencies adopting 
regulations. Among its measures, the order

          considerably expands the range of activities embraced 
        by the order, from official regulations having the force to law 
        to less formal policy and interpretations;

          requires agencies to place control over these 
        activities into the hands of a ``presidential appointee''--that 
        is, a person whose appointment does not require senatorial 
        confirmation--unless a particular decision of hers is 
        specifically overridden by the agency's senatorially confirmed 
        head;

          requires the agency to consider in addition to its 
        statutory responsibilities issues Congress may not have thought 
        appropriate factors for decision; and

          gives the White House considerable leverage to 
        require the agency to adopt expensive and delaying procedures 
        for considering proposed regulations, that will greatly enhance 
        the effective power of participants in the process - regulated 
        industries who may have White House friends, in particular.

    It is perhaps not surprising that, having lost control of Congress, 
the President is doing what he can to increase his control of the 
executive branch. President Clinton, when he lost the Congress, also 
worked to achieve by regulation what he could not expect to do 
legislatively. Much more law is made today by regulation than 
legislation, in any event. But yesterday's steps reflect the view we 
have seen in connection with the war in Iraq as well, that the 
President is a law unto himself, entitled to act without particular 
regard to Congress's wishes.
    Senatorial confirmation gives agency heads a relationship with 
Congress as well as the White House. They are the ones Congress's laws 
empower to decide regulatory matters. Given the enormous range of 
governmental responsibilities today, it is even less thinkable now than 
it was two centuries ago that these decisions, in their detail, are for 
the President--he may consult, he may oversee, but the law places 
decisional authority in them. President Andrew Jackson had to fire two 
Secretaries of the Treasury before he could find an Acting Secretary 
willing to move government funds out the United States Bank; he and 
they understood that the decisional authority rested in them--and the 
Senate promptly refused to confirm the Acting Secretary's nomination. 
Now a presidential ukase places decisional authority in the hands of a 
person with whom the Senate has no relationship; should the President 
fire and wish to replace that person, there will be no such political 
price to pay.
    Congress also sets the factors that an agency is to consider in 
reaching regulatory decisions. It may quite deliberately exclude some 
possibly relevant factors from agency consideration. A few years ago, 
for example, the Supreme Court found that the Clean Air Act did not 
authorize the Environmental Protection Agency to consider costs. The 
new factors the executive order makes potentially decisive, in the 
hands of a person answering only to the President, effectively amend 
the law as the President--but not the Congress--wishes.
    Congress has been chary of requiring the complex procedures the 
executive order appears to place in White House control. Rule-makings 
using them, in substantial control of the participants as ordinary 
rule-makings are not, can extend for years. A quarter-century ago, when 
the DC Circuit had imposed similar requirements judicially, the Supreme 
Court said emphatically that any such decision was for Congress. Now 
the President has effectively appropriated that decision for himself--
and his political friends.
    We have long been a nation under law. The war emergency has placed 
that proposition under considerable strain. If the President's law-
transcending claims, however wrong, can be understood in that context, 
they should not be tolerated when, as now, they emerge in stealth 
documents, in the ordinary context of law-administration.

                             Dr. Peter L. Strauss
                             Betts Professor of Law
                             Columbia Law School

                 Bush Order Limits Agencies' `Guidance'

                           By Cindy Skrzycki
                  Tuesday, January 30, 2007; Page D01
    On Jan. 18, when the headlines in the United States focused on the 
war in Iraq, the new Democratic Congress and actress Lindsay Lohan's 
alcohol problem, the Bush Administration rewrote the book on federal 
regulation.
    President Bush issued an executive order curbing the power of 
agencies to regulate industry through ``guidance''--informal advice 
that falls short of official rules yet can still cost companies 
millions of dollars to comply with. The order, which also calls on 
agencies to project the cost of new rules, among other demands, gives 
the White House more power to review how they write standards to 
regulate corporate behavior.
    The amendments are ``the most serious attempts by the executive 
branch to control the regulation mills of the hundreds of federal 
agencies,'' said William Kovacs, Vice President of Environment, 
Technology and Regulatory Affairs at the U.S. Chamber of Commerce, the 
Nation's largest business lobby.
    The story behind those changes illustrates how important the 
competing sides consider rule writing. Even subtle word changes can 
have significant effects on what the chemical, oil, home-building, 
pharmaceutical and other highly regulated industries must spend.
    ``It's another thumb on the scale,'' said Sally Katzen, who headed 
the Office of Information and Regulatory Affairs, the top regulatory 
job, in the White House Office of Management and Budget during the 
Clinton Administration. ``There will be more boxes to check, more I's 
to dot, more T's to cross and more analysis.''
    Federal agencies issue guidance to interpret key policy and 
technical questions, often at the request of industry. The Labor 
Department's Occupational Safety and Health Administration, for 
example, issued 574 guidance documents between 2001 and 2005, many 
directed at the construction industry.
    Though the guidance isn't legally binding, companies pay close 
attention to it. More than 30 individuals and groups, including those 
representing funeral directors and ornithologists, filed comments about 
``good guidance practices'' for a bulletin issued with the executive 
order.
    Some, such as the American Chemistry Council based in Arlington, 
said it was ``frequently beneficial'' for agencies to have the 
flexibility to issue guidance without a formal rule-writing process. 
Still, the council and most others who filed comments backed the plan 
to rein in the practice because of concern that guidance at times 
amounted to back-door rule writing.
    Guidance should be subject to oversight by the OMB and public 
notice and comment, they argued.
    General Electric, the world's second-largest company by market 
value, said the Environmental Protection Agency issued guidance on how 
to clean up toxic chemicals, which a court ruled in 2002 was actually a 
``legislative rule.'' The Fairfield, Conn., company recommended that 
agencies be required to maintain a list of all guidance documents on 
their web sites.
    Sanofi-Aventis, France's largest drug-maker, said guidance 
documents ``can have significant impact on our business as well as on 
the ultimate lives of our customers--patients.''
    The Paris company, whose U.S. headquarters is in Bridgewater, N.J., 
recapped an experience in which the Centers for Medicare and Medicaid 
Services switched its payment policy on four drugs last year, after the 
final rule had been approved.
    Bush's executive order told agencies they must submit to the White 
House budget office for review any guidance that has an impact of $100 
million or more on the economy and make such significant 
interpretations available to the public for comment.
    Kovacs said the Chamber's complaint about guidance ``was one of the 
first issues we talked about'' with John Graham, the Administration's 
first regulatory czar at the OMB.
    Another change requires agencies to state in writing ``the specific 
market failure'' that it intends to cure with a new rule. Insufficient 
competition can be a sign of such a failure, OMB officials said. Or the 
government may have to order nutritional labeling because there 
otherwise would be a lack of information for consumers.
    The market-failure concept has taken on new emphasis with the Bush 
Administration. The President nominated Susan Dudley, the former head 
of the regulatory program at the Mercatus Center, a free-market-
oriented research group at George Mason University in Arlington, to 
replace Graham in the top regulatory job at the OMB. Dudley wasn't 
confirmed by the Senate in the last Congress and is now a top aide in 
the budget office.
    Public Citizen, a District nonprofit group that monitors 
regulation, charged that Dudley will use a market-failure standard to 
create economic barriers to protecting the public.
    Under the Bush executive order, regulators also now will have to 
estimate the total costs and benefits of planned rules. And the process 
will be overseen in each agency by a political appointee, another 
provision that public interest groups oppose.
    ``There is no question who this panders to,'' said Rena Steinzor, a 
University of Maryland Law Professor who is critical of administration 
regulatory policy. ``It's something business has wanted.''
    Jeffrey Rosen, OMB's general counsel, said: ``Simply put: What we 
are doing here is `good government.' We are building upon a process 
that has been used by presidents of both parties to try to 
institutionalize best practices.''
    Criticism of the changes is ``a tempest in a teapot,'' said Paul 
Noe, an adviser to Graham who is now a Washington lawyer. ``The 
executive order promotes better-informed and more accountable 
regulatory decisions.''
    Congress should be paying attention to the President's action 
because he is usurping the authority the lawmakers gave the agencies to 
regulate, according to Peter Strauss, a Professor at Columbia 
University Law School.
    ``It's maybe not surprising that having lost control of the 
Congress, the President is doing what he can to increase control of the 
Executive Branch,'' Strauss said.
    Cindy Skrzycki is a regulatory columnist with Bloomberg News. She 
can be reached at [email protected].

            Bush order on government regulation stirs debate

                          By Tabassum Zakaria
                                Reuters
                   Tuesday, January 30, 2007; 4:28 PM
    WASHINGTON (Reuters)--An order signed by President George W. Bush 
on the oversight of thousands of government regulations issued every 
year was praised by business as a step toward controlling an unwieldy 
process but criticized by others as potentially a loser for consumers.
    The White House said the executive order signed by Bush on January 
18 makes a senior official in each agency accountable for the 
regulations it issues and provides greater openness by ensuring that 
``guidance'' documents issued to businesses are available to the 
public.
    Business groups say the order should help businesses which have to 
wade through a myriad of regulations, sometimes conflicting ones from 
different agencies, by making one person in each agency in charge of 
overseeing the regulations issued.
    Consumer groups say the public would lose out because the order 
could slow the process by which regulations in the public interest such 
as pollution controls would be issued, and puts the process under the 
control of an official appointed by the President.
    Jeffrey Rosen, counsel at the White House Office of Management and 
Budget, called the criticism a ``mistaken argument'' and said the basic 
regulatory process in the order has been in place over both Democratic 
and Republican administrations.
    ``The basic framework is the same,'' he said of the order which 
amended an order issued by President Bill Clinton in 1993.
    ``This is just another tool for industry and their allies in the 
Bush White House to slow down and prevent agencies from getting things 
done to protect the public,'' said Robert Shull, deputy director for 
auto safety and regulatory policy at Public Citizen.
    The order requires agencies use a standard of ``market failure,'' 
which means determining whether private markets can correct a social 
problem like pollution on their own, in deciding whether government 
needs to step in, he said.
    Shull said that was too high a bar to meet as the new Democratic-
controlled Congress prepares to take on issues like global warming and 
fuel economy.
    Rosen said the new order better defines the term market failure 
from Clinton's order. On consumer advocate concerns like pollution, 
``the clarification actually helps,'' because it would be a legitimate 
basis for regulation, he said.
    Consumer groups expressed concern about the order's requirement 
that the regulatory oversight officer at the agencies be appointed by 
the President.
    ``This is really just another way of the White House getting its 
fingers in all of the agencies, manipulating all of their policies and 
all of their priorities in a way that Congress never intended,'' Shull 
said.
    Rosen said it meant more accountability. ``If you want to know 
who's responsible for regulatory decisions, here's who it is and it's a 
presidential appointee, meaning it's somebody very senior,'' he said. 
``It's a way of identifying some accountability.''
    The regulatory process puts out about 4,000 regulations every year 
in addition to the 192,000 regulations that exist, said Bill Kovacs, 
Vice President of Regulatory Affairs at the U.S. Chamber of Commerce.
    ``Imagine yourself being a small business and trying to comply on 
any given day with labor standards, health standards, pension 
standards, environmental standards,'' Kovacs said. ``So people are 
trying to find some way to get control over the process.''














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