[Senate Hearing 112-220]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-220
 
                        FEDERAL REGULATION--2011
=======================================================================

                                HEARINGS

                               before the

                              COMMITTEE ON

               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE


                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 14, 2011
                HOW BEST TO ADVANCE THE PUBLIC INTEREST?

                             JUNE 23, 2011
               A REVIEW OF LEGISLATIVE PROPOSALS--PART I

                             JULY 20, 2011
               A REVIEW OF LEGISLATIVE PROPOSALS--PART II

                               __________

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

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs

        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada *
JON TESTER, Montana                  ROB PORTMAN, Ohio
MARK BEGICH, Alaska                  RAND PAUL, Kentucky
                                     JERRY MORAN, Kansas *

                  Michael L. Alexander, Staff Director
   Lawrence B. Novey, Associate Staff Director and Chief Counsel for 
                          Governmental Affairs
                    Holly A. Idelson, Senior Counsel
               Carly A. Steier, Professional Staff Member
               Nicholas A. Rossi, Minority Staff Director
     J. Kathryn French, Minority Director for Governmental Affairs
              Mark B. LeDuc, Minority Legislative Counsel
                  Trina Driessnack Tyrer, Chief Clerk
                 Patricia R. Hogan, Publications Clerk
                    Laura W. Kilbride, Hearing Clerk

*Senator Ensign resigned on May 3 and was replaced on the Committee by 
                        Senator Moran on May 11.
                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman........................................ 1, 35, 73
    Senator Collins.......................................... 2, 36, 76
    Senator Johnson......................................... 11, 62, 93
    Senator McCain...............................................    13
    Senator Begich...............................................    15
    Senator Portman......................................... 18, 38, 95
    Senator Carper...............................................    24
    Senator Paul................................................ 50, 98
    Senator Pryor................................................    52
    Senator Coburn...............................................    52
    Senator Landrieu.............................................    53
    Senator Levin................................................    65
Prepared statements:
    Senator Lieberman.................................... 105, 114, 199
    Senator Collins...................................... 106, 118, 200
    Senator Pryor................................................   121
    Senator Portman..............................................   123
    Senator Landrieu.............................................   127
    Senator Paul.................................................   129

                               WITNESSES
                        Thursday, April 14, 2011

Hon. Cass R. Sunstein, Administrator, Office of Information and 
  Regulatory Affairs, Office of Management and Budget............     4

                           Thursday, June 23

Hon. Olympia J. Snowe, a U.S. Senator from the State of Maine....    41
Hon. Pat Roberts, a U.S. Senator from the State of Kansas........    44
Hon. David Vitter, a U.S. Senator from the State of Louisiana....    46
Hon. Mark R. Warner, a U.S. Senator from the State of Virginia...    48
Hon. Cass R. Sunstein, Administrator, Office of Information and 
  Regulatory Affairs, Office of Management and Budget............    53

                        Wednesday, July 20, 2011

Hon. Sheldon Whitehouse, a U.S. Senator from the State of Rhode 
  Island.........................................................    74
Hon. Sally Katzen, Former Administrator of the Office of 
  Information and Regulatory Affairs (1993-1998).................    79
Hon. Susan E. Dudley, Former Administrator of the Office of 
  Information and Regulatory Affairs (2007-2009).................    83
David J. Goldston, Director, Government Affairs, Natural 
  Resources Defense Council......................................    85
Karen R. Harned, Executive Director, Small Business Legal Center, 
  National Federation of Independent Business....................    87

                     Alphabetical List of Witnesses

Dudley, Hon. Susan E.:
    Testimony....................................................    83
    Prepared statement...........................................   220
Goldston, David J.:
    Testimony....................................................    85
    Prepared statement...........................................   242
Harned, Karen R.:
    Testimony....................................................    87
    Prepared statement...........................................   245
Katzen, Hon. Sally:
    Testimony....................................................    79
    Prepared statement...........................................   209
Roberts, Hon. Pat:
    Testimony....................................................    44
    Prepared statement...........................................   164
Snowe, Hon. Olympia J.:
    Testimony....................................................    41
    Prepared statement...........................................   161
Sunstein, Hon. Cass R.:
    Testimony.................................................... 4, 53
    Prepared statement........................................ 108, 173
Vitter, Hon. David:
    Testimony....................................................    46
    Prepared statement...........................................   166
Warner, Hon. Mark:
    Testimony....................................................    48
    Prepared statement...........................................   171
Whitehouse, Hon. Sheldon:
    Testimony....................................................    74
    Prepared statement...........................................   207

                                APPENDIX

Responses to post-hearing questions for the Record from:
    Mr. Sunstein, April 14, 2011.................................   111
    Mr. Sunstein, June 23, 2011, with an attachment..............   177

             Additional Material Submitted for the Record:

    Letter from Natural Resources Defense Council, dated June 23, 
      2011, submitted by Senator Lieberman.......................   115
    Letter from Coalition for Sensible Safeguards, dated June 23, 
      2011, submitted by Senator Lieberman.......................   116
    Chart titled ``Economically Significant Rules In The 
      Pipeline, 2005-2010,'' Federal Register, submitted by 
      Senator Portman............................................   126
    Letter from U.S. Chamber of Commerce, dated June 22, 2011, 
      submitted by Senator Paul..................................   135
    ``The Regulations from the Executive In Need of Security 
      (REINS) Act,'' Publication from Federalalist Society for 
      Law and Public Policy Studies, by Jonathan H. Adler, 
      submitted by Senator Paul..................................   139
    Statement of David Schoenbrod, Trustee Professor, New York 
      Law School and Visiting Scholar, American Enterprise 
      Institute, submitted by Senator Paul.......................   144
    Letter from representatives of small businesses, dated June 
      8, 2011, submitted by Senator Coburn.......................   159
    Letter from Windham Millwork, Inc., dated July 12, 2011, 
      submitted by Senator Collins...............................   204

           Additional Letters Submitted for the Record From:

    AFL-CIO, dated July 19, 2011.................................   253
    American Sustainable Business Council, dated July 19, 2011...   256
    Coalition for Sensible Safeguards, dated July 20, 2011.......   258
    Council for Occupational Safety and Health, dated July 19, 
      2011.......................................................   260
    Demos, dated July 20, 2011...................................   262
    Main Street Alliance, dated July 19, 2011....................   264
    OMB Watch, dated July 19, 2011...............................   266
    Public Citizen, dated July 20, 2011..........................   268
    UAW, dated July 20, 2011.....................................   270
    Union of Concerned Scientists, dated July 20, 2011...........   272


      FEDERAL REGULATION: HOW BEST TO ADVANCE THE PUBLIC INTEREST?

                              ----------                              


                        THURSDAY, APRIL 14, 2011

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:06 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, presiding.
    Present: Senators Lieberman, Carper, Begich, Collins, 
McCain, Johnson, and Portman.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. I want 
to thank everybody for being here. This is a hearing on 
``Federal Regulation: How Best to Advance the Public 
Interest.''
    The hearing is occasioned by an interest, once again--I do 
not know that the interest in regulatory reform ever goes away, 
but it seems to have peaked again. We have several pieces of 
legislation before the Committee about which we are going to 
hold a hearing in June. But we thought it would be important to 
convene this hearing with Cass Sunstein to really set the 
predicate for what is to follow, both to discuss the values, 
the concepts of law that are at play here, and Mr. Sunstein is 
particularly well-suited to do that based on his long 
experience in this area, but also to discuss, to the extent 
that he wants, the initiative that President Barack Obama took 
in January toward regulatory reform.
    This is another one of those issues where probably there is 
more agreement than the tenor of the debate would indicate, or 
the content of the debate would indicate, which is to say that 
I have not yet met anybody who does not think there should be 
some regulation. Regulation emerges to implement laws that we 
pass--one of the first major legislative experiences I had was 
in the amendments to the Clean Air Act in 1990, which 
fortunately were adopted on a broadly bipartisan basis. But we 
are dealing with a topic so large that you simply could not 
cover it in the law, so regulations follow to achieve that 
purpose and need to be based in that exercise of congressional 
authority.
    I suppose the question is how effectively it is done. 
Inevitably, regulations ask something of individuals, 
businesses, etc. They impose requirements. Some people think 
that the requirements are, in case to case, burdensome and 
beyond what either was intended by Congress or beyond what they 
achieve. I am always affected by this, and maybe this takes me 
back to the fact that nobody ever argues for no regulation just 
as no one argues for no law. This is the insight of the Talmud 
in which one of the rabbis says that if there was no 
government, unfortunately, by our nature, people would act like 
fish, which is that the larger ones would eat the smaller ones.
    And so it is a bit vivid, I would say, but it makes the 
point that the law exists to make this a more orderly and fair 
society. The point, as always, in this is to find processes in 
a government, which has become very large and very complicated 
really, that find the sweet spot, that regulates, if I could 
put it this way, as little as possible to achieve the 
objectives that the laws that Congress adopts have.
    Again, I cannot thank Mr. Sunstein enough for being here 
because he is perfectly situated by both past and present to 
help us set the table, if you will, for our focus on the 
legislative proposals that are before our Committee because, 
again, Office of Information and Regulatory Affairs (OIRA), 
which Mr. Sunstein heads, is within the governmental affairs 
jurisdiction of this Committee. So I thank you for being here. 
I look forward to your testimony and the question and answer 
period.
    I now call on Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman. I was trying to 
think of a Catholic analogy to the one that you quoted from 
Jewish tradition---- [Laughter.]
    Chairman Lieberman. I am sure there are many.
    Senator Collins [continuing]. But since none comes 
instantly to mind, I am going to proceed with my statement 
instead.
    At the outset, I want to thank the Chairman for holding 
this hearing today and also for agreeing to schedule another 
hearing soon on the many legislative reform proposals that have 
been referred to our Committee. With these hearings, we begin 
our review of the Federal regulatory process, how it works now, 
what its impact is on jobs, the economy, and our well-being, 
and how it might work better in the future.
    We are beginning this review with the Office of Information 
and Regulatory Affairs. I welcome its Administrator, Cass 
Sunstein, back to our Committee and look forward to hearing his 
views on how the regulatory burdens on our economy, especially 
on our smaller businesses, can be lightened or simplified.
    Although few outside of Washington are familiar with OIRA, 
it, in fact, has tremendous influence on the regulations that 
affect the everyday lives of Americans. Through the process of 
regulatory review, OIRA plays a critical role in shaping the 
rules by which Federal laws are implemented. OIRA both 
informally advises agencies as they are developing their rules 
and then formally reviews the rigor of the methodologies used 
to develop the regulations.
    In Administrator Sunstein's confirmation hearing, I noted 
with approval his support for cost-benefit analysis as well as 
his recommendation that agencies be required to explain a 
decision to regulate when the costs of a proposed rule exceed 
its benefits. I also noted that he recognized that such 
analysis has limitations when it comes to considering 
intangible costs and benefits.
    The idea of using cost-benefit analysis is not new, of 
course. In 1981, President Ronald Reagan issued an Executive 
Order (EO) prohibiting agencies from issuing regulations unless 
the potential benefits to society from regulation outweighed 
the potential costs. In 1993, President William Clinton issued 
an Executive Order that incorporated cost-benefit analysis 
requirements. And, of course, in January of this year, 
President Obama issued his own Executive Order.
    When President Obama issued his Executive Order, he also 
authored an op-ed piece in the Wall Street Journal in which he 
said that Federal regulations have ``sometimes gotten out of 
balance, placing unreasonable burdens on business, burdens that 
have stifled innovation and have had a chilling effect on 
growth and jobs.'' I agree. All too often, it seems that 
Federal agencies do not take into account the impact on small 
businesses and job growth before imposing new rules and 
regulations. Without a thoughtful analysis of the impact of 
regulations, we risk imposing an unnecessary burden on job 
creation, an unacceptable result at a time when so many 
Americans remain without jobs.
    Furthermore, too often, I have seen the goals of one agency 
directly contradicted by the regulations of another agency. Let 
me give you a concrete example. Last year, the Environmental 
Protection Agency (EPA) proposed new regulations known as 
Boiler Maximum Achievable Control Technology (MACT). These 
regulations, as originally proposed, could have cost Maine 
businesses $640 million, despite the availability of less 
costly approaches to address boiler emissions. These proposed 
rules also pitted two agencies directly against each other. The 
Department of Energy at that time had recently awarded a Maine 
high school a $300,000 grant to help buy a new wood pellet 
boiler to reduce the school's use of fossil fuels. But because 
the EPA's proposed regulations would have greatly increased the 
cost of that boiler, the school board ended up turning down the 
Federal grant.
    Another example of poorly thought out regulation was the 
EPA's new lead paint rule. While all of us want to see lead 
paint removed or contained for health and safety reasons, the 
EPA's flawed implementation of its lead paint regulations would 
have imposed an impossible burden on our carpenters, painters, 
plumbers, and electricians; virtually everyone in the 
construction industry. The rules required contractors who 
worked in homes built before 1978 to be EPA certified or to 
face massive fines of up to $37,500 per violation per day. That 
is more than many of the painters and carpenters and plumbers 
and electricians in my State make in an entire year.
    At the time, however, there were only three certification 
trainers in my entire State and all of them were in Southern 
Maine. Two States had no trainers at all. I am looking at my 
colleague from Alaska, who was a co-sponsor with me of this 
amendment and had a similar problem in the vast State of 
Alaska.
    So last June, the Senate passed a bipartisan amendment that 
I authored by more than 60 votes to extend the training 
deadline and to delay the punitive fines until the trainers 
were in place. The support for my amendment was a strong 
indication that many States were facing this regulatory catch-
22 of being required to get contractors certified from non-
existent trainers.
    Last month, I offered legislation which I call the Clearing 
Unnecessary Regulatory Burdens (CURB) Act to clear unnecessary 
regulatory burdens that are holding our job creators back. My 
proposal would codify the cost-benefit analysis provisions of 
President Clinton's Executive Order, impose good guidance 
practices on Federal agencies, and help small businesses that 
face penalties for first-time non-harmful paperwork violations.
    The struggling economy has challenged our Nation's 
entrepreneurial spirit. We are recovering and that recovery 
will come from the innovative and bold job creators of 
America's small business community. I look forward today to 
hearing Mr. Sunstein's testimony on how we can work together to 
improve the regulatory process to ensure that we are not 
crushing that entrepreneurial spirit that produces innovation, 
economic growth, and most important, new jobs. Thank you, Mr. 
Chairman.
    Chairman Lieberman. Thanks very much, Senator Collins.
    I cannot resist, in continuing the Catholic-Jewish 
dialogue, recalling for the record--the first time I have had 
the honor to do this--that almost 10 years ago, there were 
eight or nine Senators--Senator McCain was with us--who went 
over to Afghanistan after we had won the war at the outset 
there, and we were on a military plane flying back. It was a 
very long flight, and for some reason, Senator Collins, Senator 
Jack Reed and I got into a debate to pass the time on the 
relative merits of Catholic guilt versus Jewish guilt. 
[Laughter.]
    And after an hour--it seemed hard to imagine we could spend 
that much time, but again, we were trapped in a plane, and 
Senator Fred Thompson was next to us snoring loudly--do you 
remember that?
    Senator Collins. I do. [Laughter.]
    Chairman Lieberman. And Senator Collins closed the 
argument, as she very often does by saying, OK, let us agree 
with regard to guilt that your people created it and my people 
perfected it. [Laughter.]
    What relevance that has here--I suppose if there was more 
guilt, there would be need for less law and regulation because 
people would always do the right thing.
    You need not respond in any ecumenical way, Mr. Sunstein, 
but we are glad you are here.
    He is Administrator of the Office of Information and 
Regulatory Affairs within the Office of Management and Budget 
(OMB), and before that, really one of America's leading law 
professors, writers, and experts on administrative law. Thank 
you for being here.

TESTIMONY OF HON. CASS R. SUNSTEIN,\1\ ADMINISTRATOR, OFFICE OF 
 INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND 
                             BUDGET

    Mr. Sunstein. Thank you, Mr. Chairman, Ranking Member 
Collins, and Members of the Committee. You are witnessing not 
only a discussion of regulation but a Catholic-Jewish marriage. 
My wife, Samantha Power, is here, and our wedding, which was 
relatively recent, was blessed personally by the Pope--a story 
which I will tell you if you like--and I hope and trust by my 
many rabbinical ancestors, as well.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Sunstein appears in the Appendix 
on page 108.
---------------------------------------------------------------------------
    Chairman Lieberman. Good beginning.
    Mr. Sunstein. I am grateful to have the opportunity to 
appear before you--honored, even--to discuss the topic of 
Federal regulation and regulatory review. As both of you 
indicated, the President issued an Executive Order on January 
18, 2011, an historic Executive Order, and that will be my 
principal focus.
    I will also briefly discuss a presidential memorandum 
involving small business also on January 18, which focuses in 
particular on protecting small businesses, as job creators from 
excessive regulation.
    And I will say a bit about a presidential memorandum more 
recently, from late February, with the title ``Administrative 
Flexibility,'' which is focused in particular on streamlining 
regulations imposed on economically challenged State, local, 
and tribal governments. So there, the emphasis is on protecting 
them from undue regulatory and paperwork requirements.
    The new EO 13563 is meant to lay the foundations for a 
regulatory system that protects public health, welfare, safety, 
and our environment while also--and this is in the first 
sentence of the Executive Order--promoting economic growth, 
innovation, competitiveness, and job creation. The words ``job 
creation'' are up front in the new Executive Order. It requires 
a series of concrete steps to achieve that overriding goal.
    As Senator Collins indicated, the process of regulatory 
review was actually initiated by President Reagan in 1981, 
shortly after assuming office, and continued by President 
Clinton with an Executive Order in 1993. The two documents, 
that is, the Clinton and Reagan documents, are continuous in 
the sense that they both require careful consideration of costs 
and benefits--that has been at the heart of regulatory review 
now for decades; for tailoring regulations to impose the least 
burden on society, which the Chairman referred to in his 
opening remarks; for selection of the approach that maximizes 
net benefits, which means even if the benefits justify the 
costs, we ought to find an approach that drives the cost down 
and drives the benefits up to the extent permitted by law; for 
consideration of alternatives, a point that has turned out to 
be extremely important in the last 2 years, where we have 
sought to identify alternatives that maybe are more creative, 
less costly, more beneficial; and for a process of interagency 
review, which the Office of Information and Regulatory Affairs 
coordinates.
    President Obama's Executive Order, issued on January 18, is 
designed to supplement and to improve that process. In 
reaffirming the Clinton Executive Order, which, you recall, 
reaffirms many of the core principles of the Reagan Executive 
Order, it also stresses as no similar Executive Order had 
before the need for predictability and certainty, responding to 
the emphasis in the last years on concern that regulation had 
become less predictable in a way that had deterred economic 
growth.
    The new Executive Order squarely affirms the need to ensure 
that the benefits of regulation justify the costs, emphasizes 
the importance of attending to cumulative burdens which often 
can run the burdens imposed by individual regulations, and 
emphasizes in an unprecedented way the need to measure and seek 
to improve the actual results of regulatory requirements. That 
is a quotation.
    Second, the Executive Order calls for increased public 
participation. It directs agencies to promote an open 
exchange--that is the language of the EO--that involves not 
only a 60-day period of public comment before rules are 
finalized, an opportunity to receive input on rules to correct 
errors, but also use of the Internet to provide for the first 
time access both to rules and to supporting documents, such as 
technical and scientific documents, so that they can be 
corrected by the public if there is an error.
    The Executive Order also asks agencies to act even in 
advance of rulemaking to seek the views of those who are likely 
to be affected. This emphatically includes small business, to 
seek their views before regulations are even proposed.
    Third, the Executive Order directs agencies as no President 
had so clearly in the past to harmonize, simplify, and 
coordinate rules. Senator Collins referred to the risk that 
agencies will impose conflicting and inconsistent requirements. 
The President has squarely addressed that risk by saying that 
to promote simplicity and to reduce costs, agencies must 
coordinate with one another in a way that will promote advance 
planning and prevent confusion.
    Fourth, the Executive Order directs agencies to consider 
flexible approaches--that is the name of the section to which I 
am pointing--that reduce burdens and maintain freedom of choice 
for the American public. I would like to underline those words, 
maintain freedom of choice for the American public. The idea 
here is that to the extent that the law permits, agencies 
should give careful consideration to and identify approaches 
that promote flexibility, allow companies both large and small 
to find their own best, cheapest, most effective ways of 
promoting the end in question. Flexible approaches may, for 
example, include provision of information rather than a flat 
ban, or public warnings rather than a mandate.
    Fifth, the Executive Order calls for scientific integrity. 
There has been bipartisan emphasis on the need to ensure that 
the information that underlies regulatory judgments is 
objective, and this Executive Order more clearly than anything 
that preceded it calls for regulatory processes to include the 
scientific integrity principles that have recently been applied 
elsewhere in the Federal Government and that must animate 
regulatory choices.
    Sixth and finally--this is the last one on the Executive 
Order--there is a call for retrospective analysis of existing 
rules. What the Executive Order does is to ask for periodic 
review to ensure that rules that might be outmoded, 
ineffective, insufficient, or excessively burdensome--these are 
rules that are already on the books, not new ones--are 
revisited periodically and streamlined. The Executive Order has 
a concrete requirement here, which is by May 18--an important 
date--agencies are now required to produce preliminary plans 
for that retrospective review, and we have seen impressive 
results in the last months of agencies going back, revisiting 
proposed, and longstanding rules to increase flexibility and 
diminish costs.
    Briefly on the Memorandum on Small Business, what the 
President has done here is squarely to direct agencies to 
consider methods to reduce those regulatory burdens, methods 
that include simplified reporting and compliance requirements, 
so the paperwork burden is lower next year than it is today; 
extended compliance dates, so small businesses which often have 
a harder time complying have more time in which to comply; and 
even partial or total exemptions.
    The most noteworthy part of the President's Memorandum on 
Small Business may be the specific requirement that if agencies 
are not providing flexibilities for small businesses, they must 
specifically explain themselves. No president had done that 
before.
    The Memorandum on Administrative Flexibility, as noted, 
focuses on State, local, and tribal governments. It 
acknowledges, as Senator Collins noted in general, that there 
are sometimes onerous requirements imposed on them, and asks 
the Director of the Office of Management and Budget to explore 
how best to eliminate those unnecessary requirements, and 
directs agencies within 180 days to identify requirements that 
can be streamlined, reduced, or eliminated.
    In the recent past, in a quite remarkable development, 
countless agencies in the Federal Government have been reaching 
out to the public for ideas about how to eliminate or 
streamline excessive regulations. The Environmental Protection 
Agency, the General Services Administration, the Department of 
Transportation, the Department of Defense, the Department of 
Energy, the Department of Treasury, and many more have issued 
Federal Register notices saying, help us to comply with the 
President's requirement. Not only that, a number of agencies 
have created Web sites dedicated to the purpose of regulation, 
regulatory reform, and regulatory relief.
    The Executive Order and the two memoranda create strong 
foundations for improving regulation and regulatory review in 
an economically challenging time. I greatly appreciate the 
Committee's interest in this topic and look forward to 
answering your questions.
    Chairman Lieberman. Thanks very much. That was an excellent 
opening statement.
    We will do a round in which Senators will have 7 minutes 
each to question.
    Let me get to this basic test that, as you said, has been 
fundamental to the regulatory process or attempts to reform it, 
which are to try to calculate costs against benefits of 
particular regulations, and necessarily, I will get to the 
retrospective part of it in a minute, but some of this has to 
happen before we actually know, so we are trying to make 
educated guesses. And I know it is a requirement that OMB 
submit regular reports annually, I guess, in this regard to 
Congress.
    Tell us a little bit more, without telling us too much, 
about how you rationally go about calculating costs and 
benefits.
    Mr. Sunstein. Some of it is very straightforward. So if you 
have a regulation, let us say it is a regulation that involves 
automobile safety, it may cost companies a certain amount of 
money to make their cars safer, and then we work with 
companies, which provide relevant information, to find out what 
the cost is, and if the information provided by the companies 
looks inflated or may be too low, we have a very careful 
reality check which involves a number of parts of the Federal 
Government, including the Council of Economic Advisors. So on 
the cost side, if the cost is purely economic, basically, we 
need to see what companies, consumers, and workers are going to 
bear.
    On the benefit side, there are a number of regulations that 
provide monetary benefits, such as a recent, this week, rule 
that eliminates the application of the oil spill rule to milk 
producers. That one, which has been called for by many Members 
of Congress, is going to save companies $140 million a year, 
mostly small business, by the way. So that is economic.
    There are others that are not strictly speaking economic 
benefits, but you are going to save lives or make people 
healthier. For example, there is a Food and Drug Administration 
(FDA) regulation involving salmonella. It involves best 
practices with respect to eggs. And there are well established 
techniques for trying to turn those health and safety benefits 
into monetary equivalents. What we are typically talking about 
with respect to death is a risk of death, and economists have 
what Republican and Democratic Administrations have agreed are 
at least state-of-the-art techniques for valuing that. But it 
is important to see that the economic benefits, purely economic 
benefits, really matter. Frequently, regulation involves 
protecting lives, and sometimes significant numbers of lives.
    Chairman Lieberman. Yes. That is a very helpful answer. It 
always strikes me that it is easier to calculate the costs. For 
instance, in your case, you speak to the auto industry about 
the costs of a particular regulation. They can do pretty well 
at estimating it. It is harder in advance to--but maybe there 
is a credible system--to calculate the benefits, because often, 
obviously, when you try to monetize them, the benefits are of 
costs that are avoided. So those are often subject to dispute 
and debate.
    But really, what you are saying is that--and I appreciate 
it--both Republican and Democratic Administrations have 
accepted some of the science now of calculating benefits. I 
guess the question in the example is whether the auto industry 
accepted the science of calculating the benefits as opposed to 
the costs that they knew were real.
    Mr. Sunstein. Our rules involving fuel economy are among 
our most expensive rules. They are saving consumers a great 
deal of money, actually billions of dollars in terms of reduced 
costs from gasoline. So this is, especially in a situation 
where the cost of gasoline is increasing, the fuel economy 
standards are going to save a lot of money. So consumers are 
gaining a great deal.
    The automobile companies themselves actually not merely 
accepted the analysis and the outcome, but participated in 
celebrating it on the ground that it helped solve a problem of 
the sort to which Senator Collins referred, of lack of 
coordination of two kinds: Lack of coordination between the 
Department of Transportation and the Environmental Protection 
Agency--they had to mesh their legal authorities, and they did; 
and lack of coordination between State governments and Federal 
Government, in particular California, and these were meshed, as 
well. So in this case, the auto companies were very helpful 
with respect to the analysis of costs, but also were 
informative with respect to the analysis of benefits.
    Chairman Lieberman. I am going to go to the retrospective 
analysis that you are asking for now, because obviously there, 
in simple terms, you are still estimating, but there is 
experience to inform as opposed to the estimate of what is 
happening. In March of this year, EPA put out a report on the 
benefits and costs of the Clean Air Act, which I referenced in 
my opening statement, from 1990 to 2020, so part of it is look-
back, but part of it, obviously, is still forward, and the 
benefits were substantially greater than the initial 
prospective analysis. A note at the bottom here, ``The most 
influential change appears to result from updates over the last 
decade in the epidemiological studies which provide estimates 
of changes in population, risk of premature mortality 
associated with exposure to fine particles.''
    Has this report been broadly accepted by people who are 
regulated under the Clean Air Act of 1990, because more of it 
is the look-back?
    Mr. Sunstein. That particular report was subject to peer 
review----
    Chairman Lieberman. Yes.
    Mr. Sunstein [continuing]. So it was carefully analyzed by 
specialists. I do not know whether it has received a careful 
assessment by those who are subject to regulatory requirements. 
I do know it is broadly agreed that the benefits of the Clean 
Air Act, on balance, exceed the costs of the Clean Air Act.
    Chairman Lieberman. My time is rapidly expiring. Let me ask 
for a quick response. Just add a little bit more on that 
interesting case because I saw you blogged on it the other day, 
about the milk products and milk product containers which were 
originally included--which surprised people, I suppose--in oil 
spill prevention regulations. EPA then delayed compliance by 
the milk sector while it reviewed their concerns. And then, as 
you say, the agency decided it would place unjustifiable 
burdens on dairy farmers and producers. Can you give us a quick 
explanation of what happened there because that is the way the 
process should work, I think most of us would say. How did it 
get to that point?
    Mr. Sunstein. Yes. One of the representatives of the dairy 
industry, who had been arguing for this exemption, said on the 
day it was announced the phrase ``Got Milk?'' does not 
ordinarily mean the same thing as the phrase ``Got Oil?'' He 
was trying to explain that this was a common sensical decision.
    Chairman Lieberman. Yes.
    Mr. Sunstein. It has a complicated history. Roughly, the 
original definition of oil could pick up milk products under 
the statute from the 1970s. There is a subsequent statute that 
gave EPA the authority to make adjustments to the original 
definition. In 2006, 2007, 2008, the milk industry said that 
this exemption, you have to make, because you are imposing 
costs on us, and while oil has serious environmental effects, 
the kinds of milk spills that this would control, this is 
imposing costs for no significant environmental benefit.
    The Bush Administration proposed, actually, in its final 
week, I believe, an exemption of milk. What we did was actually 
to broaden the exemption. It is less conditional and it is 
broader than what was initially proposed.
    Chairman Lieberman. Thank you very much, Mr. Sunstein. My 
time is up. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Administrator Sunstein, what I have found is that cost-
benefit analysis can be subjected to very strange 
interpretations on what is the benefit. So let me give you an 
example by illustrating from a recent EPA rule on waste 
incinerators. According to reports, the EPA counted as a 
benefit the cost to firms of hiring workers to comply with the 
new regulations. Now, I doubt that any small business that was 
subjected to this new regulation would consider it a benefit to 
have to hire new employees specifically to comply with the 
regulation, yet EPA put it this way: ``Environmental 
regulations create employment in many basic industries.'' So 
translated into English, the EPA is actually saying that the 
regulations create jobs by forcing companies to hire more 
people to comply with the regulations. Do you believe that is 
what is intended by a benefit of regulation?
    Mr. Sunstein. No, I do not, but I can tell you what my 
recollection is of what the EPA actually said. I take your 
point completely. My recollection is that the EPA did not count 
the increased jobs that come from needing to comply with a 
regulation as a benefit, as part of cost-benefit analysis. So 
there was a part of the regulatory impact analysis which 
analyzes benefits and costs with great care and finds ways to 
reduce costs, and then there is a separate part of the document 
that analyzes job effects and that is responsive not only to 
the President's call in the Executive Order to investigate job 
creation, but also the concern that many people have expressed 
about the adverse effects--the potentially adverse effects of 
environmental regulation on jobs.
    And so what the EPA was doing there was not saying the fact 
that you have to hire people to comply is an independent 
benefit that jacks up the benefit figures. It was just trying 
to make a projection of the total employment consequences of 
the rule, and for a typical environmental regulation, there can 
be adverse effects--if you increase cost, that is not a great 
thing by itself for job growth--but it can also be the case 
that you, by virtue of imposing costs, produce some more 
employment, which may not be a wonderful thing from the 
standpoint of competitiveness, but does suggest that when you 
are thinking about job growth as such, there may be an offset.
    Senator Collins. I will tell you that a small business or 
even a larger business that reads that regulation and looks at 
what EPA is doing assumes that EPA is saying that the fact that 
the company has to hire more people to comply with the new 
regulations is a benefit. I understand your more sophisticated 
analysis, but that is certainly what it sounds like.
    Let me switch to a different issue. There are rules, in 
fact, there are many rules where the benefits do outweigh the 
costs and the regulations may, in fact, be worthwhile. But 
there may nevertheless, be a less expensive way of achieving 
those benefits or of achieving most of those benefits. Often, 
the complaint that I hear--and I heard it just this last week 
from wastewater treatment plant operators in Maine who were 
criticizing EPA--is that the marginal benefit is so small 
compared to the cost. That is a slightly different issue. Does 
OIRA look at whether there is a less expensive way of achieving 
the benefits that EPA or other agencies might propose?
    Mr. Sunstein. Yes, we do, Senator Collins, and this is 
something that the President has placed a great emphasis on in 
the Executive Order. So there are a couple separate ideas here. 
One is that independent of the benefits having to justify the 
costs, we have to find the approach that maximizes net 
benefits, and that is kind of technical speak, but it is 
exactly on the point that you raise, where you can have a rule 
where the benefits are a little higher than the costs, but 
maybe there is a way of doing it where the costs go way down 
and the benefits go just a little down and the net benefits are 
way higher that way, and we are really interested in that.
    One thing that the notice and comment process does is to 
raise alternatives and have an analysis of costs and benefits 
for those. So if we have situations where the benefits are 
justifying the costs, that is a good thing, but we are not 
maximizing net benefits, there is a problem and we should do 
better.
    The President's emphasis on flexible approaches, and 
Section 1 of the Executive Order refers to performance 
standards rather than design standards, that is designed to say 
to companies, we will not tell you how to do it. We will tell 
you the outcome. You choose the way. So there are a bunch of 
ideas in this very short Executive Order that are meant 
squarely to address that problem.
    Senator Collins. Well, I want to thank you for taking a 
look at many of the regulations that have been issued and 
applying a more common sense approach, so that we can achieve 
benefits without so overburdening our businesses that they 
cannot create jobs and we are getting only a marginal benefit. 
I know you have worked very hard in a number of areas to 
achieve that goal, and I appreciate it.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you very much, Senator Collins.
    In order of appearance this morning, we will call on 
Senators Johnson, McCain, Begich, and Portman. Senator Johnson.

              OPENING STATEMENT OF SENATOR JOHNSON

    Senator Johnson. Thank you, Mr. Chairman.
    Mr. Sunstein, welcome. Recently, probably within the last 
year, the Small Business Administration issued a report that 
estimated the annual cost of Federal Government regulations at 
about $1.7 trillion a year, which is more than 10 percent of 
our total Gross Domestic Product. Is that a number that you 
pretty well agree with?
    Mr. Sunstein. I have not studied that document with care. 
Our own analysis of costs and benefits, annually and 
cumulatively, suggests that number is too high.
    Senator Johnson. What would your analysis put it at?
    Mr. Sunstein. Well, I can tell you based on the last 2 
years, the total costs of final economically significant 
regulations are about $11.9 billion, and if you look at the 2-
year average over the course of the decades for which we have 
numbers, that number, $4 or $5 billion a year, is not way off. 
Two-thousand-and-seven was the big year for regulation in the 
recent past under the Bush Administration and there, it was 
significantly over that $11 billion figure. But if you add them 
all up, it is going to be hard to get in the trillions.
    There is a paper by a guy named Thomas Hopkins, who tried 
to estimate the aggregate figure, and it was significantly 
lower than those trillions.
    Senator Johnson. But you are saying your own analysis has 
$11 billion versus $1.7 trillion?
    Mr. Sunstein. Well, no. The $11 billion is for the last 2 
years, our addition to the stock. So what the Crane and Crane 
study to which you refer tries to do is think of the total 
costs of all regulations and we do not have an analysis of 
that, OMB and OIRA do not. What we do have an analysis of is 
each year, and we have an analysis of decades, and if we are 
adding to the stock, I hope the numbers are as low as possible 
for us, but if you are adding to the stock as the Clinton 
Administration did, roughly $5 billion a year, then it is going 
to be hard to get you up in the trillions.
    Senator Johnson. If you are adding $5 billion a year, what 
is the benefit of that, then? What is your estimate of the 
benefit?
    Mr. Sunstein. Well, what I can tell you is our benefit 
estimate is over $40 billion--the discussion we just had with 
Senator Collins--actually, for our first two fiscal years, the 
net benefits of the Obama Administration are more than three 
times the net benefits of the Clinton Administration and more 
than 10 times the net benefits of the Bush Administration in 
its 2 years.
    Senator Johnson. I am not an attorney, but as I read this 
Executive Order, to me, it looks like it is sort of putting the 
burden of proof on a cost-benefit analysis on the agency. Is 
that kind of how you view that Executive Order?
    Mr. Sunstein. I think that is fair.
    Senator Johnson. In terms of just classic cost-benefit 
analysis, I mean, it really is pretty simple--from a 
manufacturer's standpoint, if you have a piece of equipment 
that is broken, it costs me $25,000 to repair it, I look at 
what is the revenue stream. If it is a couple hundred thousand 
dollars, I go, yes, I am going to spend that $25,000.
    My concern with this Executive Order is I think there is 
just a huge loophole, and I am sure you are aware of the 
phrase, in terms of measuring benefits, it allows the agency to 
take into account values that are difficult or impossible to 
quantify, including equity, human dignity, fairness, and 
distributive impacts. I mean, is that not a rather large 
loophole? Is that not a pretty amorphous standard? I mean, how 
can you even begin to--and again, I am looking at the standards 
you also put on there in terms of something that is measurable, 
predictable, certain, something with scientific integrity. How 
can you defend that type of standard?
    Mr. Sunstein. Thank you for that, Senator. I can walk you 
through, if I may----
    Senator Johnson. Sure.
    Mr. Sunstein [continuing]. The structure of the Executive 
Order on this. The immediately preceding sentence requires 
quantification through the best available techniques in a way 
that is more focused on quantifiable measures than any 
President has been in the past. So the opening sentence of that 
section is quantify, in italics.
    Then there is a recognition that under relevant statutes, 
which is what this Executive Order is ensuring implementation 
of, under relevant statutes, there are sometimes values that 
cannot easily be turned into monetary equivalents. I will give 
you a couple of examples, both involving dignity.
    There were rules issued by the Department of Justice 
involving access to buildings, both public and private, and the 
quantifiable benefits well exceeded the quantifiable costs. The 
Department of Justice did a very quantitative analysis of the 
benefits and costs. But for one provision, we are talking about 
access to bathrooms for people who are in wheelchairs, and the 
Department of Justice acknowledged without embarrassment that 
if we are speaking about wheelchair-bound people--a number of 
them may be veterans returning from wars--who are now going to 
be able to use bathrooms without relying on their colleagues 
for assistance to get in the room, that has something to do 
with dignity under the----
    Senator Johnson. And those are wonderful things. We all 
agree with that. But again, the purpose of this Executive Order 
was to put a burden of proof on the agencies, and when you have 
such an amorphous standard, including distributive impacts--I 
am not quite sure what that is. I mean, the EPA, I think in one 
of their rulings, is environmental justice. How does that 
create a burden of proof when it is a loophole that you can 
drive a truck through?
    Mr. Sunstein. Well, as it is operating on the ground, it is 
hardly a loophole. It is a recognition that under some 
statutes, a statute that prevents rape, a statute that is 
designed to prevent children from being run over in driveways 
by ensuring better rearview visibility, under some statutes, 
there is a value that is not readily turned into a monetary 
equivalent and agencies may--it is just a ``may''--consider 
that.
    I take your point completely that in the abstract, a 
reference to qualitative values can be harmful to the 
enterprise. But on the ground, if you look at what happened in 
the Bush and Clinton Administrations, which had distributive 
impacts, also, and equity, this was just a nod in the direction 
of statutes that may be concerned with protecting people from 
sexual harassment, which may not easily be turned into dollar 
equivalents. It is not intended and it will not operate as an 
obstacle to the enterprise of ensuring that we get the costs as 
low as possible and the benefits as high as possible.
    Senator Johnson. Thank you.
    Chairman Lieberman. Thank you, Senator Johnson. Next is 
Senator McCain.

              OPENING STATEMENT OF SENATOR MCCAIN

    Senator McCain. Welcome, sir. Are you familiar with the 
ongoing rulemaking for the proposed Department of Agriculture 
(USDA) Catfish Inspection Office?
    Mr. Sunstein. Yes, sir.
    Senator McCain. Are you aware of the recent GAO report 
entitled, ``Opportunities to Reduce Potential Duplication in 
Government Programs and Save Tax Dollars,'' that warrants the 
proposed USDA Catfish Inspection Office as duplicative, high 
risk for waste, further fragments our food safety system, and 
estimates it will cost $30 million just to implement the new 
USDA Catfish Inspection Office?
    Mr. Sunstein. I am aware of the existence of that report, 
but I have not read it.
    Senator McCain. Well, it is only $30 million. You might 
want to take a minute. So you would not know how much it would 
cost taxpayers to continue operating the USDA Catfish 
Inspection Office after it has been established?
    Mr. Sunstein. What I do know is that the proposed rule, and 
it is merely a proposed rule, has a wide range of alternatives, 
and consistent with the President's call for public 
participation and comment, the USDA is receiving a lot of 
comments not only on what option it ought to select, but also 
on exactly the issue to which you point, which is the cost 
issue.
    Senator McCain. Are you consulting with the U.S. Trade 
Representative in the State Department because they obviously 
have significant concerns, as well?
    Mr. Sunstein. Yes. We have worked very closely with them on 
this issue.
    Senator McCain. Your biography mentions that you authored a 
book, Laws of Fear Beyond the Precautionary Principle, which 
Cambridge University Press synopsizes as ``attacking the idea 
that regulators must always take extreme steps to protect 
against potential harms, even if we do not know that harms are 
likely to come to fruition.'' Is this USDA Catfish Inspection 
Office driven by food safety fears or an issue drummed up by 
the domestic catfish industry and farmville politics?
    Mr. Sunstein. Well, the Secretary of Agriculture is very 
aware of his obligations to implement the law, and what the 
rule to which you are referring begins with is a recitation of 
the language of the farm bill of the statute. So he is in the 
implementation business in this area, as well, and the analysis 
that accompanies the rule, as you will see, it is very long, 
has a detailed, science-driven account of the possible costs 
and possible benefits.
    Senator McCain. So the commentary comes back to the actions 
of Congress. They snuck a phrase into a massive bill which now 
has the effect, according to the Government Accountability 
Office, that will cost the taxpayers an additional $30 million, 
again, emphasize the redundancy between two different agencies 
and overlap between two different agencies, all in the name 
of--and, of course, if this is implemented, it will cause a 
fight at the World Trade Organization (WTO). It will obviously 
increase the cost dramatically or even shut off the importation 
of catfish, which then the consumer pays a higher price even. 
There is an article in the Wall Street Journal this morning 
about the higher price of catfish triggered by ethanol, because 
the corn growers now sell their corn for ethanol rather than 
feeding various consumers of it in the animal world. So we find 
ourselves in a rather interesting cycle, which the ultimate 
victim is the unwitting taxpayer. Would you disagree with that 
rant? [Laughter.]
    Mr. Sunstein. Thank you, Senator. I guess what I would say 
is that this is a proposed rule. Whether the adverse 
consequences to which you point are possibly going to occur 
depends on what alternative the U.S. Department of Agriculture 
chooses. Your comments and those comments of others who are 
concerned about one or another of the proposals are more than 
welcome. They are needed to make sure we make the right 
decision.
    Senator McCain. And thank you. By the way, if we get into 
this kind of trade dispute with Vietnam, it would cut off the 
tens of millions of dollars of exports that we have of our 
agricultural products to Vietnam.
    Mr. Sunstein. We work very closely with the U.S. Trade 
Representative to make sure there are not violations of any 
agreements and to make sure that what is done in the regulatory 
area is consistent with our interest in trade and exports, 
partly because of the connection to jobs.
    Senator McCain. Given your vast academic background and 
candor and good work, do you have an opinion on ethanol tax 
credit.
    Mr. Sunstein. Not quite my lane.
    Senator McCain. All right.
    Mr. Sunstein. I barely remember my academic work, and if 
the issue involves legislation, that is not quite our domain.
    Senator McCain. Well, again, it really is an interesting 
ripple effect that one line in a very large piece of 
legislation can have the both intended for the sponsors of 
that, but many unintended consequences, again, which ends up 
with the American taxpayer and the American consumer being the 
ones who pay the penalty for it. So it is, I think, a graphic 
example of sort of the irresponsibility of the way that we do 
business as we criticize other bureaucracies about the way that 
they do business.
    I thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator McCain. Senator 
Begich.

              OPENING STATEMENT OF SENATOR BEGICH

    Senator Begich. Thank you very much. Thanks for being here.
    I actually want to ask a quick question to follow up with 
Senator McCain's. I guess the simple question is, in your 
office, will you review if, for example, that type of operation 
needs to exist?
    Mr. Sunstein. No. We review regulatory actions.
    Senator Begich. Well, let me ask it this way, then. If you 
review that and the regulatory action is another layer on top 
of another department or division, will you comment on that?
    Mr. Sunstein. Our office does not have that role. Others in 
the Office of Management and Budget may. Certainly, if there 
are budgetary implementations, OMB would be involved, but our 
role is narrowly focused on regulatory action.
    Senator Begich. Let me ask you, and I had to remind myself 
of it, I chaired a hearing yesterday with, as a matter of fact, 
Senator Collins' colleague, Senator Snowe. Senator Collins, it 
is about the blue fin tuna, so I do not want to go down the 
wrong path. If I say something wrong, please correct me.
    But the question came up, and it was intriguing when you 
said through some Executive Orders, there is this engagement 
with the business community or the small business community, 
flexibility, some of the phrases you used, so I am going to 
give you an example that I heard yesterday from Senator 
Collins's colleague, Senator Snowe.
    There is an endangered species listing of the blue fin, or 
potential listing on the blue fin tuna. Their fishing grounds 
are right next to, obviously, Canada, which does not have it 
listed. But as soon as it does its process of listing, it goes 
right into the rulemaking process for a year. And the question 
that Senator Snowe had yesterday--is there a way to have a kind 
of a middle step, where what is going to happen is the business 
community, which are fishermen, will be impacted. So when you 
talk about that Executive Order, does the National Oceanic and 
Atmospheric Administration (NOAA) have to follow that, also, 
because, to be very frank with you, we asked the question and 
they did not have an answer. But according to this Executive 
Order where you laid it out, they should show some flexibility, 
especially if it affects small business. Is that a fair 
statement?
    Mr. Sunstein. Well, it is so that any regulatory action, 
including regulatory action that involves protection of 
endangered species is subject to the Executive Order, and we 
actually had regulatory action very recently involving killer 
whales where great flexibility was introduced in the final 
rule, in part because of public comments from small business.
    Senator Begich. Well, I just wanted to get that on the 
record because they will maybe cross that over to Commerce, and 
I will just leave it to Senator Collins and Senator Snowe, but 
it was a very interesting question, but the response was not as 
flexible as your response just was. I will use your phrase.
    You made a list of agencies that have gone out to ask for 
input on how to improve their system and so forth. You listed 
off a whole slew of them. I did not hear you list EPA. Is that 
just because you did not list it, or they are doing that, too?
    Mr. Sunstein. EPA has actually been a leader here. They 
have gone out for public comment----
    Senator Begich. I smile only because I am waiting for that 
moment that they are a leader, but----
    Mr. Sunstein. Well, Senator Collins has been emphatic that 
the greenhouse gas permits should not include biomass, and EPA 
exempted for 3 years. EPA, as just noted with respect to milk, 
followed up a series of concerns from the agriculture community 
and EPA has held a series of meeting about eliminating and 
streamlining existing rules, and they have a whole Web site 
dedicated to the topic.
    Senator Begich. Let me ask this, and I will just give you 
some examples from Alaska's perspective. We have large issues, 
large projects, and it is always around development, may it be 
resource development, oil and gas, or mineral resources. But in 
almost every case, it seems to be EPA comes into the mix and 
the delay process is enormous. And one of the suggestions and a 
piece of legislation we are going to lay down is a coordinating 
office that deals with all Outer Continental Shelf development 
(OCS), to coordinate these offices because it seems like they 
just stumble over each other. We have leases that are 10-year 
leases. Five years into them, nothing is developed.
    How does your office connect in those situations, the 
larger macro and big projects, and trying to figure out how to 
streamline this system just for an answer, not necessarily--
obviously, I would like a positive answer, but sometimes we 
just do not get an answer. What do you do to engage--because it 
is a very expensive process. As we talked about some here that 
are in the millions, a few millions, these are in the hundreds 
of millions of dollars of regulatory requirements.
    Mr. Sunstein. I appreciate it. We have heard a lot about 
this in the last 2 years, so our role is----
    Senator Begich. I am sure you have seen those emails, so go 
ahead.
    Mr. Sunstein. Yes. [Laughter.]
    Our role is in overseeing the rules that underlie 
particular permit decisions. So if there are rules that are 
proposed or coming through, our charge is to make sure that 
they are compatible with the President's goals, including 
economic growth and job creation.
    Senator Begich. If I can interrupt for a second, that is 
good to know that last part there, job creation. Is there also 
the consistency of the rule, and what I mean by that is EPA 
regulates air quality for Alaska's water, but in the Gulf of 
Mexico, it is the Interior Department, and they have two 
different regimes for the exact same development elements in 
the sense of oil and gas. Do you intervene and say, these have 
to be cleaned up, because it is a significant disadvantage for 
us in Alaska, to be very frank with you.
    Mr. Sunstein. This is extremely important and there is a 
long way to go, and we hope in the next short period even to 
try to promote coordination. When there is regulatory action--I 
guess I will step back and tell you a little bit about the 
process. What is often called in those small segments of 
American society that have terms for such esoteric OIRA review 
is actually interagency review.
    So if we have a rule from EPA that bears on the action of 
Interior, and that is not rare, then the Interior Department 
will specifically be asked to comment on the EPA regulatory 
action, and because they have expertise and, as you say, legal 
authority, they will not infrequently have something 
significant to say. And then our job is to make sure that what 
is done by one or the other fits with the authorities and 
perspective of the sibling agency.
    And the President really has underlined that in a very 
clear way with this section. It is only a few sentences, but it 
starts out with exactly your point, that sectors and industries 
often face overlapping, inconsistent, or redundant 
requirements, and it identifies that as a problem.
    So our role has been to try to diminish that, and if this 
is causing problems in Alaska or elsewhere, we really should 
hear about it, partly because we are looking back at the stock 
of regulations----
    Senator Begich. Right.
    Mr. Sunstein [continuing]. And this is a really terrific 
opportunity to try to fix this.
    Senator Begich. And, Mr. Chairman, there are clearly two 
agencies doing the exact same thing. I do not want you to raise 
the requirement. I just want to get equal treatment, and so I 
will leave it at that and we will send you definitely something 
on this.
    Mr. Sunstein. Great.
    Senator Begich. Thank you.
    Chairman Lieberman. Thanks, Senator Begich. Senator 
Portman, welcome.

              OPENING STATEMENT OF SENATOR PORTMAN

    Senator Portman. Thank you, Mr. Chairman, and Administrator 
Sunstein, thank you for being here. I do not have to tell you 
what an incredibly important job you have. It was always 
important, but particularly at a time like this, with a weak 
economy and a recovery that is not as strong as any of us would 
hope for with high unemployment. This is one of the areas, 
regulatory review, where we all believe, I think, Democrat and 
Republican alike, that there is room to help get the economy 
moving again and create more jobs, and there are certainly 
plenty of examples. You just heard about some of them from my 
colleagues from Alaska and Maine, where there are specific job 
impacts of legislation and regulation that does not make sense.
    One of the things that I am particularly interested in, as 
you probably know, is the inability for us to have the same 
cost-benefit analysis of independent agencies that we do with 
the other parts of our regulatory system--and you have written 
about this--and this independent agency exemption is 
significant because so many independent agencies now are 
promulgating regulations and they are not under the scrutiny of 
the Unfunded Mandate Reform Act (UMRA) or the Executive Orders 
you talked about earlier today, EO 13563 and EO 12866.
    I looked at a law review article that you wrote back in 
2002 where you said the commitment to cost-benefit analysis has 
been far too narrow. It should be widened through efforts to 
incorporate independent regulatory commissions within its 
reach. In that article, you proposed including independent 
agencies. You named the Federal Trade Commission (FTC), the 
Federal Communications Commission (FCC), the U.S. Consumer 
Product Safety Commission (CPSC), and you said there is every 
reason to include independent agencies within the basic 
structure of an Executive Order on Federal regulation. I notice 
that President Obama's Executive Order you talked about today, 
EO 13563, does not move in that direction. Can you tell the 
Committee why not?
    Mr. Sunstein. Senator, as former head of OMB, I bet you are 
as alert as anyone to the fact that pre-government experience 
writings are just that and that once you are in government, you 
are part of a team and you are responsible to the President, 
the team's captain. So that is what I would like to speak to.
    What the President did in his Executive Order was to follow 
the precedent set by President Reagan in the 1980s in the 
Executive Order to which Senator Collins referred, and 
President Reagan's judgment at the time--I happen to know, 
because I was in the Department of Justice and I saw it close 
up--was that there were various concerns about presidential 
overreaching that would arise, legal or political, by 
application to the independent agencies. And what followed that 
in the last generation has been Republican and Democratic 
Presidents have agreed with President Reagan that they would 
continue the process and not extend to the independent 
agencies.
    Senator Portman. So given that there are legal concerns 
about OIRA, the Executive Branch, and the Office of the 
President extending that reach to independent agencies, does it 
not make sense for Congress to enact legislation that brings 
independent agencies at least within the cost-benefit 
requirements of the Unfunded Mandates Reform Act?
    Mr. Sunstein. We have encouraged in our guidance document 
that independent agencies voluntarily comply with the most 
recent Executive Order in early February.
    In terms of legislation, the Office of Information and 
Regulatory Affairs, as again I know you know, has a narrow 
implementation mission, and so we are hard at work in 
implementing the Executive Order and there is a process for 
formulating Administration positions on questions of the sort 
you raise. It is not really my role to take that position.
    Senator Portman. You know, as a professor, he is really 
learning this bureaucracy thing well. [Laughter.]
    Chairman Lieberman. It is unsettling, is it not?
    Senator Portman. It really is. [Laughter.]
    Well, let me look at this another way with you. Assuming 
that you agree, based on your previous writings, and assuming 
that the hundreds of regulations that are now being promulgated 
by the independent agencies, you believe, ought to come under 
the same cost-benefit analysis as you have asked them to do 
voluntarily, let me just ask you, not as a matter of commenting 
on specific legislation but as a general matter, does it not 
make sense for Congress then to act to the extent there is not 
a legal concern with Congress acting on independent agencies to 
be able to bring them under this same rubric that other 
agencies are required to follow?
    Mr. Sunstein. If you will permit, that is a question that 
would benefit from sustained engagement, both in the standard 
Administration-wide process for formulating positions on 
controversial questions----
    Senator Portman. I will take that as a yes. Well, and 
seriously, I think it is only logical that to the extent you 
have concerns, which I understand, and you mentioned political 
and legal concerns, I think it is the legal concerns that would 
constrain you, Congress has the ability to do this and it seems 
to me it only makes sense, at least under UMRA, to be sure that 
we are not exempting so many regulations that affect our small 
businesses, State, local, and tribal governments.
    I would like to turn, if I could, to guidance documents for 
a second. The D.C. Circuit has described the use and abuse of 
guidance documents this way. They have said, several words in a 
regulation may spawn hundreds of pages of text as the agency 
offers more and more detail regarding what regulations demand 
to regulate entities. Law is made without notice and comment, 
without public participation, without publication in the 
Federal Register or the Code of Federal Regulations (CFR). I 
think you would agree that guidance documents are often an end 
run, and I certainly found that when I was at OMB, an end run 
around what would normally be the deliberative process and the 
give and take that you get in a notice and comment rulemaking 
process.
    EO 13422 required agencies to give OIRA advance notice of 
significant guidance documents and permitted OIRA to review 
those documents for, among other things, their effect on the 
economy, which as I said at the outset is a critical issue 
right now. My understanding is President Obama revoked that 
Executive Order, and I do not understand why. Under your 
leadership, is OIRA continuing to review significant guidance 
documents?
    Mr. Sunstein. Absolutely. In fact, the review of guidance 
documents, significant ones, is at least as robust under this 
Administration as it has ever been. I can give you a little 
background there.
    President Bush revoked an Executive Order which had a 
number of elements in it, five or six, one of which was the 
review of significant guidance documents. It is just the case, 
as I am sure you are aware, that even before President Bush's 
Executive Order, OIRA had been reviewing significant guidance 
documents. In fact, that was a practice even under President 
Clinton. And after the revocation, just the question you asked 
arose and the then-Director of OMB, Peter Orszag--and this is 
in March 2009--issued a short but really important memorandum 
to the heads of agencies and departments saying that OIRA will 
be reviewing significant guidance documents, and the number is 
not small.
    Senator Portman. Do you think another Executive Order is 
appropriate then? It sounds like the practice does not differ 
from the substance of that part of the Executive Order that was 
revoked. In fact, it seems more robust than it was in previous 
Administrations.
    Mr. Sunstein. At least as robust. So I take your point 
about ensuring that guidance documents both are not evading the 
requirements of the Administrative Procedure Act and that they 
are, even when they are genuinely guidance documents, 
subjected, where appropriate, to public comment and review, 
those are concerns we take very seriously. Those are kind of 
our staples.
    Because of the OMB Director, his memorandum is so extremely 
clear that significant guidance documents go through OIRA and 
every agency and department now understands that, it is not 
clear that there needs to be an Executive Order on that point.
    Senator Portman. Mr. Chairman, I think my time has more 
than expired. Thank you, Mr. Sunstein.
    Chairman Lieberman. I have a couple more questions that I 
would like to ask. This has been a very good exchange. Both of 
these, to some extent, deal with the role of Congress. As you 
know, there are proposals pending before our Committee that 
would require Congress to approve certain regulations once they 
are finalized within the Executive Branch. I want to ask about 
Congress' input, however, on the front end, which is in the 
authorizing laws that we passed that give rise to regulations.
    There is always a tension about how specific to make those 
laws and how much decision to leave to the Executive Branch, 
the experts within the agencies. I wanted to ask you, 
generally, if you have any standards that you would apply to 
our work on legislation that leads to regulation and if you can 
think of examples where legislative mandates either 
significantly promoted or significantly impeded what you have 
called smarter rules.
    Mr. Sunstein. Thank you for that, Mr. Chairman. I have a 
few different thoughts. One is that, just as you say, it is 
often a hard decision about what level of detail to put in 
legislation, and then the decision is often made by asking such 
questions as, are circumstances changing so rapidly that 
precision would be regretted after a year or two, and the 
separate question, is there sufficient information now to set 
forth something with a high level of detail or not, and another 
question, is there sufficient trust in the Executive Branch 
implementation process in the particular context that degree of 
discretion is acceptable? So those are some of the questions 
that are standardly asked.
    In line with Senator Collins' line of questions, one point 
is that benefits should ordinarily justify costs, recognizing 
that some benefits are hard to quantify and cannot be 
monetized, and it is probably a good idea, at least as a 
general rule, to allow careful consideration of benefits and 
costs so that we do not get unintended adverse effects of the 
sort that Senator McCain is obviously concerned about.
    It is hard to answer. I am giving an abstract answer, which 
is not ideal, but we probably have to go statute by statute. I 
have seen in the last 2 years there is often the implementation 
involves a narrow band of discretion, and not infrequently, 
that is just right, because Congress has made the decision.
    Chairman Lieberman. Yes. That was general, but it was 
helpful. It is worth pondering by us.
    Let me ask you about e-rulemaking. The Executive Order of 
the President directs agencies to promote public participation, 
specifically by providing the public with ``timely online 
access to rulemaking docket on regulation at .gov, including 
relevant scientific and technical findings, in an open format 
that can be easily searched and downloaded.'' I know you have 
issued three memoranda to guide agencies on how to improve 
electronic rulemaking, the process insofar as users are 
concerned. I wonder if you could describe progress in 
implementing that goal and, as you may know, Senator Collins 
and I have been working on this, as well, in our e-rulemaking 
bill. Are there other enhancements you would suggest 
legislatively that would maximize public participation in 
rulemaking?
    Mr. Sunstein. Sure. This has been a high priority for us, 
and what we did at the outset was we improved greatly a Web 
site called reginfo.gov, which while maybe not the most 
exciting Web site on the Internet, does have the advantage of 
providing access to every rule, at least the basic description 
of every rule that is under review at OIRA--the name, the 
agency, whether it is economically significant. And what we did 
with that was to create a graphic which is very clear--we call 
it a dashboard--where you can press EPA and see every rule 
under review from EPA. You can press the Department of Health 
and Human Services (HHS) and see every one there. And this 
gives the public--and we have found that it has been used by a 
large number of people--it gives the public a way of seeing 
what is under review and being contemplated.
    We have also worked hard to improve regulations.gov, which 
is the online portal, which is now much more user friendly and 
clear. As Samantha, my wife, can tell you, I am on 
regulations.gov sometimes at night reading public comments and 
it is easy now. It was harder before. You can also on 
regulations.gov get access to the full rule basically in an 
instant.
    What we have required in one of our guidance documents, and 
it is working, is that agencies put online basically everything 
they have in paper in a timely fashion so that if people are 
concerned that there is a regulation involving, let us say, 
automobile safety that is not strong enough, that is too 
expensive, or that is going to have harmful effects on small 
business, they can see everything there. So those have been our 
initial steps. We have also tried to make the OIRA Web site a 
lot more usable.
    In terms of legislation, again, this is not quite our lane, 
but we are broadly supportive of the effort to bring rulemaking 
into the 21st Century, as the President has made very clear in 
the Executive Order, and the kind of basic principle should be 
easy accessibility and clear transparency.
    Chairman Lieberman. Good. Do you have a sense, or can you 
report to us on what kind of usage there is of the Web site you 
talked about? I mean, what you have done is very laudable and I 
appreciate it.
    Mr. Sunstein. We actually do have the numbers and I believe 
they are in our draft cost-benefit report, which was released 
recently. I do not have them offhand, but there has been a 
significant increase.
    Chairman Lieberman. So that is the point. I do not care 
about the specific number, but there has been an increase and 
people----
    Mr. Sunstein. Yes.
    Chairman Lieberman. Thanks. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman. I want to follow 
up on an issue that Senator Begich raised with you about 
whether OIRA has the authority on its own initiative to 
undertake a review of a regulation that affects many different 
aspects of our economy. The ethanol regulation is a perfect 
example of that, as Senator McCain pointed out, as well. I will 
concede up front, I am not a fan of the ethanol subsidy, but 
EPA recently increased the amount of ethanol that can be used 
in gasoline. This has all sorts of implications. It fouls the 
engines of snowmobiles and of lawn mowers, for example, and 
older cars. It drives up the cost of food as corn is grown for 
fuel rather than for food. Who looks at issues like that, other 
than, I suppose, Congress that cross agency lines and that have 
a multitude of impacts on our economy?
    Mr. Sunstein. If it takes the form of regulatory action, 
whose core is rulemaking, but which also extends to guidance 
documents, interpretative rules, and other related things, then 
we will see it. There are related actions being taken by EPA, 
including misbranding actions, which are definitely rulemaking, 
and those we do oversee, and our oversight really is a 
coordinating role. There are other things that agencies do that 
are permits that are not quite rulemaking and there we are not 
involved except we are available to consult if asked by you, 
others, or if asked by the agency.
    Senator Collins. I am intrigued by the issue that the 
Senator from Alaska raised, because it seems to me ethanol is a 
perfect example of where we need a cross-cutting review of the 
implications. But if there is no agency currently involved in 
rulemaking on it, then it does not seem to happen, does it?
    Mr. Sunstein. No, but there is an opportunity now under the 
Executive Order, the retrospective review provision, to get a 
handle on that, and there are a couple of things to emphasize 
here. One is May 18 is a very important date. That is when the 
plans have to be submitted to us, and so ideas about problems 
stemming from lack of coordination from you and your staffs and 
those who have concerns in Alaska or elsewhere, this is a great 
time for that. And also, what the President asked for is 
preliminary plans, which suggests clearly that this process of 
overseeing the stock of existing regulations to make sure what 
we are doing makes sense is not just a one-time matter. It will 
be a continuing series of evaluations.
    Senator Collins. Senator Portman asked a question I was 
going to ask you about the 2002 University of Pennsylvania Law 
Review article that you wrote and about extending the cost-
benefit analysis to independent agencies. But there was another 
part of that article which I thought was intriguing and that is 
you said that the requirements for cost-benefit analysis were 
widely ignored by Federal agencies. That was one of the 
findings that you made. What is being done by OIRA now to make 
sure that agencies are not ignoring the requirement for cost-
benefit analysis?
    Mr. Sunstein. We work every day to make sure that the 
benefits exceed the costs and the benefits are very carefully 
and accurately assessed and the costs, as well. So it is our 
kind of staple to make sure that these are not ignored. And if 
you look through the regulatory impact analysis, you will see 
not necessarily unquestionable analysis, and the public comment 
period is designed to make sure we eventually get it right, but 
extreme care about costs and benefits.
    And one thing that we have recommended and implemented that 
seems like a small step, but I think is significant, is that 
agencies put clear cost-benefit tables up front in the most 
conspicuous manner so that any Member of Congress or staff or 
any member of the public can see exactly what we are getting 
and exactly what we are losing as a result of a regulation. And 
we have emphasized that need for clarity about costs and 
benefits, which is the initial way of ensuring it is actually 
done, was something we quietly posted in late October, which is 
a checklist. It is a page and a half and it says what agencies 
have to do. It takes a 50-page technical document, turns it 
into a page and a half which will promote accountability and 
compliance.
    And one thing on that page-and-a-half checklist is if you 
quantify the costs, in other words, if you quantify the 
benefits, a third, have you shown that the benefits justify the 
costs?
    Senator Collins. And if that has not been done, does OIRA 
have the authority to block the issuance of the regulation?
    Mr. Sunstein. Absolutely.
    Senator Collins. One final issue, just very quickly, that I 
want to get into, and that is the complexity of regulation. You 
would think when Congress passed the 2,700-page health reform 
bill that we would have taken care of every possible issue, but 
in fact, the new law directs the Secretary of HHS to make 
nearly 2,000 separate determinations, and these rules can come 
and turn into hundreds of pages each.
    An example is the Medicare Shared Savings Program. I happen 
to think this is one of the few provisions of the bill that 
actually could help increase quality and hold down costs. The 
program takes up six pages of the new law, but the regulations 
implementing the program are 429 pages long. Do you look at 
complexity and excessiveness as you look at the analysis done 
by Federal agencies?
    Mr. Sunstein. We just posted last night, I believe at 7 
p.m., a guidance document that I think Senator Akaka would be 
pleased with. It is on plain writing. There is the Plain 
Writing Act, as you know, and this is something we have 
prioritized. And what we are trying to do in the regulatory 
area is to use executive summaries, so people can take a 400-
page document and get the core of it in 8 or 10 pages. There is 
sometimes a trade-off, because a 400-page document--and do I 
not know it--can take a lot of time to read. But if you want to 
have the full analysis of effects, sometimes it just takes a 
lot of space. If there is not clarity in an executive summary 
that says exactly what the rule is doing and what its likely 
consequences are in brief form, then that is somewhere between 
not ideal and it is a disservice to the public.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks, Senator Collins.
    I want to ask the indulgence of my colleagues. You have 
been more engaging for a longer period of time than I thought 
you would be and I have to step out for a meeting. I do not 
know if you are able to stay, if you will take us to the 
finish. Senator Portman, Senator Begich, I believe it is the 
custom, if not the rule, of the Committee, since Senator Carper 
has not had a round, to call on him next if you can suffer your 
way through that.
    Thanks, Mr. Sunstein. You have been very gracious.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Mr. Chairman, my guess is they have been 
waiting until I arrive. They did not want to miss any of this, 
any of the fireworks.
    Mr. Sunstein, it is very nice to see you. Thanks for coming 
by. And my colleagues, thank you for allowing me to join in.
    My staff, when they were putting together my schedule, they 
weighted this hearing today as a low priority. I have just come 
from another hearing on the Environment and Public Works 
Committee that focuses on transportation, what are we going to 
do about our transportation infrastructure, which is decaying, 
and we are not willing to summon the courage to pay for fixing 
it, and they thought that was high priority. That is, but this 
is high priority, as well.
    I was very pleased in 1993 when President Clinton issued 
his Executive Order and called for making sure that we are 
trying to figure out what is the cost-benefit analysis when you 
promulgate regulations across Federal agencies, and I was 
especially pleased when our current President updated or 
supplemented the earlier Executive Order.
    Let me just ask you--and for folks, if they have already 
asked this question, then please bear with me--but just talk to 
us about the implementation of this Executive Order. How is it 
being implemented? What effect does it appear to be having? Are 
there any evident consequences? Are other agencies paying 
attention to it? Thank you.
    Mr. Sunstein. Well, there are two things the Executive 
Order does that are significant. The first is that it creates a 
process for retrospective review of regulations----
    Senator Carper. Explain that, if you would, and give me an 
example, please.
    Mr. Sunstein. There are a lot of regulations on the books. 
The President, both in this Executive Order and in the Chamber 
of Commerce speech and in the State of the Union Address, 
emphasized that we are having a government-wide review of the 
existing regulations, meaning not just control of new 
regulations, but also assessment of regulations on the book.
    Senator Carper. That is a pretty big job.
    Mr. Sunstein. It is a big job.
    Senator Carper. Who is doing that?
    Mr. Sunstein. Well, what has happened is the EPA, the 
Department of Transportation, the Department of Defense, the 
General Services Administration, the Department of Commerce--am 
I boring you yet?
    Senator Carper. No, this is good.
    Mr. Sunstein. It is a very long list. I have asked the 
public for comments about what regulations they should change, 
streamline, eliminate, and modify.
    Senator Carper. And what kind of response are we getting, 
or are they getting across those agencies?
    Mr. Sunstein. We are getting significant responses from the 
public. I have been cc'd on a bunch of letters saying these are 
bad. And not only that, we have had the EPA, the Department of 
Labor, and HHS actually taking concrete steps, well before the 
May 18, 2011, deadline to get rid of or reconsider rules that 
are causing problems, like the EPA exempted milk and milk 
products from its oil spill regulation, something that is going 
to save a lot of money. EPA also exempted biomass from its 
greenhouse gas regulations, something that creates a great deal 
of flexibility. Some regulations from the Department of Labor 
that had been proposed and caused considerable concern in the 
business community, including small business in particular, 
have been withdrawn for reconsideration, and that is just for 
starters.
    Senator Carper. Well, that is good. Talk about, if you 
would, unintended consequences of this new Executive Order from 
the President.
    Mr. Sunstein. Well, so far, all----
    Senator Carper. Everything that you have just described 
would be a consequence, but are there any unintended 
consequences of which you are mindful?
    Mr. Sunstein. Well, my hours have gotten even longer.
    Senator Carper. You were saying earlier, at night, you are 
up reading these regulations or something on the Internet. I do 
not know if that is an unintended consequence. For your wife 
and your family, it is probably not a good one.
    Mr. Sunstein. My wife works for the Natinal Security 
Council (NSC). Her hours are pretty long, also.
    Senator Carper. Fine. But other than that----
    Mr. Sunstein. I can tell you that to say ``so far, so 
good'' would be to understate.
    Senator Carper. Did you say, ``so far, so good'' would be 
understated?
    Mr. Sunstein. Yes. So far, extraordinary. With respect to 
looking back at existing regulations, we have had something the 
Nation has ever seen before, which is a thorough engagement by 
a vast array of agencies with the public about what regulations 
are causing problems and should be eliminated, accompanied by a 
series of steps actually to withdraw or reconsider regulations 
that are causing problems.
    With respect to the flow of new regulations, all of the 
consequences are the intended ones, which is we have had 
considerable discussion of the harmonization of different 
agencies' actions so as to ensure against inconsistency and 
overlap, and that is happening. Agencies are working carefully 
together so that companies and their workers and their 
consumers are not hit from the left, the right, and the center. 
Instead, they are working cooperatively to see what makes best 
sense, and that was an intended consequence.
    Senator Carper. All right. From time to time, we hear from 
constituents in Delaware, and actually from around the country, 
sometimes they are families, sometimes they are businesses 
large or small, and they suggest to us that a rule or 
regulation that is being considered, or maybe has been 
promulgated, does not appear to be consistent in spirit with 
our determination to provide a nurturing environment for job 
creation and job preservation. When those examples are 
submitted to us, what is the best way to convey them to 
somebody who is going to do something about it?
    Mr. Sunstein. Great. There are two ways. If there is a 
letter from you or any Member of the Senate or the House, that 
really gets our attention. So if you send a letter to me and to 
the relevant agency, that is, needless to say, very significant 
input into ultimate decision. And if you look over the last 2 
years, there have been a number of options that have been 
meaningfully informed by concerns about effects on job 
creation, meaning we do not want those adverse effects.
    The other thing which is maybe not as generally known as it 
ought to be is when a rule is under review at the Office of 
Information and Regulatory Affairs, our doors are open for 
discussion. Sometimes, Members' staffs have come over and said, 
this one is causing a great deal of consternation. Because it 
will have unintended adverse effects, it is going to hurt some 
companies and in the relevant area, it is not going to help 
anybody. This is a great time for that, both because we have 
the new Executive Order where public participation is actually 
the name of the second section and because it is an 
economically challenging time when the President has emphasized 
we need to square our regulatory requirements with our interest 
in economic growth.
    Senator Carper. Let me conclude by just saying to my 
colleagues, I do not know if the first time I heard of this 
Presidential Executive Order was at the State of the Union 
address. I think it may have been promulgated before, but I 
think the President highlighted it in his State of the Union 
address. We were sitting there that night saying this is 
terrific. And what you are describing is even more encouraging 
in terms of retrospective aspects of the Executive Order.
    And for Senator Portman, who literally was in position as 
the OMB Director, I am interested just in talking with you 
maybe later on, since I did not hear your comments, but just to 
hear how you view this. But this is very encouraging.
    My staff had said this was a low priority hearing. I just 
want to say, this is a high priority for our country and for 
me, as well, so thank you.
    Mr. Sunstein. Thank you. Your staff is laughing.
    Senator Collins [presiding]. Thank you, Senator Carper. 
Your staffer is saying, ``I did not do it. It was not me.'' 
[Laughter.]
    I was really looking forward to gaveling you down today, 
but it did not happen, and if I did do it, I would not get 
Senator Lieberman to give me the gavel again, so Senator 
Begich?
    Senator Begich. Thank you very much.
    I want to echo what Senator Carper said. I mean, I know you 
know this. I was not one of those that supported your 
appointment, but I am actually very impressed with the 
conversation today and I want to thank you for that.
    Let me ask you, if I can, the retrospective review, that 
will be accumulated on May 18 and then you will review that. Is 
that what the next step will be, and then you will do what? I 
heard some that we should just get rid of. Here are some that 
we need to refine. So we will go through your process after 
that?
    Mr. Sunstein. Here is how it is going to work. In late 
April, under our guidance document, agencies will submit drafts 
of their preliminary plans to us, and these will be early 
versions and there will be what I expect to be a very intensive 
process----
    Senator Begich. Give them back, yes----
    Mr. Sunstein. That is right. And then May 18, they will be 
formally submitted to us and our expectation is that they will 
generally then be made public. Now, we have a bunch of rules--
they have not received a lot of attention. It has been quiet 
except in communities that have been quite excited to see. We 
have had a bunch of rules that have been streamlined, repealed, 
or withdrawn.
    Senator Begich. Those are some examples you gave a little 
bit ago----
    Mr. Sunstein. Yes, and we have every expectation that the 
preliminary plans will have many more examples of things that 
are either achieved by them or anticipated to proceed to public 
review.
    Now, if it is a guidance document, then that can be changed 
relatively quickly.
    Senator Begich. Right.
    Mr. Sunstein. If it is a rule, then there is a process for 
that and we will be involved in that.
    Senator Begich. Will you maybe, by that point, be able to, 
for the public consumption--and I do not know if you have it 
now on your Web site-- make a list of those rules that you have 
been able to repeal or streamline? Will there be some sort of 
quick list that people can go to? This is what you have done.
    Mr. Sunstein. Thank you. That is a great question and we 
are thinking about exactly how to do this.
    Senator Begich. I think we, in Congress, would love to see 
that. That will help us understand the role, but also give some 
assurances to folks we get calls from all the time saying, what 
are they doing actually?
    Mr. Sunstein. Right. I did have a blog post on the White 
House blog that has our preliminary list.
    Senator Begich. OK.
    Mr. Sunstein. So there is publicly now about eight or nine 
that are collected. But there have been a bunch since, and----
    Senator Begich. Excellent. So you are thinking of how to 
weave that into a future Web site, maybe?
    Mr. Sunstein. Yes.
    Senator Begich. Let me ask you, as this process is getting 
comments from people, as a small business owner, my wife is a 
small business owner, the odds that we--and I say collectively, 
small business owners who are busy doing many other things--
even know that you are doing what you are doing is probably 
pretty slim. I know some people will say, well, we contacted 
trade organizations, but I will tell you, that is limited. As a 
member of multiple trade organizations over the years, you are 
busy. If you are a three-person operation in a business, you do 
not have time to read more paper. You are just trying to keep 
the customers happy. What is your outreach to ensure the small 
business--usually, the small business community reacts once the 
regulation is in place.
    Mr. Sunstein. Yes.
    Senator Begich. Then, it is too late. Then we have this 
whole process. So what are the steps now, or what do you think 
that we need to do--and I say, again, collectively, because 
there may be stuff we need to do--to get the small business 
community to know exactly what is happening here? Or get input 
to what they----
    Mr. Sunstein. That is great, and we have time to do a lot. 
The President has an initiative called Start Up America, which 
is very much focused on small business and start-ups, thinking 
that we can do so much more, in part through regulatory relief, 
to help job creation.
    I was recently in Boston to talk to entrepreneurs about 
what their concerns are, what regulations on the books are 
causing problems, where there is the inconsistency, and Karen 
Mills, the head of the Small Business Administration (SBA), has 
been traveling a lot. Regulatory relief and our look-back 
retrospective review is something she has been highlighting. So 
we are getting a ton of ideas through that and the reaction 
there is extremely positive.
    Still, your point is absolutely right. My dad was a small 
business owner in Concord, so I understand that Start Up 
America. He was not going to know about that and certainly did 
not have time to go.
    Senator Begich. Right.
    Mr. Sunstein. So we are counting on a couple of things, and 
if you have other ideas, that would be great. One is Winslow 
Sargeant, who heads the Office of Advocacy at the SBA, is 
someone with whom we work really closely, and he was very 
enthusiastic about the Presidential Memorandum on Small 
Business, which is a little bit like a younger sibling to the 
Executive Order, and he is doing what he can to collect 
information from small businesses about regulations that are 
coming that make them nervous and about regulations on the 
books that make them struggle.
    Senator Begich. I am assuming you have on your Web site, 
and we will look at it now, but is there a link--is there a 
place where if someone has a suggestion, they go to?
    Mr. Sunstein. Since the agencies have rulemaking authority, 
the agencies that have published Federal Register notices, and 
I believe in four cases cabinet-level departments, now have Web 
sites specifically dedicated to retrospective review of 
regulations. They all provide it.
    Senator Begich. But the problem will be that the small 
business owner, when they see a regulation, they do not have 
the time to figure out what agency----
    Mr. Sunstein. Right.
    Senator Begich [continuing]. Is in charge of that 
regulation. They know--so I am wondering, and maybe we can 
explore this through our office--for example, we have on our 
Web site a feature that you can go to to give suggestions on 
the budget, whatever. They just put it on there. Then we 
accumulate those and utilize them in our budget meetings that 
we have.
    Maybe there is a similar thing that we can do to accumulate 
it, and maybe instead of figuring out what agency to deliver it 
to, we just deliver it--I hate to do this--deliver it to you.
    Mr. Sunstein. Sure.
    Senator Begich. But that is the issue that the small 
business folks need, is kind of a central depository, because 
otherwise, they will just give up. They will call us once the 
regulation is in play. I do not want to say they will totally 
give up. Once it is in play and they do not like it, we will 
hear about it, and then we will be doing who knows what here 
and probably causing all kinds of havoc. So maybe we will 
explore that.
    Let me end on one last comment and that is on 
transportation. The Department of Transportation (DOT) is also 
doing the same thing. I am a former mayor. We did projects, 
trying not to get near Federal dollars because it would take 
too long, cost too much, we could produce a better product, in 
shorter time, and have actually higher environmental standards. 
In your office, do you use those? And I will use transportation 
as an example. When DOT is starting to do their regulatory, 
those local impacts, I know you mentioned something about 
local. Is that part of the equation?
    Mr. Sunstein. Yes, in two different ways. The President's 
Executive Order requires consultation with local officials and 
there are other presidential documents that call for emphasis 
on federalism and interactions with State and local 
governments. So we hear a lot from State and local government. 
This regulation makes sense. This regulation is going to hurt 
us. And that can have a very significant impact on what ends up 
in the regulation.
    Senator Begich. Very good. Thank you very much for your 
testimony. Thanks for being here. It was very enlightening. 
Thank you.
    Mr. Sunstein. Thank you.
    Senator Collins. Thank you. Senator Portman.
    Senator Portman. Thank you, Senator Collins.
    Since you talked about the Small Business Administration, 
let me just ask you about some small business questions 
quickly, if I could. One is what you think about their Office 
of Advocacy report. The Small Business Office of Advocacy has 
said that the annual burden of Federal regulations on the 
American economy is now $1.75 trillion. And in that same study, 
they talked about small business and they said that among small 
businesses, there is an annual regulatory cost of over $10,000 
per employee. With unemployment close to 9 percent or over 9 
percent in Ohio, obviously, we need to get serious. We talked 
earlier about using this regulatory burden on job creators.
    During your tenure as OIRA Administrator, how many times 
has OIRA rejected or recommended revisions to a proposed rule 
based specifically on your assessment that there was a negative 
impact on jobs?
    Mr. Sunstein. Well, we have had 100-plus rules withdrawn 
from OIRA review. That is about 8 percent of the full set of 
rules that have come to us. And a significant number of those 
have been withdrawn because of concerns about costs. It is also 
the case that of the rules that we have approved, a very strong 
majority, something around 70 to 80 percent, are approved 
consistent with change, and that means that there has been some 
rethinking of the approach as a result of OIRA review.
    I would want to emphasis that OIRA review means interagency 
review, so sometimes the idea will come from--the Department of 
Energy might have something to say about a rule that the 
Department of Transportation is proposing, or the SBA might 
have an idea about a rule the Department of Labor is proposing. 
We do not think, as under the Bush Administration where return 
letters were extremely rare, we tend not to think about 
rejecting. We tend to think about what is the best way to get 
the rule in the best place, and it is very frequently the case 
that adverse effects on small business are a basis for getting 
the rule in the best place and that unjustified costs are 
something that agencies are alert to----
    Senator Portman. But specifically on job creation, you do 
not keep a record of that. You do not have a way to answer that 
question as to how many were either recommended for revision or 
rejected based on jobs?
    Mr. Sunstein. I would have to take a look to get a number 
for you. But what is very clear is that under the President's 
Executive Order, job creation is kind of a front line issue, 
and you can see from recent developments, including withdrawals 
of rules, adverse effects on jobs are a primary consideration.
    Senator Portman. Under EO 12866, significant regulatory 
actions are defined as either having an effect on the economy 
of $100 million or more or adversely affect in a material way 
the economy, productivity, or jobs. How many rules have you 
treated as significant regulatory actions based on their 
adverse impact on the jobs part of that, based on EO 12866? Can 
you tell us?
    Mr. Sunstein. Standardly, the $100 million threshold is the 
basis for deeming a rule economically significant. But note 
that you are referring to economically significant. The 
significant rules actually are far more numerous and we care 
about costs and benefits for those, too, even if they do not 
cost $100 million. So if there is a rule that costs, say, $50 
million, it may not qualify as economically significant under 
EO 12866, but it might hurt a sector, as EO 12866 recognizes. 
You could have adverse effects on a small sector--$50 million 
is a lot of money--even if it does not have economy-wide 
effects of $100 million. Then it could be deemed economically 
significant or it could well be deemed significant.
    So in terms of pure numbers, we have reviewed approximately 
1,400 rules, proposed or final, including guidance documents 
and regulatory actions, and a large number of them are 
significant, even though the vast majority, roughly 85 percent, 
are significant, even though they do not have $100 million or 
more in annual costs.
    Senator Portman. So, again, if you can provide this to the 
Committee, how many you have treated as significant regulatory 
actions because of their adverse impact on jobs as opposed to 
the level of $100 million. It sounds like today, you would not 
have that answer----
    Mr. Sunstein. I would not.
    Senator Portman [continuing]. But that is something you 
might be able to provide the Committee, is that accurate?
    Mr. Sunstein. Yes.
    Senator Portman. I think that would be very helpful to 
know.
    In your legal scholarship that Senator Collins talked about 
earlier, you have been an advocate for strengthening cost-
benefit scrutiny of proposed rules. I would be interested to 
know how often the theory meets practice, now that you are in 
this position. How many times as OIRA Administrator have you 
recommended against the adoption of a particular proposed or 
final rule because of its projected costs exceeding its 
benefits?
    Mr. Sunstein. Well, I think the best----
    Senator Portman. Have you ever recommended against a rule 
on that basis?
    Mr. Sunstein. Well, the way we do it, as I am sure you 
remember from your OMB experience, is suppose you have a rule 
that comes in and either the costs are higher than the 
benefits, or while the benefits are higher than the costs, it 
does not maximize net benefits. To recommend against a rule 
would be a little nuclear and uncollaborative. So the standard 
approach would be to work with the agency to think, is there a 
way you can do it so you drive down the costs so the benefits 
justify the costs, or is the way that you can do it so that the 
net benefits are higher, even though----
    Senator Portman. Collaboration is great, but at some point, 
there is a friction between you and the agency, I take it. 
Sometimes you have said the costs do not meet the standard of 
cost-benefit analysis, and then are there instances in that 
case where you have said to the agency, I have objections on 
the rule's costs and benefits and yet the agency has proceeded 
to issue a final rule? Has that ever happened?
    Mr. Sunstein. The only rule we have in the last 2 years 
where the benefits are unambiguously lower than the costs is a 
rule involving Positive Train Control, something that Senator 
Coburn has been particularly interested in, and that was one 
where we all worked together to try to make the costs as low as 
possible, but the underlying statute was quite prescriptive. 
The statute says----
    Senator Portman. So that is the only case where the costs 
have exceeded the benefits?
    Mr. Sunstein. It is the only case where the costs 
unambiguously exceeded the benefits.
    Senator Portman. OK.
    Mr. Sunstein. There are a few other----
    Senator Portman. But are there other instances where you 
believe the costs exceeded the benefits and yet the agency went 
to a final rule?
    Mr. Sunstein. Well, those were ones where there is a range, 
and so there is no other clear case aside from that one. There 
are some that have a range where the high end of the costs or 
the mid-point of the costs is higher than the mid-point or the 
high end of the benefits----
    Senator Portman. It sounds like the costs exceeded the 
benefits.
    Mr. Sunstein. Well, not necessarily, because it may be the 
best projection of the benefits is in the high end of the range 
and the best projection of the cost is--so the Positive Train 
Control one is the--I can get you the list. It is a very short 
list. And in everything that we have--the Administration has 
done, either the benefits exceed the costs, and that is the 
overwhelming majority, or there is some legal constraint on 
ensuring that the monetized benefits----
    Senator Portman. Would it be beneficial for Congress to 
strengthen the requirement of this cost justification debate 
you obviously have with the agencies, and that is part of your 
job, by permitting judicial review of an agency's compliance 
with UMRA? Would that help?
    Mr. Sunstein. As you are aware from your former colleagues 
and subordinates, Susan Dudley and John Graham, and the 
Administrator of OIRA is in the implementation business and not 
really in a position to recommend legislation.
    Senator Portman. Thanks for being here today.
    Mr. Sunstein. Thank you.
    Senator Portman. And thank you, Madam Chairman.
    Senator Collins. Thank you. I want to thank our witness for 
appearing today. I think this was an excellent exchange that 
sets the groundwork for the Committee's future work on 
regulatory reform proposals, including one that I have 
introduced, and there are bills that have been referred to our 
Committee that have been introduced by other Members.
    We recognize that OIRA is not in the business of 
determining the Administration's positions on regulatory reform 
bills or any other piece of legislation, but we also know that 
you have insights and data, and I hope that you will be willing 
to work with the Committee to give us your best technical 
advice on what the ramifications of the bills would be. We need 
that guidance to make sure that we are avoiding unintended 
consequences through a lack of understanding of exactly what 
the implications would be. So I would urge you to work with the 
Committee at least as a technical adviser as we begin to review 
all of these regulatory reform proposals.
    Mr. Sunstein. We would be delighted.
    Senator Collins. Thank you. I anticipate that the hearing 
will occur in June, as the Chairman has announced, so we will 
be in touch with you very shortly to ask your analysis and 
technical advice as these various bills are considered by the 
Committee.
    But again, I thank you very much for your very helpful and 
straightforward testimony, and for the very important work that 
you are doing. As I said in my opening statement, if you did a 
poll of the American people, I doubt that you would find very 
many who have ever heard of OIRA, and yet the office that you 
head is extraordinarily important in reviewing all regulations 
that go through the Federal process, and I, for one, think that 
you have approached that job very seriously and as we have 
intended.
    The record for this hearing will remain open for 15 days 
for the submission of any additional questions, statements, or 
materials.
    And with that, this hearing is adjourned. Thank you.
    [Whereupon, at 12:04 p.m., the Committee was adjourned.]


     FEDERAL REGULATION: A REVIEW OF LEGISLATIVE PROPOSALS--PART I

                              ----------                              


                        THURSDAY, JUNE 23, 2011

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:02 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Levin, Pryor, Landrieu, 
Collins, Coburn, Brown, Johnson, Portman, and Paul.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. Good 
morning. Today we are going to continue our Committee's 
consideration of regulatory reform. Last month, we explored the 
structure of the Federal regulatory process and the 
Administration's recent efforts to ensure that rules and 
rulemaking are as effective and efficient as they can be.
    Today we are going to focus on some of the legislative 
proposals to revise the existing system, which is a topic that 
has attracted particular attention in this Congress. At this 
moment, six Senators have legislation now pending before this 
Committee on regulatory reform. At this moment in my prepared 
remarks I was going to welcome and thank our colleagues who are 
testifying today, but I will do that when they appear.
    I was also going to promise to make my opening comments 
brief in deference, but now I will just keep on talking. 
[Laughter.]
    But I want to thank Cass Sunstein, the Administration's 
point man, as it were, on matters of regulation, who will be 
testifying on the second panel.
    The question before us, as I see it, is not whether to 
regulate but how to regulate because a Nation without 
regulation would be a Nation at risk. For example, last week I 
read a news story about the devastating effects of lead 
poisoning in parts of China. Workers have apparently been 
absorbing dangerous amounts of lead in factories, and many 
children, who are particularly vulnerable to the neurological 
damage lead can cause, have been sickened in homes and schools 
that are located near those factories. Here in the United 
States, we have known for quite a long time that air pollution 
and workplace safety regulations were necessary, and they have 
protected workers and families living near similar industrial 
plants from being ill, and those were regulations that Congress 
directed agencies to put in place. And I think this example, 
and others that we could cite, such as the failure of 
regulation in a different sense to prevent some of the bad 
behavior in the financial sector of the American economy that 
contributed greatly to the Great Recession that we are still 
fighting our way out of--these kinds of regulations or the 
concept of regulation is not only correct but something that 
the public wants us to do. So the question in my mind is not 
whether to regulate but how.
    Smart regulations, of course, can also help industry by, 
for instance, providing a predictable field on which they can 
operate. For instance, after recent national outbreaks of 
salmonella and other foodborne illnesses, the food industry, as 
I viewed it, seemed to welcome the recent food safety law as a 
way to fortify consumer confidence and restore damaged sales.
    Of course, many regulations do impose costs on businesses, 
and not all of them are justified. So it is important to 
oversee the regulatory process continually to ensure that it is 
achieving the greatest public benefit at the smallest cost. 
That is particularly important now, of course, when our economy 
is struggling and businesses will be threatened in an 
especially consequential way by unjustified regulatory burdens.
    In that spirit, President Obama moved recently to 
strengthen the process through an Executive Order (EO) that 
clarified and toughened guidelines for evaluating the costs and 
benefits of proposed regulations in order to select the least 
burdensome ones. The President has called on agencies to review 
existing regulations to ensure that they are still necessary. 
These so-called look-back reports are being assembled and, I 
gather, have identified ways to save a lot of money in reduced 
compliance costs as well as millions of hours of reduced 
paperwork for businesses and individuals. So I look forward to 
hearing about that effort from Cass Sunstein, who is overseeing 
the process as the head of the Office of Information and 
Regulatory Affairs (OIRA).
    Once again, I thank our colleagues for the work that they 
have done--Senator Snowe is here now; we will call on her 
first--in this important area of governance. We are really 
fortunate to have several Members of our own Committee, as well 
as Senators not on the Committee, who have worked in this 
subject area and will testify before us today.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman. At the outset of 
this hearing, I want to thank you for agreeing to hold this 
hearing today to allow our colleagues to describe their 
legislative proposals for regulatory reform. I am particularly 
pleased that my senior colleague from Maine, Senator Snowe, is 
here to present her bill. As the Ranking Member of the Small 
Business Committee, she brings a great deal of expertise to 
this issue, and so I welcome her.
    I would also note, Mr. Chairman, that she is the only 
Member who is on time for our hearing and, thus, I believe that 
her bill deserves extra consideration. [Laughter.]
    Chairman Lieberman. I agree. Thank you.
    Senator Collins. Our April hearing laid the groundwork for 
a thoughtful examination of how the regulatory burdens on our 
economy--especially on job creation and productivity--might be 
lightened or simplified, without diminishing important safety 
and health protections.
    I am optimistic that we can build a bipartisan consensus to 
achieve this goal. President Obama has acknowledged that 
Federal regulations have ``sometimes gotten out of balance, 
placing unreasonable burdens on business--burdens that have 
stifled innovation and have had a chilling effect on growth and 
jobs.''
    Most recently, when the President's Chief of Staff met with 
a group of manufacturers who complained to him about excessive 
and burdensome regulation, the President's Chief of Staff was 
quoted as saying that sometimes you just cannot defend the 
indefensible.
    Notwithstanding these comments and the President's 
intentions, the growth of the Federal regulatory state, as 
measured in terms of employment by regulatory agencies, 
continues unabated. As this chart on display illustrates, since 
March 2010, job growth in the Federal regulatory agencies has 
far outstripped job growth in the rest of the Federal 
Government. Much more significantly, it has far outpaced job 
growth in the private sector.
    Now, in some cases this is a reaction to new regulations 
that we have mandated in the financial area, for example, but 
in other cases there is no doubt that we have more Federal 
regulators churning out regulation that has had the effect of 
impeding private sector job growth.
    All too often it seems that Federal agencies do not really 
take into account the impact on small businesses and job growth 
before imposing new rules and regulations.
    I have introduced my own bill to address this problem. It 
is called the CURB Act, which stands for Clearing Unnecessary 
Regulatory Burdens.
    First, the CURB Act requires Federal agencies to analyze 
thoroughly the costs and benefits of regulations, including 
indirect costs, such as the impact on job creation, the cost of 
energy, and consumer prices. Currently, most Federal agencies 
are not required by law to analyze these indirect costs and 
benefits.
    The idea of using cost/benefit analysis is not new, of 
course. In 1981, President Ronald Reagan issued an Executive 
Order prohibiting agencies from issuing regulations unless the 
potential benefits outweighed the potential costs. President 
Clinton revised that Executive Order in 1993, obligating 
agencies to provide OIRA, the office that Cass Sunstein heads 
within the Office of Management and Budget (OMB), with an 
assessment of the costs and benefits of regulations. The focus 
of the Clinton Executive Order was on regulations that are 
``significant''--meaning those which can reasonably be expected 
to have an impact of $100 million or more on the economy. My 
bill would essentially codify that requirement.
    Second, the CURB Act compels Federal agencies to comply 
with public notice and comment requirements and prohibits them 
from circumventing these requirements by issuing unofficial 
rules as ``guidance documents.'' This has been a real problem. 
It is one that our colleague now-Senator Rob Portman tried to 
address when he was head of OMB in 2007. He tried to close the 
loophole by imposing good guidance practices on Federal 
agencies. But the fact is that does not in many cases have the 
force of law, and I think we need to codify that.
    Third, the CURB Act helps out the ``little guy'' trying to 
navigate our incredibly complex and burdensome regulatory 
environment. When a small company, a small business, 
inadvertently runs afoul of a Federal regulation and there is 
no harm done, I do not understand why we slap that business 
with a financial penalty. After all, that first-time violation 
that caused no harm, that may well be a paperwork violations, 
could impose a financial burden that could sink the business 
and all the jobs that it supports. It does not make sense to me 
to penalize a small business the first time it accidently fails 
to comply with paperwork requirements so long as no harm comes 
from that failure.
    Each of the provisions in the CURB Act has been endorsed by 
the National Federation of Independent Business and the Small 
Business and Entrepreneurship Council.
    So I would urge the Members of this Committee and my 
colleagues to take a close look at the CURB Act, to endorse it, 
I hope, and I also look forward to learning about the 
regulatory reforms proposed by my colleagues in the hope that 
we can produce a regulatory reform bill this session.
    Thank you, Mr. Chairman. Again, thank you for holding this 
important hearing.
    Chairman Lieberman. Thank you, Senator Collins.
    The original plan had been to go to the Senators not on the 
Committee who are visiting, but Senator Portman has a conflict 
at this hour, and with the leave of the others--because he has 
introduced a bill also, as has Senator Paul. I wonder if you 
would allow him to go forward. Senator Portman.

              OPENING STATEMENT OF SENATOR PORTMAN

    Senator Portman. Well, thank you, Mr. Chairman. Thank you 
very much for holding the hearing, and I thank you and Senator 
Collins for your interest in the issue, and specifically, 
Senator Collins, your great work on this issue. The CURB Act 
is, as you said, an important codification of some existing 
practices, and it goes beyond that in some really important 
ways. So I am a supporter and I encourage her to continue to 
push this through this Committee.
    There has been discussion already this morning about the 
importance of regulations and their impact on the economy, and 
I think it goes without saying that we are all looking for ways 
to stimulate growth right now, and certainly taking away this 
regulatory burden is an appropriate focus.
    Let me give you a number: $1.75 trillion annually is the 
economic toll of Federal regulations. When you think about 
that, that is more than the Internal Revenue Service (IRS) 
collects in income taxes. So it is clearly an area for us to 
focus on.
    A great Senator Lieberman quote this morning, ``not whether 
to regulate but how to regulate,'' I would agree with that. But 
we certainly need to be smarter and better at it.
    And I hear this all the time, as do my colleagues, I am 
sure, who are here today, from businesses saying--regardless, 
really, of what business they are in--that there is a Federal 
regulatory issue that they are dealing with and making it more 
difficult to move forward and hire.
    President Obama's Executive Order was spoken about earlier, 
EO 13563. I think the words in that Executive Order are very 
encouraging, actually, and I am hopeful that some of that 
lookback will be successful. But I have to tell you, I continue 
to be very concerned about the actual direction they are moving 
in, and I think this is, again, at this time in our Nation, 
with our economic problems, something that we appropriately 
should focus on.
    I see more costs, more agency action. I think one of the 
best ways to get our hands around it to look at these 
regulations that have the most impact, and those are called 
``major'' regulations or ``economically significant'' rules. 
That means they have an annual impact on the economy of $100 
million or more. Of the 4,000 rules that Federal agencies issue 
every year--that is a rough estimate--only about 50 to 70 are 
in this category. But they are the ones that have the biggest 
impact, and I think that is one way for us to logically 
approach this.
    The chart that I have distributed puts this in an 
interesting context.\1\ It is about the regulatory trend. It 
shows that these economically significant rules that are in 
development across all Federal agencies are increasing 
dramatically. This is the 2010 OMB Fall Regulatory Plan, 224 of 
these major or economically significant regulations in the 
pipeline. That is a 60-percent increase since 2005. So this 
notion that somehow we are successfully dealing with these 
major impacts on our economy I think is not accurate based on 
the facts.
---------------------------------------------------------------------------
    \1\ The chart submitted by Senator Portman appears in the Appendix 
on page 126.
---------------------------------------------------------------------------
    This might not be the perfect measure of regulatory burden, 
but I think it is an important one, and it is one we ought to 
be looking at because the trajectory we are on is not good for 
business.
    I believe the best approach to bringing some balance is 
twofold.
    First, I think we need to reform the way agencies develop 
these new rules--especially on these economically significant 
rules, as I say--by making the process more cost-conscious, 
more transparent--I think what Senator Collins talked about 
helps in that area--and more accounts. That is the goal of the 
Unfunded Mandates Accountability Act that I am going to talk 
about briefly here that I introduced this month, and we now 
have 20 co-sponsors.
    Second, I think we should move toward a regulatory 
budgeting process--a more systematic framework for tracking and 
controlling these large, what really are unbudgeted costs that, 
again, Washington is imposing every year on the private sector. 
It is a subject I have been working on recently and discussing 
with Senator Mark Warner, who is here with us today. He has 
done great work in this area, and I know that he is going to 
talk about it today. He is very well versed on it, and I look 
forward to what he has to say.
    On this first point--process reform--this legislation that 
I introduced this morning is focused on the Unfunded Mandates 
Reform Act of 1995 (UMRA), which is existing law. I was 
involved in that as the House co-sponsor back in 1995, and it 
was a bipartisan way to prevent the regulators and Congress, 
frankly, from imposing burdens on State and local government, 
but also on the private sector.
    My legislation improves UMRA in five ways. A thumbnail 
sketch:
    Broader scope. It says that instead of having a direct 
expenditure, it has to be an effect on the economy. This is 
consistent, actually, with the way OMB currently looks at it 
through the OIRA regulatory review process, so I think that 
makes sense given, again, our economic situation.
    Second, a stronger economic impact analysis. It would 
require an impact on jobs, which, again, is consistent with the 
President's speech when he talked about the importance of 
identifying and assessing available alternatives to encourage 
job creation.
    Third, least onerous alternative. Right now the legislation 
does require the agencies to look at the least costly, least 
burdensome. This bill would change that to make it a 
requirement. It is discretionary now. This would say at least 
on these most costly rules, again, 50 to 70 a year, it ought to 
be required.
    Fourth, it applies to independent agencies. This only makes 
sense. Independent agencies are regulating more, and, frankly, 
in 1995 we should have extended it. Think about the Securities 
and Exchange Commission (SEC) or even the newly created 
Consumer Financial Protection Bureau. There is no reason it 
should not apply to independent agencies.
    Cass Sunstein, who is here today, and I have talked about 
this in testimony before, but he wrote a brilliant law review 
article back in 2002 where he advocated just that.
    Finally, judicial review. Improving the enforcement of UMRA 
by permitting judicial review of agency actions, to me this is 
critical in terms of actual enforcement.
    So, Mr. Chairman, thank you again for holding this hearing. 
No major regulation, whatever its source, should be imposed 
without a careful consideration of the cost, the benefits, and 
the availability of less onerous alternatives, and that is what 
this legislation is meant to achieve.
    Chairman Lieberman. Thanks, Senator Portman.
    It would be my intention now to go to the panel, Senator 
Paul, and then go to you after. I am hoping that you will be 
staying.
    Senator Snowe, Senator Roberts, Senator Vitter, and Senator 
Warner, thanks for being here. When I see Senator Roberts, I 
always have to feel that I should reassure him that all 
proceedings before this Committee are conducted in compliance 
with the Geneva Convention. [Laughter.]
    Thank you. It is an ongoing routine that we do. It goes 
back to Jack Benny--most of you do not even know who Jack Benny 
was.
    Senator Snowe, you have been a real leader in this area of 
regulatory reform, sometimes in a way that is frustrating to 
you, I know, but you are indefatigable, and we welcome you here 
and would welcome your testimony at this time.

TESTIMONY OF HON. OLYMPIA J. SNOWE,\1\ A U.S. SENATOR FROM THE 
                         STATE OF MAINE

    Senator Snowe. Thank you, Chairman Lieberman, and Ranking 
Member Collins for convening this crucial hearing on regulatory 
reform, and I applaud your efforts.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Snowe appears in the Appendix 
on page 161.
---------------------------------------------------------------------------
    Mr. Chairman, I know you have been a steadfast advocate for 
small businesses as a longstanding member of the Small Business 
Committee and as my fellow co-chair on the Senate Task Force on 
Manufacturing. And, of course, Ranking Member Collins has been 
a true champion of small businesses. She hails from a family of 
entrepreneurs and small business owners and previously served 
as the New England Regional Administrator of the Small Business 
Administration. I want to commend you, Senator Collins, for 
your initiative on small businesses and on regulatory reform. I 
appreciate many of the issues that you have raised here this 
morning, as well as Senator Portman. We could certainly find 
common ground on a number of these issues, so I appreciate what 
you have offered here today.
    I am very pleased to be able to testify on the Freedom from 
Restictive Excessive Executive Demands and Onerous Mandates 
(FREEDOM) Act, which garnered support of 53 Senators, including 
10 Members of this Committee, when I offered it in the form of 
an amendment back on June 9 on the Senate Floor. I am 
especially thankful to my co-author, Senator Coburn, who was 
instrumental in the process of drafting and re-drafting this 
legislation in response to many of the issues that have been 
raised by our colleagues.
    Mr. Chairman, we have experienced the highest percentage 
increase in long-term unemployment, of any recession since 
World War II. It is going to require us to create 285,000 jobs 
every month for 5 consecutive years to return to the pre-
recession unemployment levels of 2007.
    Since the recession began, small businesses have already 
lost $2 trillion in asset valuation and profits. So when we ask 
the question of why regulatory reform, why now, I think we know 
the answer to it. And even Chairman Bernanke yesterday 
indicated that economic growth is going to be lower than 
originally anticipated.
    We need an economic game changer so that we can have 
entrepreneurs and small businesses--and all businesses, for 
that matter--to be able to take the risk to create jobs through 
investments. And that is why regulatory reform becomes so 
essential.
    As a letter endorsing our bill from 32 major small business 
organizations stated, Federal regulations ``add up and increase 
the cost of labor. If the cost of labor continues to increase, 
then job creation will be stifled because small businesses will 
not be able to afford to hire new employees.'' Moreover, we 
learned in a Small Business Committee hearing in November that 
a 30-percent reduction in regulations would result in a $32,000 
saving for small business, which would be the equivalent of an 
additional new hire. So think about it. If we have 27 to 30 
million small businesses in this country, if every business was 
able to add one additional employee, think about where we would 
be today.
    It is not hard to understand why regulations are stifling 
small business. Since the enactment of the Small Business 
Regulatory Enforcement Fairness Act back in 1996, more than 
50,000 new rules have gone into effect, including 1,000 
``major'' rules, which Senator Portman referred to, each with 
an estimated impact of more than $100 million annually on the 
economy. More than 3,000 new rules are established each year.
    In fact, just recently, in 2009 and 2010, there was an 
11.5-percent increase in those rules that specifically affected 
small businesses. The Administration's own cost estimates for 
the 407 proposed or enacted regulations this year is over $68 
billion with likely broader economic costs on our economy. So 
it is no coincidence, if you compare us to China, India, and 
other major competitors, that it costs American firms 18 
percent more to manufacture goods.
    The FREEDOM Act is based on existing laws and those 
processes that actually work. We include small business review 
panels, such as those that have already been in place for 15 
years at the Environmental Protection Agency (EPA) and the 
Occupational Safety and Health Administration (OSHA), and now 
at the Consumer Financial Protection Bureau. The 32 
organizations supporting our legislation stated ``these panels 
have proven to be an extremely effective mechanism.'' The 
panels have evaluated 41 rules at EPA and 10 at OSHA, including 
the arsenic in drinking water rule, the ground water rule, and 
the ergonomics standard rule. And while we originally sought 
panels at every agency, in response to those who had concerns 
about having a smaller, phased-in approach, we decided to add 
nine agencies over 3 years, and that was one of five revisions 
that we made to our legislation to forge a consensus.
    The Regulatory Flexibility Act (RFA) was passed in 1980, 
and that was at a similarly difficult economic time in our 
country. The RFA requires agencies to conduct small business 
analysis for any regulation that would impose a significant 
harm on a substantial number of small businesses. Yet agencies 
have circumvented this obligation by issuing ``guidance 
documents,'' as Senator Collins has referred to, instead of 
formal rules, as occurred with OSHA's recent ``proposed 
reinterpretation'' of the noise standard. When Chairman 
Lieberman and I weighed in on behalf of small businesses, OSHA 
withdrew that proposal. Now, to prevent similar future 
occurrences, our bill extends the RFA to guidance documents as 
well.
    Another disregard for the Regulatory Flexibility Act is 
when agencies fail to conduct a meaningful small business 
impact analysis at the proposed rule stage. Regrettably, the 
law does not allow small businesses to challenge these rules at 
that point in court, instead they must wait until a burdensome 
rule is finalized, when it is already too late with costly 
ramifications for small businesses. Therefore, using the nearly 
identical language from legislation that was previously filed 
by the chairman of the Small Business Committee, Senator 
Landrieu, and by Senator Benjamin Cardin, our bill extends 
judicial review to the proposed rule stage.
    Agencies also ignore the Regulatory Flexibility Act, 
without consequence, when they do not review their rules each 
decade for possible elimination or to be made less onerous and 
punitive. That is why the FREEDOM Act also includes a ``stick'' 
for enforcement. If agencies fail to do what they are required 
to do by law, to review these regulations every 10 years, then 
they would lose 1 percent of their budgets for salaries unless 
Congress intervenes. After all, why should citizens seeking to 
create jobs and prosperity bear the brunt of noncompliance by 
Federal agencies?
    Now, as has been discussed here this morning, the President 
is conducting a review of regulations across 30 agencies. I 
know you will hear from Cass Sunstein from OMB. It is critial 
to note that the rules the Administration is examining diverse 
and areas consequential as Endangered Species Act procedures 
and EPA regulations on air pollution. And he expects that this 
examination will yield billions in savings. In fact, I brought 
here a sampling of the rules that are being reviewed by the 
Administration currently, and that is just a sampling of what 
is going to be reviewed by the Administration, which is a 
fragment of the Federal regulations.
    That is the point. Why isn't this review the norm not the 
exception? That is how Congress can play its part in meaningful 
regulatory reform by adding consistency to the process, adding 
accountability through enforcement, and you only can achieve 
that with assurances through the weight of law. We have to have 
a consistent practice of regulatory reviews so that businesses 
can rely on it with certainty and predictability.
    Finally, the FREEDOM Act requires agencies to consider 
foreseeable indirect costs of rules, as Ranking Member Collins 
has also proposed, which is a top legislative priority of the 
President's Small Business Administration (SBA) Office of 
Advocacy. Currently, the Regulatory Flexibility Act only 
mandates regulators to take into account the direct effects by 
a proposed rule--completely ignoring the secondary effects. If 
you have a factory that closes in a community, it can also 
affect the suppliers and the contractors. And we have addressed 
the concerns with our original language that might require 
agencies to consider too many types of indirect effects, by 
taking the precise language that was proposed by Dr. Winslow 
Sargeant, who is the SBA Office of Advocacy Chief Counsel.
    To conclude, Mr. Chairman, the time to act to remove these 
barriers and impediments to job creation is now. Small 
businesses need the relief. Our economy needs help. The 
American people desperately need jobs in this country and we 
have failed them in providing the right kind of economic 
conditions. Regulatory reform will be paramount in being able 
to revive the economy and make a major step in the right 
direction.
    Chairman Lieberman. Thanks very much for your testimony, 
Senator Snowe, and we obviously look forward to working with 
you on this matter as we go forward.
    Senator Snowe. Thank you.
    Chairman Lieberman. I would say to my colleagues that our 
inclination is not to ask questions of the Senators at this 
point, so if your schedule requires you to leave, please feel 
free.
    Senator Roberts, thanks for being here, and I am going to 
control myself and try not to be funny anymore. You somehow 
motivate me in that direction. I will just call on you because 
this is a serious subject.

TESTIMONY OF HON. PAT ROBERTS,\1\ A U.S. SENATOR FROM THE STATE 
                           OF KANSAS

    Senator Roberts. Well, good morning, Chairman Lieberman, 
Ranking Member Collins. Chairman Lieberman, I was going to do 
our Jack Benny routine.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Roberts appears in the 
Appendix on page 164.
---------------------------------------------------------------------------
    Chairman Lieberman. It is a great one.
    Senator Roberts. Thinking that perhaps it would add a 
little levity to this subject, but there are four regulations 
that prohibit that in this hearing room. [Laughter.]
    I was not aware of that until this morning, and I had the 
full stack of regulations here, but it kept leaning over like 
the Leaning Tower of Pisa, and I did not want to have a 
problem.
    I could say, ``Now, Joe, cut that out.'' But I will not do 
that.
    Chairman Lieberman. Thank you.
    Senator Roberts. All right. And distinguished Members of 
the Committee, I am pleased to be here today to testify on 
regulatory reform issues, obviously the topic of the day. 
Senator Warner's bill, Senator Vitter's bill, I am a co-sponsor 
of Senator Collins' bill and Senator Snowe's bill. I have 47 
co-sponsors on my bill. Senator Warner, we need your help. I 
will visit with you.
    My bill, the Regulatory Responsibility for Our Economy Act 
of 2011, would strengthen and codify President Obama's 
Executive Order from January 18. The President made a 
commitment to review, modify, streamline, expand, or repeal 
those significant regulatory actions that are duplicative, 
unnecessary, overly burdensome, or would have significant 
economic impacts.
    My bill would ensure just that and would require that all 
regulations put forth by the current and future Administrations 
consider the economic burden on American businesses, ensure 
stakeholder input during the regulatory process, and promote 
innovation.
    My legislation would ensure that this happens by laying out 
specific conditions that the Federal regulatory system must 
meet. It also puts forth new and codifies existing agency 
requirements for promulgating the regulations.
    In a Wall Street Journal op-ed, the President stated, ``We 
have preserved freedom of commerce while applying those rules 
and regulations necessary to protect the public against threats 
to our health and safety and to safeguard people and businesses 
from abuse.'' But he also noted, ``sometimes those rules have 
gotten out of balance, placing unreasonable burdens on 
business--burdens that have stifled innovation and have had a 
chilling effect on growth and jobs.''
    I absolutely agree with that statement. I hear Kansan after 
Kansan who find themselves weighed down by the deluge of 
regulations that threaten the future of their businesses.
    During fiscal year 2010, 43 new major regulations were 
adopted, with estimated net new burdens on Americans exceeding 
$26.5 billion each year. Now, that is a record increase. 
Fifteen of the 43 new major rules involve financial regulation. 
Another five stem from health care reform. Ten rules adopted by 
the EPA were responsible for the lion's share of new regulatory 
costs--some $23.2 billion.
    Regulatory burdens--and the taxpayer burden--are expected 
to increase again this year as agencies continue to promulgate 
literally thousands of new rules.
    A September 2010 report prepared for the Small Business 
Administration stated that the annual cost of Federal 
regulations--the annual cost today--was an outstanding $1.75 
trillion in 2008. Now, imagine the cost since then. My 
legislation would simply codify the President's Executive Order 
and assure a review of these regulations.
    The President's Executive Order ``requires that Federal 
agencies ensure that regulations protect our safety, health, 
and environment while promoting economic growth.'' So does my 
legislation. However, it strengthens the President's commitment 
by promoting economic growth, innovation, competitiveness, and 
job creation.
    The President's Executive Order commissions ``a government-
wide review . . . to remove outdated regulations that stifle 
job creation and make our economy less competitive.'' So does 
my legislation.
    My legislation requires each agency to submit a plan to 
review existing significant regulatory actions, and then they 
must continue to do so once every 5 years and must report to 
the Congress.
    We need to add some teeth to the President's commitment by 
closing existing loopholes. My legislation also requires the 
independent agencies to complete a review of their regulatory 
actions and imposes the same requirements on them. I am sure 
every office in the Congress, everybody here, hears about the 
egregious overregulation by independent agencies such as the 
Commodity Futures Trading Commission (CFTC) and the EPA.
    My bill also ensures valuable stakeholder input on 
regulatory actions, including standardizing the length of the 
comment period and when it should start. Today's comment 
periods can range from 2 weeks to 90 days, causing 
inconsistency, and stakeholders should have the time and a say 
in protecting their future.
    In 2010, Federal agencies issued 3,573 final rules. The 
Administration's own cost estimates for the 280 proposed or 
enacted regulations this year is over $29.4 billion--almost $30 
billion--with potentially even broader economic costs on our 
economy. And this is just a snapshot in time, with the hundreds 
of pages, more and more, that are coming out every day.
    President Obama has made it his ``mission to root out 
regulations that conflict, that are not worth the cost, or that 
are just plain dumb.'' I agree. We need to eliminate more of 
the ``just plain dumb'' in government, and I would encourage 
the Administration and my colleagues to support my legislation.
    I thank the Chairman and the Ranking Member.
    Chairman Lieberman. Thanks, Senator Roberts. It is very 
heartening to hear the ways in which you and President Obama 
are of like mind.
    Senator Roberts. He has a blueprint, sir, and I simply 
codify his rules and take out the exemptions. If you would 
like, I could read one particular exemption, or loophole, that 
I think is very egregious.
    Chairman Lieberman. I knew I should not have commented. 
[Laughter.]
    Go right ahead.
    Senator Roberts. Let me just say that in applying these 
principles--this is for each agency head and for Mr. Sunstein 
over here to take a look at it. ``Each agency is directed to 
use the best available techniques to quantify anticipated and 
present and future benefits and costs as accurately as 
possible. Well, that is pretty good. But, where appropriate and 
permitted by law, each agency may consider and discuss 
qualitatively''--qualitatively now, Mr. Chairman--``values that 
are difficult or impossible to quantify, including equity, 
human dignity, fairness, and distributive impacts.''
    Now, I defy anybody here to really define what that means, 
and, Mr. Sunstein, if you can define it, bless your heart. And 
many agency heads simply got their people together and said at 
the initial speech by the President back on January 18, when he 
issued the Executive Order, and said, ``Well, are we doing 
equity? Are we doing human dignity? Are we doing fairness? Are 
we doing distributive impacts?'' And everybody said, ``Well, 
sure.'' And so the EPA came out and said, ``Well, none of this 
applies to us.'' Now, they have changed their mind a little bit 
after they testified before Congress and after the President's 
Executive Order has been fully discussed.
    I give the President great credit. Our bill simply uses his 
order as a blueprint to, I think, improve it some and put teeth 
in it, and I appreciate your indulgence.
    Chairman Lieberman. Thanks, Senator Roberts. When Mr. 
Sunstein is before us, I will ask him to respond on that 
particular paragraph that you read. I appreciate your taking 
the time to come and be with us and also for the work that you 
did on your proposal.
    Next, our friend and colleague from Louisiana, Senator 
David Vitter.

  TESTIMONY OF HON. DAVID VITTER,\1\ A U.S. SENATOR FROM THE 
                       STATE OF LOUISIANA

    Senator Vitter. Thank you, Mr. Chairman, Ranking Member 
Collins and Members, for the opportunity to visit with you 
today and for this very important hearing. And I certainly 
agree with all of the previous comments. It is sometimes 
amazing that small business owners really have any significant 
time to actually run their business, grow their business, do 
anything else after all of this paperwork is done. Businesses 
have to deal with a myriad universe of Federal agencies--EPA, 
Corps of Engineers, Coast Guard, SBA, Labor, Commerce, IRS, and 
Customs, just to name a few.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Vitter appears in the 
Appendix on page 166.
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    I talk to and try to help Louisiana businesses every week 
who are trying to get through this maze, and it is very 
difficult. And that does not even mention the State and local 
regulatory agencies that they deal with on top of that.
    There have been many great explanations and metrics about 
that burden. I will not belabor the point, but let me just add 
one.
    In September of last year, the SBA Office of Advocacy 
released a study that gave us a little glimpse of the burden. 
The reports shows that small businesses with 20 or fewer 
employees face an annual cost from Federal regulations alone of 
$10,585 per employee.
    When you are talking about that sort of family business, 
that sort of small business, that is an enormous burden. If we 
could cut that in half--and that burden would still be too 
high, in my opinion--that would mean for a business of 20 
people, over $100,000 a year. That is a lot of money for a very 
small business. That is a lot of opportunity to hire, to grow, 
to innovate, and to compete more effectively. That is a big 
deal. So this is important work and an important topic.
    Most of my other colleagues are talking about major 
regulatory reform, and I support those efforts. What I am going 
to talk about in terms of legislation, the Small Business 
Paperwork Relief Act, is fundamentally different and I think is 
an important complement to that and is a much more immediate 
relief valve. So I encourage you to look at this as a 
supplement to broader regulatory reform efforts.
    Again, it is called the Small Business Paperwork Relief 
Act. I have been working on it since I was in the House, 
brought it to the Senate. It still is a leading proposition in 
the House, and it would direct Federal agencies not to impose 
civil fines for a first-time violation of their agency's 
paperwork requirements by a small business unless the head of 
the agency determines that, first, the violation has the 
potential to cause serious harm to the public interest; second, 
forgoing a fine would impair criminal investigations; third, 
the violation involves internal revenue law; fourth, the 
paperwork violation is not corrected within 6 months; or, 
fifth, the violation presents a clear danger to public health 
or safety.
    Also, the bill says that fines can be waived in the case of 
a violation that could present a danger to public health or 
safety if the issue is corrected within 24 hours of the small 
business receiving notification.
    So, again, this is an immediate relief valve. It does not 
take the place of much broader reform efforts, which I support, 
but it is a quick, immediate relief valve which we could pass 
and which would give immediate relief to small business.
    Now, there are some who may argue against the proposal that 
it would encourage small business owners to break the law. I 
really do not think it would do that in any way.
    Others could argue that devious business owners could wait 
for their free shot before filling out required documents. I do 
not think that would be the case. The bill does not remove any 
obligations. The bill is about pure paperwork violations. The 
bill lays out all of the requirements I just mentioned. And the 
bill would only temporarily provide relief from fines regarding 
first-time violations--not a series of violations, not a bunch 
of violations put together, but one first-time violation.
    So I do think it is sensible, common sense, and would give 
some immediate relief as we work on broader reform efforts. I 
encourage the Committee to look hard at it along with these 
broader reform efforts.
    Thank you very much for the opportunity to present the 
idea, and I look forward to following up with each of you.
    Chairman Lieberman. Thanks, Senator Vitter. We definitely 
will look at that proposal. I appreciate your describing it to 
us. Thanks for taking the time to be here.
    Senator Mark Warner of Virginia.

 TESTIMONY OF HON. MARK R. WARNER,\1\ A U.S. SENATOR FROM THE 
                       STATE OF VIRGINIA

    Senator Warner. Thank you, Mr. Chairman, Ranking Member 
Collins, and Members of the Committee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Warner appears in the 
Appendix on page 171.
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    Obviously, this is a topic whose time has come, the 
question and challenge of how we try to get our regulatory 
burden in the right shape.
    If you will let me be slightly controversial, I actually 
think rules and regulations are important, and I am not here to 
question the whole need for regulations. But I do think it is 
time to question how we can go about this process in a much 
smarter way and a more cost accountable way.
    I actually have run small businesses. I have been involved 
in business for 20 years. I have been in business longer than I 
have been in politics. And it is kind of stunning to me at 
times--that any business that does not regularly review its 
processes, review its rules, review how it operates would soon 
be out of business.
    Unfortunately, we cannot necessarily say that about 
government. Much of what we are talking about today is not the 
result of any single action. It is simply the accumulation over 
decades of rules and regulations without ever having a process 
to go back and fully prune out what has kind of outlived its 
purpose or moved beyond where technology is today.
    I do want to commend the President as well, like Senator 
Roberts, in terms of his efforts, and I think Mr. Sunstein has 
moved forward on this. If I was doing this smartly, I would 
take Senator Snowe's prop and bring it down right here and 
point out the fact that OIRA has moved forward with the 
President's direction. Just in the last month after reviewing 
30 agencies, it identified over 500 regulations. Some of those 
are pointed out over there. Most of those have not had cost 
analysis, but 5 percent of the recommendations did include 
potential savings. And even if 5 percent of those potential 
savings were realized, that is more than $7 billion and 60 
million hours in possible compliance savings. So this is an 
area where we can, I think, make progress.
    I have been working on a proposal for almost a year, 
working with Senator Portman, and would look forward to working 
with other Members, on seeing if this might be a slightly 
different approach. And it would do two things.
    First, it would require all government agencies, both 
independent and executive agencies, to conduct the kind of 
impact analysis of economically significant rules that OMB 
already requires for executive agencies. I think it is time 
that we broaden that reach to independent agencies as well.
    Next, my proposal would include a regulatory pay-as-you-go 
(PAYGO) approach that I think would start to put the 
appropriate balance in place. This PAYGO process would ensure 
that agencies act on and expand their retrospective review 
plans to eliminate outdated rules and modernize others over the 
next few years.
    Now, what does regulatory PAYGO mean? It actually says that 
as an agency puts forward a new regulation--and there is a need 
clearly at times to put forward new regulations as science and 
circumstance change--they would conduct an economic analysis of 
that regulation, and if they feel it is so critical to put 
forward, they would have to go back and, in effect, find one of 
equal size and shape and burden and take it off the books.
    What this would do is to align the incentives inside the 
agencies the right way. Agencies do very important work, but 
right now, agencies often are rewarded with additional staff 
and personnel the more regulations they add. This would try to 
on an internal basis kind of get that process right.
    I believe this PAYGO process would actually force more 
conversations about alternatives to necessary regulations and 
get that rebalancing done before the whole regulatory process 
goes forward. And it would actually force that weighing of 
costs/benefits beyond some of the proposals which my colleagues 
have put forward. This PAYGO process would be overseen by OIRA, 
and I think it would be appropriate.
    Now, I have had a number of folks say it is a great 
concept, but how would you actually do it? Could you actually 
put this kind of process forward where you could have 
regulatory PAYGO?
    I would simply add that, as much as I would love to claim 
this was an idea that I came up with, it is not. This is 
something the U.K. Government has actually done. It is called 
``one-in, one-out.'' It has been embraced by both the Labour 
Government and the new Coalition Government. And one of the 
things that constantly kind of haunts me is the United Kingdom, 
which for I think for most of our lives was always viewed as 
this kind of overly burdensome with regulations--we did not 
want to become like the United Kingdom. The United Kingdom has 
actually passed the United States in terms of ranking of 
international competitiveness because the United Kingdom has 
taken on this issue of regulatory reform and has taken bold 
steps like one-in, one-out. I think regulatory PAYGO would be a 
similar type approach, and, again, I commend the Committee and 
all the Members for taking on this issue. I hope my idea that 
could be put into the mix will get appropriate review as well.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Warner. That is a very 
interesting idea, and I promise you we will give it full 
consideration, and I hope we can engage with you in more detail 
about how to implement it. Thank you.
    Two other Members of the Committee have introduced 
regulatory legislation, Senator Paul and Senator Pryor, so I 
would call on Senator Paul at this time.

               OPENING STATEMENT OF SENATOR PAUL

    Senator Paul. Thank you, Mr. Chairman, and thank you, 
Senator Collins, for having these hearings. I think they have 
been very informative.
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    \1\ The prepared statement of Senator Paul appears in the Appendix 
on page 129.
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    I think if we truly care about our country, if we care 
about joblessness, if we care about unemployment, if we wanted 
to stimulate the economy, we should incorporate the ideas we 
have heard today, a lot of good ideas from a lot of different 
Senators, Republicans and Democrats. I would encourage the 
Chairman, who is famous for being independent and respected for 
working with both sides of the aisle, to let us do something. I 
mean, why not take these ideas--if we cannot put them into one 
bill, let us stack them, have five or six regulatory freedom 
bills, and let us get them passed. Let us say within a month we 
will get them to the floor and we will vote on them. If people 
do not like them, vote no, but let us get them to the floor, 
because this would provide jobs.
    The President said, well, the shovel-ready jobs were not so 
shovel-ready. Well, the thing is that there is sort of a 
fallacy there. That is the government creating jobs. What we 
are talking about here is regulatory freedom, letting business 
create more jobs, who already are creating jobs. The businesses 
who have already been voted on by the consumer and they are 
succeeding, but could succeed more and create more jobs if we 
would free them up.
    The whole idea of the government passing out shovels just 
is not really good. It incorporates an economic fallacy. Milton 
Friedman one time was traveling in Asia, and they wanted to 
show him a canal project. So he went down there, and there were 
a bunch of guys with shovels, and he looked at them and he 
said, ``Well, where are the bull dozers? Where is the heavy 
equipment to build your canal?'' And they said, ``Oh, no. This 
is a jobs project.'' And he said, ``Well, if it is a jobs 
project, why don't you give them spoons?''
    So, really, it is not about shovels or spoons. Let us try 
to help the businesses that are already out there being voted 
on by the consumer every day, and they are succeeding. But they 
are burdened with these regulations.
    Senator Portman talked about there being $1.75 trillion 
worth of regulations. That is true. That is from the 
President's own estimates. They estimate that any business that 
has over 500 employees, it is costing $8,000 per employee. If 
you have only 20 employees, it is costing about $10,000 per 
employee. These costs are what make us noncompetitive with the 
world. We can control our taxes in our country, but our taxes 
are higher than much of the rest of the world. We can control 
our regulatory burden, but our regulatory burden is much higher 
than the rest of the world.
    This is something we could do immediately to help people 
get jobs. We need regulatory reform. We need regulatory 
freedom. And I think it is a bipartisan thing. I think there is 
a lot of--we might not agree on everything, but there is a lot 
here that we could agree on.
    You know, I am new here, and I feel the snail's pace. I 
feel like, well, people are out of work, let us do something to 
help them. I think we could get together, pass something within 
a month, at least get it out there and let us vote on it. We 
may not pass all of these things. It may be easiest to look at 
them individually, just stack a whole bunch of regulatory 
reform votes, and let us try to get them out to the full Senate 
and see what we can get done.
    My bill was originated by Congressman Geoff Davis in the 
House, but it came from a constituent who is a friend and a 
supporter of both of ours named Lloyd Rogers, and he is a 
veteran of the Korean War, he received medals, but he comes to 
Tea Party meetings and says, ``Why do unelected bureaucrats get 
to write the rules? Why are the bureaucrats writing the rules? 
Why are you not writing the rules?''
    A good example of this: ``ObamaCare'' has 1,700 references 
to the Health Secretary shall write these rules at a later 
date. Well, we do not even know what they are. That is why the 
comment by Congresswoman Nancy Pelosi was, ``You will find out 
about it afterwards.'' Now we are finding out more and more 
because we did not know and we are not writing the rules.
    The Dodd-Frank Act had hundreds of regulations in it, and 
these regulations are said to maybe lead to 5,000 pages of 
regulations. We are not going to write them. Furthermore, we 
are not even going to reappropriate the agencies that write 
them. The consumer agency that is going to be created is going 
to be under the Federal Reserve. It will be appropriated like 
the Fed creates credit: Out of thin air. They will just write 
their own appropriations. If we do not control the 
appropriations for these things and we do not write the rules 
for these things, we are not doing a good job. Our job should 
be oversight of these things. Our job should be whether to fund 
or not to fund, and particularly big regulations.
    So the idea that came from my constituent, which 
Congressman Geoff Davis introduced in the House, is that big 
regulations--maybe we cannot oversee every regulation, but big 
regulations, regulations that cost the economy over $100 
million, major rules, should not be written by unelected 
bureaucrats. They should come back to us. And what I would 
argue is that even if you like the regulation, if there are 
some on the other side of the aisle who say we need this 
regulation, let us vote on it. Do not let people who are not 
us--we are supposed to be responsive to the people. Those 
bureaucrats are not. Something so important as to add $100 
million worth of cost should come back to us. I find that if 
you polled this, probably 90 percent of the public think it is 
supposed to happen that way. This is good government. A lot of 
these ideas are good government. But we have to do something 
about it. We cannot just sit and say, oh, it is so big, we can 
never do anything about it.
    We have to start. We have to immediately get started 
reforming government, reining it in. And that is what our act 
is called. It is called the Regulations from the Executive in 
Need of Scrutiny (REINS) Act, and it simply says that these 
large regulations, once they are written by regulatory 
agencies, have to come back to Congress.
    There are about 200 of them in the pipeline right now that 
would cost over $100 million. I think last year about 100 were 
enacted. We need to do something about this. This legislation 
would fix this problem. It would make us more meaningful. It 
would bring back congressional authority. And I think it can be 
a bipartisan issue in the sense that it is not about even 
whether you are for or against the regulation. It is whether or 
not you are for or against the constitutional authority of the 
Congress to be writing these rules and not unelected 
bureaucrats.
    I thank the Chairman very much for having this hearing and 
for letting me speak.
    Chairman Lieberman. Thanks, Senator Paul. And Senator 
Collins and I will work together to see if we can find some 
common ground here.
    Senator Pryor, I have been informed now that you have 
actually not introduced regulatory reform legislation, but you 
intend to, so I guess under the rules that we have chosen for 
today, that gives you the opportunity to make a short opening 
statement----
    Senator Pryor. I will be very brief.
    Chairman Lieberman [continuing]. Of intention.

               OPENING STATEMENT OF SENATOR PRYOR

    Senator Pryor. My intentional statement here.
    Let me just say that I thank the Chairman and thank the 
Committee for having this hearing today and this great 
discussion. I look forward to hearing from our witness in just 
a minute, so I will not take long at all.
    I am working on some legislation and the motivation for it 
is that we need to rethink how we regulate in this country. I 
think we are always going to need some regulation. I think that 
you can go back to any government in history--back to the 
Sumerian cuneiform tablets, which regulated different aspects 
of their society and their economy, and you will see that 
regulation goes all the way to today. So we are always going to 
have this, and we just need to make sure that as we are doing 
this, we are doing it in the smartest way possible. We need to 
recognize the changes in the global economy and how we want the 
U.S. economy to be more competitive. I feel like a lot of times 
our regulations hamper job growth, hamper economic growth, and 
as we are making the decisions that we are going to have to 
make, we need to keep our eye on the ball of the big picture. 
And I think sometimes when we regulate, we lose that.
    We are working on this, and I look forward to working with 
all the Members of the Committee and all the previous panelists 
on their ideas. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Pryor. Senator Coburn, 
I think you have a letter you want to enter into the record----

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. I do want to enter an endorsement letter 
for the Snowe-Coburn FREEDOM Act listing 32 organizations who 
support our bill. I would just submit that for the record.\1\
---------------------------------------------------------------------------
    \1\ The letter referenced by Senator Coburn appears in the Appendix 
on page 159.
---------------------------------------------------------------------------
    Chairman Lieberman. Thanks, Senator Coburn.
    While we are at that, I will just introduce letters from a 
group called the Coalition for Sensible Safeguards and another 
one from the Natural Resources Defense Council (NRDC).\2\
---------------------------------------------------------------------------
    \2\ The letters referenced by Senator Lieberman appear in the 
Appendix on page 115.
---------------------------------------------------------------------------
    Chairman Lieberman. So let us go to Senator Landrieu.
    Senator Landrieu. Thank you. I am sorry to slip in. I had a 
previous meeting.

           OPENING STATEMENT OF SENATOR LANDRIEU \1\

    Senator Landrieu. I am going to submit my opening statement 
for the record. But I just want to thank you, Senator Lieberman 
and Senator Collins, for holding this hearing. I have urged the 
calling of this hearing now for some time. As chair of the 
Small Business Committee, some of the bills that are pending 
for action in the Senate, my Committee has partial 
jurisdiction, but this Committee has primary jurisdiction. So I 
really appreciate the effort that you all are making, along 
with your staffs, to pull together the various bills that are 
presently before the Senate and try to pick the best pieces of 
them.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Landrieu appears in the 
Appendix on page 127.
---------------------------------------------------------------------------
    I understand, Senator Collins, you have a bill yourself to 
put forward to the Senate for consideration. I am glad that we 
are not doing this in a haphazard, disorganized fashion which 
will make an already difficult situation that much worse.
    So I thank you, Mr. Chairman, and I will look forward to 
working with you all, the Members of our Committee, to try to 
fashion something we can bring to the Senate floor and to the 
Congress as soon as possible.
    Chairman Lieberman. Thanks, Senator Landrieu. We look 
forward to working with you, of course.
    Mr. Sunstein, welcome once again. I am glad you were able 
to hear the testimony of our various colleagues, and we give 
you an opportunity now, obviously, to offer testimony of your 
own, but also to respond to anything you heard, and then we 
will go to questions and answers. Thanks very much. And you had 
the unique pleasure of hearing a Member of the Senate describe 
one of your articles as ``brilliant,'' which is something, I am 
sure, that will carry you forward at least through the rest of 
the week. [Laughter.]
    Mr. Sunstein. Thank you so much. I wish my wife were here 
to hear that. [Laughter.]

TESTIMONY OF HON. CASS R. SUNSTEIN,\2\ ADMINISTRATOR, OFFICE OF 
 INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND 
                             BUDGET

    Mr. Sunstein. Thank you, Mr. Chairman. Thank you, Members 
of the Committee. I am honored to be here, and especially 
grateful to be discussing this topic, which is the daily fare 
of life at the Office of Information and Regulatory Affairs.
---------------------------------------------------------------------------
    \2\ The prepared statement of Mr. Sunstein appears in the Appendix 
on page 173.
---------------------------------------------------------------------------
    We start from common ground, which is to try to improve our 
regulatory system and to ensure, to quote from the opening 
words of the recent Executive Order, that ``our regulatory 
system helps to promote economic growth, innovation, 
competitiveness, and job creation.'' Those words are in the 
first sentence of the Executive Order.
    It is important to emphasize that the basic framework both 
for regulation and for regulatory review comes from Congress. 
Article I of the Constitution, referred to earlier, is the 
dominant article for our process. Relevant statutes establish 
both the sources and the limits of agency authority. These are 
partly specific statutes that, for example, create authorities 
for the Department of Energy, the Department of Interior, and 
also so-called generic legislation, which cuts across a range 
of agency activities.
    There are four pillars in terms of the generic statutes, 
and as background for your discussions, I would like to just 
draw attention to them.
    The first and the oldest is the Administrative Procedures 
Act, a central document both for public participation and for 
judicial review, creating mechanisms to ensure public 
participation in rulemaking and to test through the courts the 
question whether the agency has acted in conformity to law, and 
also whether the agency has acted arbitrarily or capriciously.
    Fidelity to law is the first obligation of the Executive 
Branch under the Take Care Clause of the Constitution, and that 
is our foremost task as we oversee rules. The prohibition on 
arbitrary or capricious action in the Administrative Procedures 
Act is also of central importance for disciplining the exercise 
of such discretion, as Congress has seen fit to authorize.
    The three other pillars are more recent. The Unfunded 
Mandates Reform Act has been referred to earlier. This imposes 
important requirements both of participation and of analysis, 
including analysis of costs and benefits, for rules that impose 
$100 million or more of cost not only on the public sector but 
also on the private sector. And you can see a clear overlap 
between the regulatory review process that dates back to 
President Reagan and the requirements of the Unfunded Mandates 
Reform Act.
    There has been a great deal of discussion in the last hour 
of the difficulties that small businesses are facing, in part 
because of regulatory requirements. The Regulatory Flexibility 
Act, the third of the four pillars, is specifically designed to 
protect small business from excessive regulation, and we take 
that extremely seriously.
    The fourth of the pillars is the Congressional Review Act, 
which provides Congress with the authority to oversee the 
rulemaking process, most importantly by vetoing rules of which 
it disapproves. Under the act, as you are aware, agencies are 
required to submit reports on rules to both Houses of Congress, 
and Congress has a period in which to assess those rules and, 
if it chooses, to prevent them from going into effect.
    I would emphasize here that, like judicial review, the 
importance of the Congressional Review Act is not only its 
actual use but its existence. The Congressional Review Act is 
well understood by agencies, and the fact that Congress has the 
power to exercise authority under the Congressional Review Act 
is an ongoing material fact as agencies devise rules.
    These statutes, as well as the organic statutes--that is, 
those that create the agencies in the first place--create ample 
opportunities for public participation and congressional 
oversight.
    We also have three recent documents which are Article II 
rather than Article I of the Constitution, that is, documents 
that continue the process of disciplining the regulatory state 
by requiring careful attention to costs and benefits to 
alternatives and to the avoidance of unjustified burdens. This 
process has contributed to a situation--and I would like to 
underline this--in which under both Republican and Democratic 
Administrations, the annual benefits of regulation have in 
every one of the last 10 years far exceeded their annual costs. 
Those benefits, which are frequently in the billions of 
dollars--and these are the benefits of actually finalized 
regulations, not regulations that turn up on an agenda that may 
never be materialized in the real world. The benefits of 
regulation include not only purely economic benefits, though 
those are often in the billions, but also savings in terms of 
deaths and illnesses prevented.
    Consider as just one example the fact that highway deaths 
in the United States are at their lowest level in 60 years, in 
part as a result of highway safety rules. That is a statistic, 
but it is important to keep in mind that a number of our fellow 
citizens are alive today as a result of regulatory initiatives.
    There has been a reference to a study that the Small 
Business Administration sponsored which finds $1.75 trillion in 
costs. We share the belief that the costs of regulation are too 
high. That particular study is deeply flawed and should not be 
relied on as a basis for quantifying regulatory costs. It has 
attained the status of an urban legend. We have cost estimates 
that are concerning. That one should not be the basis for our 
analysis.
    The most recent guidance we have from the President of 
overriding importance is EO 13563, and as you are all aware, 
that Executive Order is designed both to discipline the flow of 
new regulations and to get better hold than ever before at the 
stock of existing rules.
    New requirements are imposed on agencies for the 
quantification of costs and benefits, as Senator Roberts 
emphasized, and new requirements are also created for public 
participation and for the choice of flexible approaches that 
preserve--and I would like to emphasize these words--``freedom 
of choice for the public.'' Those words are in the Executive 
Order.
    In terms of reviewing the stock of existing rules, our 
basic goal is to eliminate unnecessary burdens. Senator Warner 
referred to a $7 billion figure. In the fullness of time, we 
hope to be able to do better than that. In the short run, we 
have been able to release, in an unprecedented step, 30 
preliminary plans for public review. Several of the steps 
outlined in those plans are not mere promises or hopes. They 
have actually been realized, meaning that we have been able to 
generate an elimination of tens of millions of hours in annual 
paperwork burdens and also to eliminate hundreds of millions of 
regulatory costs. We expect that figure will jump to over $1 
billion in the very soon future.
    It is important to emphasize, as some of the opening 
remarks have done, that while a great deal has been 
accomplished, the agency plans are preliminary and our efforts 
to get hold of the stock of existing rules and to reduce 
existing burdens is in a preliminary state. The comments are 
sought from the public and from you, your staff, and your 
constituents. We hope when the plans are finalized in August to 
have a higher level of ambition, and as we recently insisted in 
guidance issued by my office, we will ensure we have timelines 
and deadlines to make sure that this actually happens.
    The President has also issued two memoranda: One involving 
small business in particular, going well beyond the Regulatory 
Flexibility Act; and another memorandum designed to recognize 
the problems that State and local governments are facing, 
particularly in the current economic climate, and seeking steps 
to reduce costs that they face. That will overlap with our 
lookback effort.
    We are aware that there are a number of regulatory reform 
bills here that you are considering, and we agree on the 
importance of reducing unnecessary costs and paperwork burdens.
    We believe that with the introduction of the new Executive 
Order we have the tools necessary to produce a smart and 
effective regulatory framework. The existing statutes and the 
Executive Order, now 6 months old, provide new guidance and 
discipline, creating a kind of framework to accomplish our 
shared goals.
    With respect to the existing proposals, I would just 
emphasize one concern for present purposes, which is that it is 
important to be aware that increases in judicial power over 
regulation may have unintended adverse effects. Increases in 
judicial authority over what are often highly technical issues 
often can compromise both cost reduction and benefit creation 
and can create problems that might be worse than the disease.
    In sum, we believe that the foundational statutes and the 
recent documents provide a basis for a system that, to return 
to the opening words of the Executive Order, ``protect public 
health, welfare, safety, and our environment while promoting 
economic growth, innovation, competitiveness, and job 
creation.''
    I am looking forward to your questions.
    Chairman Lieberman. Thanks very much for that typically 
thoughtful opening statement. We will have 7-minute rounds of 
questions in the first round.
    Let me pick up in a way where you concluded, which is to 
ask whether I am taking the correct inference here that, 
notwithstanding the testimony of our colleagues this morning 
about the legislation they are introducing, at this time the 
Administration would oppose any additional regulatory reform 
legislation?
    Mr. Sunstein. I would phrase it a little more cautiously 
than that. We believe we have the tools we need, and we believe 
we need your help in making sure that those tools actually 
operate the way we hope.
    With respect to particular provisions, we would like to see 
them and study them. I can talk about principles and areas of 
concern.
    Chairman Lieberman. Right, and that is fair. Is there 
anything, any specific idea that you heard today that you 
thought was interesting enough to engage further consideration? 
Let me just phrase it, by yourself in your role at OIRA as 
opposed to asking you to do what you cannot really do, which is 
to commit the Administration.
    Mr. Sunstein. Yes. I think generally all ideas are welcome 
with respect to burden reduction and protection of small 
business in particular in the current economic environment. So 
to engage on all of those ideas is a good thing, and the 
motivation for the particular proposals we completely share. 
That is what is motivated the lookback process.
    I would emphasize that insofar as there is an increase in 
judicial authority over administrative decisionmaking, that is 
a problem. And there is also a risk that some procedural 
requirements would create the problem of paralysis by analysis. 
That could be a worry not only for regulation that is in the 
public interest, but also for deregulation that is in the 
public interest. So some of the lookback plans we hope to be 
able to implement in a hurry. Procedural barriers would make 
that more difficult.
    Chairman Lieberman. Let me ask you to speak in a little 
more detail about the concerns you have about the expansion of 
judicial review and how legislation expanding the role of 
courts and the regulatory system actually could, as you said, 
increase regulatory uncertainty and result in what you have 
described as unwelcome, unintended consequences.
    Mr. Sunstein. Right. Maybe the best way to answer that is 
to mention that our process of reviewing rules for 
consideration of costs and benefits is organized under a 
circular that is 50 single-spaced pages. It is very 
complicated. It has material on dealing with the discount rate, 
the flow of costs and benefits over time, for dealing with 
uncertainty about costs and benefits, for a lot of technically 
complex issues.
    Federal courts are indispensable to our system, but their 
skill set is not well designed to deal with economic 
complexity. And there is a risk that judicial review would get 
courts into areas to which the Congress and the Executive 
Branch are much better suited. There is also a risk that rules, 
whether they are regulatory or de-regulatory, would be tied up 
in litigation for years so that the milk rule, which some of 
you, I am sure, are aware of, which is helping small business 
avoid $140 million in annual cost, we got that done fast after 
the President's Executive Order.
    Chairman Lieberman. Right.
    Mr. Sunstein. That one might be tied up in litigation, and 
that would not be in the national interest.
    Chairman Lieberman. Let me go to the lookback review, which 
I find very encouraging, particularly to hear, as you said in 
your testimony, that more than $1 billion in savings are 
anticipated in the near future from the lookback review and 
that ultimately as it goes on it could save a lot more money.
    Let me ask the question this way, which is, systemically 
why weren't those improvements identified earlier? And do they 
reveal weaknesses in the original rulemaking process? Or have 
circumstances changed since the original process, or both?
    Mr. Sunstein. Thank you, Mr. Chairman, for that. That is a 
great topic for an assessment of what is not working ideally 
for a regulatory state. Some of the rules that are being re-
thought have been rendered redundant by changed circumstances, 
so there is a requirement of fuel vapor recovery systems for 
gas stations, which at the time was not crazy, but now cars 
have pollution control devices, so this is completely 
redundant. And we are talking tens of millions of dollars borne 
in significant part by small business. Because cars are now 
better in terms of pollution avoidance, this is rendered 
useless by changed circumstances.
    For something like the milk rule, what happened was there 
was a statute designed to prevent oil spills, and the 
definition, just because of how the English language works, 
picked up milk. It took a while in terms of congressional 
action and then EPA action to correct that not unfamiliar 
problem of excessive generalization from a well-motivated 
enactment.
    Then there are other ideas on the plans that just learning 
over time has helped create improvements for us. OSHA has 
eliminated 1.9 million annual hours in paperwork and reporting 
burdens, and when I have talked to the business community, that 
is the one that has caught their eye. And that is not something 
that is going to happen soon. That is something that happened.
    That one was OSHA that just investigated its reporting and 
paperwork requirements and saw this really was not necessary. 
It was not helping workers so they eliminated it.
    So sometimes it is changed circumstances. Sometimes it is a 
rule that is written too generally. Sometimes it is just seeing 
how something is operating on the ground.
    Chairman Lieberman. Well, that is a very powerful and I 
hope instructive answer to the question. So the natural follow-
on is: How do we, to the best of our ability, guarantee that 
essentially there is a constant lookback review? Because in the 
case of the fuel vapor that you cite, it is really outrageous 
that somebody somewhere did not say, this is totally redundant 
now, it is not necessary, and costing, as you said, businesses, 
including a lot of small businesses, tens of millions of 
dollars for something that is being achieved in other ways.
    Mr. Sunstein. What we are trying to do--and we would love 
your help on this--is to change the culture of regulation. So 
what the President has done is unprecedented. There has been a 
lot of talk about it. There has never been a case where dozens 
of agencies have formal lookback plans for the public.
    One of the kind of sleeper provisions in a lot of the plans 
is they are creating offices or altering the mission of 
existing offices to make sure that retrospective review is 
hard-wired into agency operations. Ideas or support or emphasis 
on how that can be made to happen at every rulemaking agency, 
that would be very helpful and would leave a legacy.
    Chairman Lieberman. My time is up. Thank you very much. 
Senator Collins.
    Senator Collins. Thank you.
    Mr. Sunstein, just yesterday I met with business leaders of 
the forest products industry in my State, and once again they 
wanted to talk to me about the EPA Boiler Maximum Achievable 
Control Technology (MACT) rules which govern emissions. And you 
and I have had many conversations about those rules, and 
Senator Landrieu, Senator Pryor, and Senator Alexander--there 
are many of us who have been concerned. In fact, 41 Senators 
signed a letter that Senator Landrieu and I sent to the EPA.
    The EPA has clearly made some progress--you have been very 
helpful in that regard--since its first attempt to propose a 
rule. But the fact is that this is still, if it goes forth, 
going to be an enormously expensive rule. The estimates are $5 
billion for the forest products industry alone, $14 billion for 
general manufacturing.
    My frustration is: How do we get EPA to better consider the 
economic impact of its rules, particularly the impact on jobs, 
in the first place, unless we mandate it by law? If this kind 
of rule, the first draft of which was so onerous and burdensome 
to the very fragile forest products industry and manufacturing 
sector, was so off base and so expensive to start with, I have 
very little confidence that we can get reforms 
administratively. That is why I think we need to have 
legislation.
    Mr. Sunstein. Well, I completely appreciate the point. The 
first sentence of the new Executive Order has the words ``job 
creation'' in it, and for that final rule, as for all rules 
that have measurable and potentially significant impacts on 
jobs, that sentence of the Executive Order is taken really 
seriously. So if you look at EPA expensive proposals, they have 
careful analysis of job impacts, and that is something the 
President has really charged us to do. That is now built into 
the system.
    With respect to the rule you mentioned, that has been 
stayed indefinitely, as I recall, in part by reference to the 
need for increased public comment and taking account of public 
comment on those issues. And the job impacts, that is something 
that not only for that rule but for all of them, the President 
has charged us to really focus on.
    Senator Collins. I guess what I am saying is we need to 
build that into the process at the beginning rather than having 
these rules come out that are so onerous. And I know you are 
working toward that, but I for one think we need to legislate 
in that area.
    Mr. Sunstein. Well, I agree with the premise completely 
that if a proposed rule would have significant job impacts but 
the job impacts are not explored, that is a problem. And you 
may have noticed that an EPA rule, sometimes referred to as 
``Electric Generating Utility (EGU) MACT,'' which is also an 
important anti-pollution initiative with potentially very 
significant benefits, that has an analysis of job impacts at 
the proposal stage.
    Another provision of the Executive Order kind of builds on 
the theme. It requires, for the first time, really, agencies to 
engage with affected members of the public, including those who 
would be burdened by a rule, before they issue a Notice of 
Proposed Rulemaking. And that is a way of getting hold of 
potentially adverse effects on the economy. And as I am sure 
you have noticed--in fact, some of this you were a leader on--
there have been rules that have been altered or withdrawn for 
careful engagement with those who would be adversely affected, 
in part because the President has called for that form of 
advance engagement.
    Senator Collins. And I do appreciate that, and we have made 
some progress on the biomass rule, for example.
    Let me switch to another issue. By issuing guidance 
documents, agencies can essentially make regulations without 
notice and comment, without public participation, without 
publishing them in the Federal Register or the Code of Federal 
Regulations. And your predecessor, John Graham, at a recent 
business event noted that agencies are now trying to circumvent 
the very important OIRA review process by issuing guidance 
documents instead of regulations. And he has recommended that 
the regulatory process be expanded to capture these guidance 
documents.
    The bill that I have introduced would give the force of law 
to the Good Guidance Practices Bulletin that was issued, when 
Rob Portman was head of OMB, to try to prevent agencies from 
circumventing the Administrative Procedure Act (APA) and the 
very important public notice and comment provisions.
    Since it is just codifying a bulletin that is in effect 
today at OMB, surely you cannot be opposed to that part of my 
bill becoming law.
    Mr. Sunstein. Well, that part of your bill, complete 
agreement with the goals, and would welcome further discussion 
with you on exactly that.
    On the general point about guidance documents, you may have 
noticed that within the last months some guidance documents 
have gone out with great clarity about two points:
    One, they are there for public comment. They are not just 
being issued in advance of public comment.
    And, two, they are not binding on the private sector. They 
do not have the force of law.
    So this is something that with Senator Portman's document 
and with some of the keen interest on the part of affected 
stakeholders in the last 2 years that we very much have our eye 
on. It is also the case there are a number of judicial 
decisions which have invalidated guidance documents as rules in 
disguised. That is a very serious problem when that happens, 
and this is something we are very focused on.
    So I would be happy to continue that discussion, and if you 
see in the next months guidance documents that are rules in 
disguise or guidance documents that have not gone out for 
public comment when they ought to, then we would love to hear 
about it.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks very much, Senator Collins. 
Senator Paul, you are next.
    Senator Paul. Thank you, and thank you for your testimony.
    You say you have the tools for regulatory reform, that you 
really do not need that much from Congress. I am a little bit 
doubtful, and I would say this whether you were from a 
Republican Administration or a Democrat Administration. I would 
say it has not happened, it has just been getting worse and 
worse and worse. But particularly for this Administration that 
added enormous amounts of new regulations through ObamaCare and 
through Dodd-Frank, I am a little concerned about really 
saying, well, everything is fine and I can trust you to go 
ahead and get rid of some of these bad regulations.
    A couple of examples from ObamaCare: The health exchanges 
were said to, well, about 10 million people will lose their 
private insurance and go into these publicly subsidized ones in 
these exchanges. Now think tanks are saying it might be 100 
million. The bottom line is we do not know. There are a lot of 
things we do not know, and that is why I do not want you 
involved in the economy in such a big way. I would rather you 
keep your hands out of the economy for the most part because 
there are so many unintended consequences that no one 
individual, no matter how smart, can know the consequences of. 
The marketplace is smarter than central planners.
    With ObamaCare, 3 million waivers are being given, so you 
write these rules, you write these regulations, say this is how 
you are going to get your health care. But then if people are 
political supporters of yours, they get waivers. There seems to 
be some preferential treatment for people to get waivers if 
they are political supporters. That is troublesome, that some 
people get waivers from these laws and other people do not.
    Are there regulations that are coming forward that are so 
important that sort of contravene the will of Congress? A 
couple of examples. Greenhouse regulations are being pushed, 
and there have been quotes from people in the Administration 
saying, ``We do not care what Congress thinks. We are going to 
do it anyway.'' The EPA says they have the authority and they 
will do it.
    Congressman John Dingell, one of the authors of the Clean 
Air Act--and he is a Democrat--stated, ``The Clean Air Act was 
not designed to regulate greenhouse emissions. I know what was 
intended when I wrote the legislation. I have said from the 
beginning that such regulation will result in a glorious mess, 
and regulation of greenhouse gas emissions should be left to 
Congress.''
    The Grain Inspection, Packers and Stockyards Administration 
(GIPSA) rule will fundamentally change the market rules for the 
sale of poultry and livestock in this country. Over 120 members 
have signed letters to the department affirmatively stating 
that this rule represents a drastic overstep and is not what 
was intended under the 2008 farm bill.
    The EPA on its own accord will expand government 
jurisdiction over water and land that is currently regulated by 
the States. The text of the guidance is almost exactly the same 
as the Clean Water Restoration Act, which Congress has refused 
to vote on. The EPA is going to do it anyway.
    Net neutrality, is perhaps the most blatant and dangerous 
subversion of congressional intent to date. The Federal 
Communications Commission (FCC) has promulgated its regulation 
despite the fact that Congress refused to pass this legislation 
at least three times and the fact that an appeals court 
unanimously agreed the FCC does not have the authority to 
engage in this regulation.
    So when you say to us, ``Well, we have got it under 
control, do not worry about it,'' and you say to us, ``Well, 
the REINS Act would undermine our system by converting rules 
into mere proposals,'' well, yes, that is what we want. We 
think that you are undermining the economy with rules that are 
vast overreaches, that go against what Congress intended to 
happen, and are basically unelected bureaucrats deciding the 
law. We do not want that anymore. We want you to be restrained. 
We want Congress to have a say in this. And we frankly do not 
trust you--not just Democrats. If you were a Republican, I 
would say exactly the same thing.
    I want there to be a separation of powers, checks and 
balances. We have gone way overboard in allowing the President 
and the Executive Branch to have way too much power. The 
bureaucracies have become a fourth estate. We really need more 
checks and balances. Businesses know it. It is out of control. 
We want to restrain the regulatory branch. Your comments?
    Mr. Sunstein. Well, there is a lot there. Thank you for 
that, Senator. I would say a couple of things.
    Our first obligation is to respect the will of Congress, so 
I took an oath to do that. If there is anything proposed or 
finalized that is inconsistent with the will of Congress, that 
is a very serious problem.
    I believe that no rule in the Obama Administration has been 
struck down as inconsistent with the will of Congress, and I 
hope that will continue. But if it does not, that is a big 
problem.
    I also agree very much that regulatory costs are too high 
and we want to get them down. That is one reason that the 
lookback process is my current priority in terms of day-to-day 
work.
    There is a bit of a myth about Obama rules and what has 
actually happened in the last few years. I understand the myth, 
and it stems from the fact that we are in a tough economy and 
rules can be simplified and costs can be reduced, but let me 
get at the content of the myth.
    Fiscal year 2007 was actually the highest-cost year of the 
last 10 under President Bush. Fiscal year 2007-2008 had higher 
costs than fiscal year 2009 and 2010 in terms of final 
economically significant rules. And Senator Portman referred to 
the economically significant rules. Those were the ones that 
mattered.
    In fact, the picture for our sensitivity costs is even 
better than that because in fiscal year 2009, the Bush 
Administration, in 4 months imposed more regulatory costs by a 
large margin than we did in 8 months.
    Senator Paul. Let me just interject. I agree with you. It 
is a bipartisan problem. That is why I want to make it not 
about Republicans and Democrats. It is a bipartisan problem. 
But it is a problem. The major rules, there are 224 major 
rules. Last year there were 180, the year before 160. The 
regulations are being piled on, and it is a problem. We need 
congressional oversight.
    Mr. Sunstein. Well, I certainly agree with the premise that 
to control the flow of existing rules disciplining costs is 
really important and to reduce costs through taking away the 
unjustified burdens in the stock is also really important.
    The only thing I guess I would add is that there are a 
number of rules that are costly that have been benefits that 
dwarf costs and that actually industry invites. So you may know 
that the first round of the fuel economy standards, the 
automobile companies were very worried about California 
creating regulation that would actually be very aggressive and 
create a kind of odd inversion of what the Federal structure is 
supposed to do where California would dictate national policy. 
And nearly everyone celebrated something that relieved the 
burdens that California might have created and the interstate 
complexity at the same time that the benefits in terms of 
health dollars and energy security--they just dwarf the costs, 
even though the costs were high.
    Senator Paul. One quick rejoinder. You may have noticed 
that the car companies are still struggling, and part of their 
struggle is under regulatory burdens such as fuel efficiency.
    Mr. Sunstein. Agreed entirely. They are one of our areas 
where we want to figure out ways to reduce some of the costs 
that are now being imposed.
    Chairman Lieberman. Thanks, Senator Paul. Senator Johnson.

              OPENING STATEMENT OF SENATOR JOHNSON

    Senator Johnson. Thanks, Mr. Chairman, and, Mr. Sunstein, 
welcome back.
    To pick up on Senator Paul's comment that this is a 
bipartisan problem, I realize this is not a perfect surrogate 
for the size of the Federal bureaucracy, but at the end of 
President Franklin Roosevelt's terms, we had 86,000 pages in 
the Federal Register. By the end of President Richard Nixon's 
term, there were 560,000 pages in the Federal Register. Today 
there are over 3 million pages of rules, rulemaking, and 
regulations. It is really incomprehensible.
    I have been building a manufacturing business for the last 
31 years. I have certainly lived under the rules and 
regulations. I kind of get it. One thing that amazes me is, as 
I traveled around Wisconsin, not only was this out-of-control 
spending a primary issue because people understood the fact 
that we are bankrupting this country, that threat created a 
high level of uncertainty and prevented job creation. But right 
after that was the number of regulations and the burden it was 
imposing on businesses that was really preventing businesses 
from growing and job creation.
    Now that I am here, every day I cannot tell you how many 
business people come in from the State of Wisconsin, and I am 
just amazed at the rules and regulations they are talking about 
and begging me to help them, ``Please stop this. It is going to 
put us out of business.'' This is a very serious problem.
    I read in the Wall Street Journal an estimate--and I just 
want to get your comment on this. The mercury control proposal 
the EPA has proposed as an amendment to the Clean Air Act, 
would put 17.6 percent of coal-fired electrical generation out 
of commission. Have you looked at that? Do you know what that 
would cost our economy on an overall basis?
    Mr. Sunstein. Thanks very much for that. On the general 
point about business concern about regulation, I would 
emphasize a couple of things.
    The first is that the notice and comment process is 
crucially important to make sure that those concerns are 
noticed.
    By the way, this noise is not a result of a bad regulation 
issued by either a Democratic or a Republican Administration.
    The process of taking account so business concerns is 
perhaps insufficiently appreciated even by the business 
community. There is a regulation from the Equal Employment 
Opportunity Commission (EEOC) implementing the Americans with 
Disabilities Amendments Act which, at the proposed stage, was 
celebrated by the disability community, but a grave source of 
concern from the Chamber of Commerce.
    In the final stage, it was celebrated again by the 
disability community, but also celebrated by the Chamber of 
Commerce, which said the EEOC completely got our concerns about 
a lack of clarity and about excessive regulation.
    Senator Johnson. Can you address the EPA regulation on 
coal-fired generation plans? Because that is going to be huge.
    Mr. Sunstein. You referred to the increases in pages in the 
Federal Register. The regulatory impact analysis are also 
longer, but that is because we are being really careful. Those 
issues are addressed at great length there. What the proposal 
finds is this is an expensive rule.
    Senator Johnson. How expensive?
    Mr. Sunstein. Approximately $9 billion annually total.
    Senator Johnson. That has to be such an incredible 
understatement. That is unbelievably understated.
    Mr. Sunstein. If so, then that comment is welcome because 
this rule is in a proposed stage. The benefits, I should say, 
the health benefits for this rule are enormous. This is a rule 
where the benefits at the proposed stage are well in excess of 
the costs. But if the cost estimate is low-ball and if the 
benefits are too high, then we are going to fix that.
    Senator Johnson. Did the EPA just admit that their 
estimates for mercury were 1,000 times overstated? And is that 
the basis of your net analysis?
    Mr. Sunstein. What I see about this correction of error, as 
in the case of the EEOC rule, is that it is a sign of the 
process working. When a proposal is exposed as having an error 
in it, either an error of judgment or an error of fact, that 
shows how indispensable the system of public comment and 
finalization only after thorough engagement with comment is. So 
if you or your constituents have concerns about that rule in 
particular, and if you think the cost estimate is too low, 
please tell us. We need to get that right.
    Senator Johnson. You are on notice. Please look into that 
carefully.
    You said that the SBA study that found the annual cost of 
regulation at $1.7 trillion is an incorrect study. What is the 
cost on an annual basis of people trying to comply with 3 
million pages' worth of rules and regulations? What is that 
cost?
    Mr. Sunstein. We have it for the last 10 years, and on 
average it is about $5 billion a year.
    Senator Johnson. I have seen reports from the IRS, I 
believe--and it is a range--anywhere from $200 to $338 billion 
a year just to comply with the Tax Code. Now, we are generating 
a little more than $2 trillion in tax revenue, maybe $2.5 
trillion; $338 billion would be 15 percent of that.
    Mr. Sunstein. What I am talking about is the final 
economically significant rules that come through the Executive 
Branch. The Tax Code is a kind of separate animal, and it is 
not ordinarily thought of as regulation in the sense that we 
have been discussing.
    Senator Johnson. Well, it is a cost of compliance, isn't 
it? It is a drag on the economy. It reduces job creation.
    Mr. Sunstein. Absolutely. And one of my keenest interests, 
by the way, is in working with the IRS to reduce some of the 
reporting and paperwork burdens, and their proposals in the 
last couple of years promise to eliminate approximately 55 
million annual hours in paperwork and reporting burdens. That 
cuts some of that cost. We would like to think of ways to cut 
more.
    Senator Johnson. I guess my final comment is we are looking 
at a huge bureaucracy, and it is just out of control. And my 
concern in terms of having another bureaucracy built up to 
control another bureaucracy I just do not think works. We are 
spending over $1.5 trillion this year that we do not have, and 
certainly in business, if you want to control a department, you 
stop feeding the best. Or if you want to reduce regulations, 
you cut the budget.
    I guess that would be my final comment. If we are really 
going to get control over this government, if we are going to 
actually move our economy forward and start creating jobs, we 
have to stop feeding the beast. We have to prevent America from 
going bankrupt. Thank you.
    Chairman Lieberman. Thanks, Senator Johnson.
    We will go to Senator Levin and then back to Senator 
Portman.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, and welcome. As you know, I have 
been a long-time supporter of cost/benefit analyses and think 
they have a very critical role, and I want to make sure that we 
are using them as broadly as they need to be.
    When looking at costs and benefits, do you look at 
struggling industries differently? Do you look at impacted 
industries differently than other industries? Is that part of 
the calculus?
    Mr. Sunstein. Well, it would not be a technical part of 
cost/benefit analysis, but it would be part of a full 
accounting of the anticipated effects. So if we are going to 
close businesses, that would have job impacts; we would take 
careful account of that.
    Senator Levin. There is a great deal of emphasis you put on 
lookback. What agencies are doing a better job in lookback than 
other agencies? Give us the best agencies, if you know them 
offhand.
    Mr. Sunstein. Well, I hope the ones I am not going to 
mention are not listening, but the Department----
    Senator Levin. I hope the ones that you do not mention are 
listening, as a matter of fact.
    Mr. Sunstein [continuing]. Of Transportation did an 
excellent job. The Department of Health and Human Services 
(HHS) has a very impressive plan, and the EPA plan has a number 
of very impressive items on it.
    Senator Levin. Are there any agencies that should be 
singled out for not doing a good job in terms of lookback?
    Mr. Sunstein. Well, I think the answer to that cannot be 
no, but what I would like to do now because these are 
preliminary plans that are out for public comment--they will be 
finalized in late August--is to give you all and the public an 
opportunity to make the ones that are not as good as they 
should be terrific by late August.
    Senator Levin. And would you let this Committee know which 
agencies you think fall short by the end of the summer?
    Mr. Sunstein. Well, I think in my position--it is probably 
more appropriate for those who are scrutinizing the plans even 
as we speak to be saying these are not good than for me to 
intervene in the middle of the process.
    Senator Levin. I was suggesting at the end of the process.
    Mr. Sunstein. Oh, sure, absolutely.
    Senator Levin. That is why I said at the end of August.
    Mr. Sunstein. Yes. Definitely.
    Senator Levin. Would you let us know which ones after the 
process is over are falling short?
    Mr. Sunstein. I would be happy to do that, and I would also 
be happy to see what you and your constituents and others think 
needs improvement.
    As some of the earlier questions suggested, this is an 
effort not to do a one-shot deal but to change the regulatory 
culture. And so this can be seen as Lookback 1.0.
    Senator Levin. But I think that if we ask you for that kind 
of an assessment and if they all know that you are going to be 
giving it to us, it can help you get good results.
    Mr. Sunstein. I bet you are right.
    Senator Levin. On the interim final rules that are issued 
now under certain circumstances, are those rules subject to 
legislative review?
    Mr. Sunstein. Yes. They are not subject to review under the 
Congressional Review Act.\1\
---------------------------------------------------------------------------
    \1\ ``Agency Guidance, Congressional Review of Agency Rules,'' 
submitted by Mr. Sunstein appears in the Appendix on page 189.
---------------------------------------------------------------------------
    Senator Levin. That is what I mean.
    Mr. Sunstein. The Congressional Review Act--the legislative 
history I think is pretty clear on this--does not pick up 
interim final rules, but there is an opportunity, of course, 
for Congress to overturn an interim final in the ordinary 
course.
    Senator Levin. Right. But in terms of using that expedited 
procedure, it is not available for that. Should it be?
    Mr. Sunstein. I would want to think hard about that. I can 
give you some competing considerations. One is in my view the 
most important word in the phrase ``interim final rule'' is 
``interim.''
    Senator Levin. For others, the most important word is 
``final.''
    Mr. Sunstein. Second most important.
    Senator Levin. Because sometimes they, in effect, become 
final rules and last for years.
    Mr. Sunstein. Yes, that is not ideal. Interim final rules 
invite public comments. We have seen that a lot in the last 6 
months. And it is important to take account of those comments.
    Senator Levin. All right. Would you let us know any 
thinking on that issue.
    Mr. Sunstein. Sure.
    Senator Levin. Because if we are going to do legislation, 
that is one of the things I think we ought to be looking at.
    What is the relationship between OIRA and the Council on 
Environmental Quality (CEQ)?
    Mr. Sunstein. Friendly. We are both part of the Executive 
Office of the President, and we work carefully with CEQ on 
rulemaking.
    Senator Levin. There was a meeting between the CEQ and some 
of the automobile industry, I think yesterday, and there was a 
scenario that was placed on the table, which, frankly, shocked 
me. It was very different from what we were told was not in the 
cards even in terms of discussions just hours before. Were you 
involved in that?
    Mr. Sunstein. No, I was not.
    Senator Levin. Was OIRA involved in that?
    Mr. Sunstein. I do not believe so.
    Senator Levin. Should they be?
    Mr. Sunstein. Well, our formal role is to review rules once 
they are submitted to us. That particular rule has not been 
submitted to us. It is still under formulation. It is perfectly 
appropriate, though it is not obligatory, for someone at OIRA 
to be apprised of discussions about rules as they are being 
formulated, especially if they are really important.
    Senator Levin. Well, I think you know that is an important 
rule that is being considered, and I am wondering if you would 
check that out, and if you think it is appropriate, whether you 
would become involved in those discussions.
    Mr. Sunstein. Sure. I have been discussing this coming rule 
with CEQ. The meeting to which you refer--I was not there.
    Senator Levin. Nor was anyone from OIRA?
    Mr. Sunstein. I do not believe so.
    Senator Levin. You made reference to California and the 
waiver that they have been given, and that is, of course, a 
hotly discussed issue as to whether or not they should have any 
right to assume they would be given a waiver.
    Are you familiar enough with the law to agree with me that 
whether they get a waiver is totally discretionary and that 
there is no assumption that they would be given a waiver under 
the Clean Air Act?
    Mr. Sunstein. I concur broadly with that statement, though 
the exercise of discretion would, as any other exercise of 
discretion, be subject to Clean Air Act and arbitrariness 
constraints.
    Senator Levin. Subject to any constraints either way, 
whether they exercise the discretion or lack thereof is 
arbitrary, which can go either way and can be challenged. But 
would you agree that it is discretionary, it is not something 
which anyone has a right to assume would be forthcoming?
    Mr. Sunstein. I would want to study this a little bit more, 
if you will permit, before giving an answer.
    Senator Levin. Sure. I would be happy to have you study it 
and let me know the outcome. Would you let us know what the 
outcome of that study is?
    Mr. Sunstein. Sure.
    Senator Levin. Thank you.
    Thank you, Mr. Chairman. Thank you for holding this really 
important hearing.
    Chairman Lieberman. Thanks, Senator Levin. Thanks for being 
here. I know you have been involved in these questions 
constructively for quite a while.
    Senator Portman, welcome back.
    Senator Portman. Thank you, Mr. Chairman, and I would 
reiterate what I said earlier and echo the comments of Senator 
Levin. Thanks for doing this.
    I have so many questions and so little time, but Senator 
Levin talked a little bit about the lookback and how it is 
working. I said some things earlier about how I was encouraged 
by the President's EO 13563 and some of the comments he made, 
and I was. But I am now looking at the results, and I have some 
questions.
    If we could explore today a little about how we have 
translated some of these commitments into action, looking 
particularly at the 30 preliminary agency plans for 
retrospective analysis of existing regulations that we have 
been able to look at. There may be more out there that you have 
seen or you can give me some better data on this, but based on 
our analysis, it looks like less than 10 percent of those rules 
slated for revision are linked to any estimate at all of any 
monetary cost savings or compliance hours saved, which is 
discouraging. At what stage in the process do you expect 
agencies to be able to report or at least project some 
quantifiable savings from these revisions or repeals of the 
rules that they have identified?
    Mr. Sunstein. We directed them very recently, in the last 
week or so, to quantify and monetize more, as much as they can. 
As you are aware from being OMB Director, it depends on how far 
along the agency is in its thinking. If you have some proposal, 
let us say, to reduce burdens on hospitals on the ground that 
they are redundant, and you have a sense that this is 
duplicative of a requirement that is already in play and doing 
the relevant work, if that is all you know, you will not be 
able to project at that stage hours or money.
    Senator Portman. At what point do you expect them to be 
able to do that? What have you directed them to give to you so 
you can quantify it?
    Mr. Sunstein. I would like to get that number, the 5 to 10-
percent figure up significantly in the next few months, by late 
August. But for some of them, it is at a sufficiently 
preliminary state that it will only happen at the state of 
proposed rulemaking.
    Senator Portman. Have you given them guidance on what your 
targets are for either costs or reductions in compliance costs?
    Mr. Sunstein. We have not given them a number, but we would 
like it to be as high as possible, and they are aware of that.
    Senator Portman. Well, we look forward to the next hearing 
where we will see whether, in fact, we begin to get some real 
meat around the bones of this good idea of looking back. We do 
not have it yet.
    Mr. Sunstein. If I may say, Senator, we have about $1 
billion in savings, and Senator Dirksen is said to have said, 
``A billion dollars here, a billion dollars there, sooner or 
later . . .''----
    Senator Portman. That has been revised to a trillion now. 
[Laughter.]
    Mr. Sunstein. But a billion dollars, and we are right about 
there as of today. Very close.
    Senator Portman. You noted in your testimony in connection 
with judicial review, which, as you know, is part of our 
legislation we talked about earlier, that you do not think the 
courts have the ``skill set'' to review issues such as the 
adequacy and rationality of an agency's consideration of cost. 
So you are basically casting doubt on the court's ability to do 
that. As you might imagine, I disagree, and that is why we have 
it in the legislation. I agree that no court can take the place 
of OIRA. Your job is safe. But I do feel strongly that having 
that judicial review would have a significant impact on how the 
agencies went about their work.
    I just would like to ask you about that. Look, you have 
been in the legal profession. You have been a professor. You 
understand how these cases work. And courts are already 
reviewing rulemakings constantly. They are looking at it under 
all sorts of enabling statutes that make cost or feasibility 
either a mandatory or a discretionary factor. And I just wonder 
why you think courts cannot do it. Let us talk about the D.C. 
Circuit for a second, which, as you know, routinely decides APA 
challenges. The Administrative Procedures Act is always before 
them, and they look at very complex, scientific, technical 
issues. Do you think they are actually unprepared to apply at 
least the arbitrary and capricious standard? Which would be the 
standard, I suppose, that they would apply, basically saying, 
are there any obvious gaps in the agency's rulemaking? Why are 
you so skeptical about the court's ability to do that?
    Mr. Sunstein. I do believe that courts have the skill set 
to decide whether agencies, first, are statutorily required to 
consider costs, and I believe they have the skill set to engage 
in arbitrariness review of such requirements as Congress has 
imposed, including a requirement to do cost/benefit analysis as 
under the Toxic Substances Control Act.
    The concern is more specific than that. It is that if the 
analysis produced under the relevant Executive Orders, 
including dealing with what is the appropriate discount rate 
for the future stream of cost and benefits, is subject judicial 
review, then you tend to get into murky waters--and I speak 
from experience as a lawyer; that is, lawyers are not well 
trained, and especially generalist lawyers are not well 
trained, and judges--to decide whether the discount rate should 
be 3 percent or 7 percent or, as some economists believe, a 
little higher than 7 percent, or some believe in the context of 
intergenerational issues 1 percent of 2 percent. This is very 
technical stuff.
    I think we have a shared belief that there is a serious 
problem here, that steps need to be taken to reduce or 
eliminate the problem. The problem that the regulatory state 
now faces is not insufficient oversight by the Federal 
judiciary.
    Senator Portman. Well, I would tell you that if you look at 
what, again, courts are already, again, applying the arbitrary 
and capricious standard to very complex, scientific, technical 
analysis, then I would think applying it to the cost issue and 
the cost/benefit would have an impact, and they certainly have 
proven capable of doing it.
    Let me ask you one other question, if I could, and get your 
views more broadly on the feasibility of tracking actual costs 
of these rules over time. Right now OIRA and Federal agencies 
generally make a great effort to evaluate the cost of rules ex 
ante, so they are looking at what the cost is going to be. And 
that analysis I think has been critical in some cases in 
producing a better result at lower cost. At the same time, that 
estimate occurs when we know the very least about what the 
actual cost is going to be, which would be after 
implementation.
    So what are your thoughts on the feasibility of asking 
agencies to periodically evaluate and report the actual costs 
annually or on a quarterly basis of compliance with all or some 
subset of economically significant regulations? Again, all this 
is in the context of the 50 to 70 major rules.
    Mr. Sunstein. Yes. Well, without speaking about legislative 
requirements but speaking about the general principle, I 
completely agree, and I think it is one of the most important 
things that could improve both assessment and eventually 
performance of the regulatory state. So the fact is that there 
are sometimes retrospective analysis of rules that show the 
costs were higher than anticipated or the benefits lower or 
vice versa. And that should very much inform decisions about 
what to do with rules. So the President's Executive Order 
refers to the need to measure and improve the actual results of 
regulatory requirements. That is ex post. That is not ex ante.
    Senator Portman. Don't you think a better accounting of the 
actual costs would help to actually, again, translate that good 
language into something that is meaningful?
    Mr. Sunstein. I absolutely agree.
    Senator Portman. Do you intend to proceed with something 
along those lines?
    Mr. Sunstein. Oh, we do. This is something we have 
discussed in our draft cost/benefit report. I hope that will be 
finalized fairly soon, and we are very keen on retrospective 
analysis of rules and trying to learn from analysis of what has 
actually happened. We had a discussion of a rule where the 
concern was the prospective assessment was too low. We want to 
see where we have gotten it wrong, fix the rules accordingly. 
And the beauty of that is if we know where we have gotten it 
wrong on the cost or benefit side, that should make our 
prospective estimates more accurate.
    Senator Portman. It absolutely can be applied then 
prospectively with additional rules and give us a little basis 
for coming up with a cost that is more based on reality. Thank 
you very much, Mr. Sunstein.
    Thank you, Mr. Chairman, for your indulgence.
    Chairman Lieberman. Thank you, Senator Portman.
    Before we wind up, would you like an opportunity to respond 
to Senator Roberts' reference to the thresholds of human 
dignity and equity?
    Mr. Sunstein. Thank you, Mr. Chairman, for that. I would be 
delighted. A couple of things.
    First, the words ``equity'' and ``distributive impacts'' 
are not new in this Executive Order. President Bush operated 
under those words for 8 years. And I think no one thought under 
President Bush or under this Administration's first 2\1/2\ 
years that is some loophole that creates a terrible problem.
    What President Bush was thinking and President Clinton 
before him is suppose you have a rule that really hammers poor 
people. Suppose the regulatory costs hit people who are 
struggling particularly really hard. It is legitimate for the 
agency to consider that. Or suppose a rule has particular 
benefits for people who are struggling. It is not illegitimate, 
if the law authorizes, for that to be considered.
    With respect to human dignity, which is a new term, if you 
have returning veterans who are in wheelchairs and protected 
under the Americans with Disabilities Act, it is legitimate to 
consider whether their access to bathrooms would be improved by 
the rule so that returning veterans get to go to the bathroom 
without having to rely on their colleagues. That is a point 
that has a connection to human dignity.
    If you have a rule--and we have one--that would reduce the 
incidence of rape, it is important to acknowledge that whether 
or not you can turn the active rape into a monetary equivalent, 
something which is a big challenge. Rape is an assault on 
dignity, and under a law that is designed to reduce the 
incidence of rape, to take account of that fact, the assault on 
dignity is not a loophole but it is an acknowledgment of a 
legal and human reality.
    Chairman Lieberman. I will tell Senator Roberts your 
answer. I find it thoughtful and sensible.
    I want to thank you for your testimony. It has been 
actually a very good exchange this morning. And I will tell you 
that I think you enjoy credibility among Members of this 
Committee of both parties. That is a compliment and a statement 
of truth, which will lead undoubtedly to a burden on you, which 
is to say that there is real interest in both parties on the 
Committee and in the full Senate in regulatory reform, 
notwithstanding the advances in regulatory reform that this 
Administration has carried out. And if we could, I look forward 
to engaging you in that process.
    Again, I understand, as I said earlier, that decisions 
about what the Administration will or will not support are--you 
will presumably be involved in those, but they are not 
singularly yours. On the other hand, the fortunate fact is, as 
Senator Portman said in describing your Wall Street Journal 
article as ``brilliant,'' that you are about the best resource 
we could have for assisting us in not a kind of wanton 
deregulation, because nobody wants that--I certainly do not--
but in figuring out how we can make the regulatory process work 
better, work more efficiently.
    And so it is with that hope--and I know Senator Collins 
feels that--that we conclude this hearing, with thanks to you 
for what you have added to it, and we will keep the record of 
the hearing open for 15 days for additional questions and 
statements. But I hope this is not the end of the dialogue but 
a continuation of it. I thank you very much.
    The hearing is adjourned.
    [Whereupon, at 12:04 p.m., the Committee was adjourned.]


     FEDERAL REGULATION: A REVIEW OF LEGISLATIVE PROPOSALS, PART II

                              ----------                              


                        WEDNESDAY, JULY 20, 2011

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Carper, Pryor, Collins, 
Johnson, Portman, and Paul.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. Good 
morning and thanks to everyone for being here. This is the 
third in a series of hearings we have been doing in our 
Committee to assess the impacts of Federal regulation and 
consider whether legislation is needed in this session to 
improve the process or substance of rulemaking. In fact, you 
might say this is actually the second half of a hearing we 
began last month to focus on the various legislative proposals 
that have been introduced by Members of our Committee relating 
to rulemaking.
    At the first session we heard from Senators, on and off the 
Committee, who are sponsoring reform proposals and from the 
Director of the Office of Information and Regulatory Affairs 
(OIRA), Cass Sunstein, who testified on behalf of the 
Administration. Today we are going to welcome one more 
colleague, Senator Sheldon Whitehouse of Rhode Island, who has 
introduced two new regulatory reform proposals since our last 
hearing.
    Perhaps we should announce that this is the last time we 
will hear another colleague, just in case there are more bills 
that are imminent. But we are glad to welcome Senator 
Whitehouse today.
    Then we are going to have the honor of hearing from four 
experts and advocates, including two former directors of the 
Office of Information and Regulatory Affairs, the 
aforementioned OIRA, who have extensive knowledge of the 
regulatory process and many of the proposed changes.
    As I said at our last hearing, the question--for me, 
anyway--is not whether to regulate but how best to regulate, 
how to weigh the benefits and the costs of regulation, and our 
aim, which I think is broadly shared, is to have the most 
efficient and effective rulemaking process we can. So, with 
that in mind, I am going to put the rest of my statement in the 
record.\1\
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Lieberman appears in the 
Appendix on page 199.
---------------------------------------------------------------------------
    I will say, as we continue our discussion today, that after 
this I think the Committee is going to move to a stage where we 
are going to work with each other to see whether there is a 
consensus on the Committee that will enable us to legislate, 
essentially to move to markup on one or more of the pieces of 
legislation, hopefully one that there is a broad agreement on, 
but if there is enough of an interest in Members of the 
Committee, including, obviously, the Ranking Member, then we 
will go to markup, even if there is a lot of uncertainty or 
dissension about it because I know that there is a lot of 
interest in this subject.
    So with that, Senator Collins.
    Senator Collins. Thank you, Mr. Chairman. Mr. Chairman, my 
statement is quite lengthy, and yet I do want to give it, and 
so I would be happy to yield to our colleague to go before my 
statement, even though he will miss the wisdom of my statement.
    Chairman Lieberman. Yes. [Laughter.]
    Senator Collins. But in order to respect what I am sure is 
a very tight schedule.
    Chairman Lieberman. Thank you.
    In many ways Senator Collins has presented you with a very 
difficult choice, Senator Whitehouse. [Laughter.]
    But we will understand if you go ahead because we know your 
schedule.

 TESTIMONY OF HON. SHELDON WHITEHOUSE,\2\ A U.S. SENATOR FROM 
                   THE STATE OF RHODE ISLAND

    Senator Whitehouse. I appreciate the difficulty of that 
choice, and I appreciate the courtesy both of the Chairman, 
Senator Lieberman, and the Ranking Member, Senator Collins, in 
allowing me this time. I do have the Defense of Marriage Act 
hearing in the Judiciary Committee, an issue on which both 
Senator Lieberman and Senator Collins have shown immense 
leadership in the military context. So I will just thank both 
of you for your interest in improving regulation for the 
American people and how best to regulate, as the Chairman said, 
and thank you for inviting me to testify about my proposals to 
improve our regulatory system by rooting out and preventing 
regulatory capture.
---------------------------------------------------------------------------
    \2\ The prepared statement of Senator Whitehouse appears in the 
Appendix on page 207.
---------------------------------------------------------------------------
    Federal regulations touch broad swaths of American life and 
are a key reason why highway deaths have fallen to their lowest 
levels in 60 years, why we have safe and clean drinking water, 
and why our food producers are held to high safety standards. 
By preventing injury, illness, and environmental harm, 
effective and appropriate regulations also save the country 
money. Cass Sunstein, the Administrator of the Office of 
Information and Regulatory Affairs at the Office of Management 
and Budget (OMB), recently explained, for example, that in the 
first 2 years of the Obama Administration, the net benefit of 
regulations exceeded $35 billion for Americans.
    There are two major hazards to regulation, however. One is 
unwise or obsolete regulation. The Obama Administration 
appropriately has begun an effort to target and eliminate such 
regulations. The other hazard is regulatory capture.
    ``We the People'' pass laws through our democratic and open 
American process of lawmaking. Regulated industries and other 
powerful interests then seek to ``capture'' the agencies that 
enforce those laws to avoid their intended effect and to seek 
regulations and enforcement practices that protect their 
limited private interests as opposed to the public interest 
that was intended to be served by the law. Regulatory capture 
both violates fundamental principles of the American system of 
government and, as we saw in the Gulf, can lead to disaster.
    The concept of regulatory capture is extremely well 
established. There is a consensus on in economic, regulatory, 
and administrative law theory. It is a doctrine that is 
reflected in the research of Nobel Laureate George Stigler, in 
the writings of President Woodrow Wilson, in the opinion pages 
of the Wall Street Journal, and in innumerable textbooks and 
hornbooks. So agreement on the subject is broad. During a 
hearing on regulatory capture that I chaired last year, the 
witnesses of a wide range of political perspectives all agreed 
on each of the following seven propositions.
    First, regulatory capture is a real phenomenon and a threat 
to the integrity of government.
    Second, regulated entities have a concentrated incentive to 
gain as much influence as possible over regulators, opposed 
only by a diffuse public interest.
    Third, regulated entities ordinarily have substantial 
organizational and resource advantages in the regulatory 
process when compared to public interest groups.
    Fourth, some regulatory processes lend themselves to gaming 
by regulated entities seeking undue control over regulation.
    Fifth, significantly, regulatory capture by its nature 
happens in the dark--done as quietly as possible. No industry 
puts up a flag announcing its capture of a regulatory agency.
    Sixth, as we have seen, the potential damage from 
regulatory capture is enormous.
    And, finally, the point that all agreed on, effective 
congressional oversight is key to keeping regulators focused on 
the public interest.
    We have seen the devastation in the Gulf of Mexico that 
occurred after the Minerals and Management Service was captured 
by the industry it was supposed to regulate. The cost of that 
disaster in lives and economic well-being, as well as the human 
toll of what I would contend also was capture at the Mine 
Health and Safety Administration and the Securities and 
Exchange Commission (SEC), should be a call to action to 
finally address in the political world this established problem 
of regulatory capture. The doctrine has an undeniable basis in 
academic regulatory theory and in the precepts of 
administrative law. We have known about it for a hundred years; 
we have seen it in action; but we have never yet done anything 
specific to prevent it.
    I have introduced the Regulatory Capture Prevention Act to 
create an office within the Office of Management and Budget 
that would investigate and report on regulatory capture 
wherever it may appear. The office would shine a light into 
neglected corners of the regulatory system and would sound the 
alarm if a regulatory agency were showing the symptoms of 
capture. This office's ability to bring scrutiny and publicity 
to the dark corners where regulatory capture flourishes would 
strengthen the integrity of our regulatory agencies.
    To provide even more sunlight into agency action, a second 
bill, the Regulatory Information Reporting Act, would require 
regulatory agencies to report to a public Web site three 
important pieces of information: First, the name and 
affiliation of each party that comments on an agency 
regulation; second, whether that party affected the regulatory 
process; and finally, whether that party is an economic, non-
economic, or citizen interest. This information would help 
inform effective public scrutiny and congressional oversight of 
who seeks to influence regulatory behavior and who succeeds.
    Thank you again for inviting me to testify. I appreciate 
the opportunity to explain why Congress should pursue efforts 
to prevent regulatory capture in our Federal administrative 
agencies. People may disagree about particular cases, but I 
hope that we can all recognize that powerful special interests 
have a constant interest in capturing our regulatory agencies 
and have the means to do so, and that we have a systemic 
interest on behalf of ordinary Americans in preventing the 
capture of those American agencies.
    Thank you very much for this opportunity.
    Chairman Lieberman. Thanks, Senator Whitehouse. That was 
really most interesting to me, and I suppose I have always felt 
that what you are describing as regulatory capture existed, 
regardless of which party was in control of the White House. 
That is part of a natural sort of functioning of the political 
system. But it has consequences. I must say I never have 
thought before about the way in which, apart from through 
transparency, you are trying to encourage; that the normal flow 
of media, political opposition, etc., could be combated 
legislatively. But you have made an interesting and thoughtful 
proposal, and I promise you that I will certainly give it my 
own due consideration.
    Senator Whitehouse. I appreciate that, and I thank the 
Committee for its attention.
    Chairman Lieberman. Thanks. Have a good day. Senator 
Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    Mr. Chairman, before beginning my formal remarks, let me 
first thank you for holding this series of hearings to examine 
the regulatory system and efforts to improve it. I believe that 
the testimony we just heard shows the breadth of our proposals 
that have been introduced and referred to this Committee for 
consideration, and I share your interest and determination in 
putting together the best provisions from all the bills that 
have been referred to us to come up with a comprehensive, 
bipartisan bill.
    It is absolutely critical that we reform the regulatory 
system with the goal of reducing the regulatory burden. Data 
released earlier this month show an economy on the brink, I 
fear, of a double-dip recession. Unemployment is up, job 
creation is down, and the news just keeps getting worse.
    Technically, we are in the 24th month of an economic 
recovery, but it surely does not feel that way. Based on past 
recoveries, we should be adding hundreds of thousands of new 
jobs every month, and the jobless rate should be dropping 
briskly. Two years after the end of the 1981 recession, for 
example, almost 7 million new jobs had been created, and the 
unemployment rate had fallen from 10.8 to 7.2 percent. Most 
important, the number of Americans looking for work who could 
not find a job had dropped by almost a third below the 
recession's peak, but not so in today's so-called recovery.
    The recession supposedly ended in June 2009; the 
unemployment rate at that time stood at 9.5 percent. Today, 
after an initial drop, it is back up to 9.2 percent and going 
up. Incredibly, instead of adding jobs, we have actually lost 
jobs. More than 14 million Americans are still without jobs, 
half a million more than just 4 months ago.
    So where are all the jobs?
    Well, there is an area of robust job growth, and that is in 
our regulatory agencies. Job growth in the Federal regulatory 
agencies has far outpaced job growth not only in the rest of 
the Federal Government but, much more significant, in the 
private sector.
    In the past, we could rely on small businesses--our 
Nation's job creators--to put America back to work, but no 
longer. And I believe the heavy cost of regulation is one 
reason why. Instead of helping these small businesses create 
jobs, too many agencies have issued a flood of rules that have 
swamped small business in red tape and created so much 
uncertainty that it is impossible for them to plan, grow, or 
add jobs.
    Recently, I received a letter from a constituent that 
really sums up this problem. The letter is from Bruce 
Pulkkinen, who runs Windham Millwork, a small business founded 
by his father in 1957 that employs 65 people. Mr. Pulkkinen's 
letter describes an attitude in the regulatory agencies that he 
says is ``undermining the creation of new jobs'' and has gone 
from ``helpful and informative to disruptive and punitive.''
    One example he shared with me is the Boiler Maximum 
Achievable Control Technology (MACT) rules proposed by the 
Environmental Protection Agency (EPA). Just a few years ago, 
Mr. Pulkkinen's company made a $300,000 investment in a state-
of-the-art wood waste boiler that allowed his company to stop 
using fossil fuels for heat and to eliminate its landfill waste 
stream. But the EPA's proposed Boiler MACT rules would have 
required him to scrap that boiler and install a new one that 
burned fossil fuels, squandering the investment that he made, 
for minuscule and, indeed, I would argue no public benefit 
because we are trying to reduce the dependence on fossil fuels.
    Now, EPA has scaled back that portion of the initial Boiler 
MACT rules, but Mr. Pulkkinen remains concerned that it is only 
a matter of time before the EPA takes aim against small boilers 
once again. To help prevent that from happening, today I am 
introducing a bipartisan bill that attempts to give more time 
to EPA to come up with more reasonable rules, and I would like 
to ask unanimous consent that Mr. Pulkkinen's letter be 
included in our hearing record.\1\
---------------------------------------------------------------------------
    \1\ The letter from Mr. Pulkkinen appears in the Appendix on page 
204.
---------------------------------------------------------------------------
    Chairman Lieberman. Without objection, so ordered.
    Senator Collins. Mr. Pulkkinen's experience is not unique 
or even unusual. Small businesses all over the country are 
facing the same kind of pressure from regulators and drawing 
the same conclusion. Instead of investing and growing, they are 
hunkering down just to survive.
    Let me share a few statistics to underscore the point: 
Federal agencies are at work on more than 4,200 new rules, 845 
of which affect small businesses; 224 of these rules are major 
rules--that means that their impact is $100 million or more.
    One has only to look at the growth of the Federal Register 
over the past few decades to see the growth of regulation. As 
the chart on display demonstrates,\2\ the Federal Register has 
grown by almost three-quarters of a million pages in the first 
decade of this century--a rate of 73,000 pages per year. That 
is nearly 40 percent more than in the 1980s, and the trend is 
up.
---------------------------------------------------------------------------
    \2\ The chart referenced by Senator Collins appears in the Appendix 
on page 202.
---------------------------------------------------------------------------
    These regulations do not come without a cost. According to 
the Crain study, commissioned by the U.S. Small Business 
Administration (SBA), the annual cost of Federal regulations 
now exceeds $1.75 trillion. OMB has a very different estimate, 
but it is still billions and billions of dollars, and these 
costs fall disproportionately on small businesses. For 
companies with fewer than 20 workers, the cost per worker of 
complying now exceeds $10,500 per year. That is way more than 
the cost per worker faced by big businesses, which is 
approximately $2,800 a year.
    Now, let me indicate that, like the Chairman, I recognize 
the role for effective regulation. It does have benefits to our 
society. So that is not what we are talking about. We are not 
talking about wiping out essential health and safety 
regulations. What we are trying to do is to come up with 
balance. I believe that regulatory reform requires three 
essential elements at a minimum:
    First, we should require agencies to evaluate the costs and 
benefits of proposed rules, including the indirect costs on job 
creation, productivity, and the economy, including energy 
prices;
    Second, to make sure agencies do not attempt to go around 
the rulemaking process by issuing guidance documents, and that 
is something that Senator Portman worked on when he was head of 
OMB;
    And, third, we must provide relief to small businesses that 
face first-time paperwork violations that result in no harm. 
That is the key qualification.
    I have offered these concepts as part of my Clearing 
Unnecessary Regulatory Burdens (CURB) Act, one of the bills 
referred to this Committee. Many Members of this Committee--and 
others in the Senate--have also introduced excellent 
legislation deserves careful consideration. Again, I hope we 
can work together in the tradition of this Committee under the 
strong leadership of our Chairman to advance legislation that 
improves the regulatory process, to make it less burdensome, 
more friendly to job creators, and no less protective of the 
public interest.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Collins, very much. I 
share that hope of course.
    Let me invite the witnesses to the table, and while you are 
coming up I can say for the record who you are:
    Sally Katzen is the former Administrator of the Office of 
Information and Regulatory Affairs (1993-98);
    Susan Dudley, former Administrator also of OIRA (2007-09);
    David Goldston is the Director of Government Affairs at the 
National Resources Defense Council;
    And Karen Harned is the executive director of the Small 
Business Legal Center, which is part of the National Federation 
of Independent Businesses.
    This is an excellent panel, very diverse, very balanced, 
and essentially we are asking you to give us your judgment on 
the state of regulation in our country and whether we need some 
regulatory reform.
    We will start with Ms. Katzen. Welcome back.

TESTIMONY OF HON. SALLY KATZEN,\1\ FORMER ADMINISTRATOR OF THE 
     OFFICE OF INFORMATION AND REGULATORY AFFAIRS (1993-98)

    Ms. Katzen. Thank you very much, Mr. Chairman and Senator 
Collins.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Katzen appears in the Appendix on 
page 209.
---------------------------------------------------------------------------
    There are a number of issues with the various legislative 
proposals before you, but in the limited time available for my 
oral presentation, I wanted to focus on three. The top three 
would be the codification of the cost/benefit provisions of 
Executive Order 12866, the suggestion to add additional 
analytical and procedural requirements during rulemaking, and 
the subject of judicial review.
    To provide some context for my comments, I was struck by 
the fact that virtually all of the bills before this Committee 
apply across the board to all Federal agencies, from the 
Department of Agriculture and EPA to the Department of Homeland 
Security and the Department of Defense. And they would apply to 
all types of regulations, from eligibility for government 
programs and benefits to standards for public health and safety 
or financial institution safety and soundness requirements.
    The coverages of these bills and the one-size-fits-all 
approach raises for me the questions: Are all Federal agencies 
bad actors? Are all regulations equally problematic? And I 
would urge you to please keep this in mind as I touch on these 
three subjects.
    First is the codification of the cost/benefit provisions, 
such as quantifying and monetizing the costs and benefits, 
ensuring the benefits justify the costs, and selecting the 
alternative that maximizes net benefits.
    Having had a hand in drafting Executive Order 12866, I 
think these provisions are eminently sensible. But given their 
reaffirmation by Executive Order 13563 and the now more than 
30-year implementation of these principles by presidents of 
both political parties, what, I would ask, is the benefit, the 
value-added, of putting them in legislation? Executive Branch 
agencies routinely undertake cost/benefit analysis, and if more 
is needed, OIRA works with them to assure that happens.
    To be sure, the quality of the work done--how 
sophisticated, technically proficient--is mixed, but this 
should not be surprising because agencies are very different 
from one another, with different cultures and different 
resources. The latter is particularly important because 
thoughtful, careful, comprehensive analysis takes time and 
resources, and the more significant the proposal, the more time 
and resources it should consume. And yet some of the same 
people who call for more analysis are the first to suggest 
straightlining or reducing the agencies' budgets.
    Those who support codifying these provisions argue that 
legislation would be better than an Executive Order (EO). I am 
very dubious about that because OIRA is well situated to 
impress upon Executive Branch agencies in real time the need 
for compliance with the terms of the Executive Order. Really--
and I think Senator Portman would support me in this--agencies 
do listen when OMB talks; whereas, legislation may or may not 
be self-executing or self-enforcing.
    But even if there were a case made that legislation is 
superior, there are serious problems with legislating these 
principles. Among other things, they are not simple and 
straightforward. Look at how many different definitions of 
costs you have in the various bills before you. Incidentally, 
it is not easy to capture these things. OMB Circular A-4 is 50 
pages single-spaced to tell agencies how to do a regulatory 
impact analysis.
    Moreover, while undertaking economic analysis in the course 
of developing regulations is highly beneficial, it is, of 
course, only an input. Even if it is carried out by the most 
eminent economists, according to tried and true methodology, it 
is not and cannot be dispositive. It was Professor Einstein who 
had a sign in his office that said, ``Not everything that can 
be counted counts, and not everything that counts can be 
counted.''
    So under the Executive Order, those costs and benefits 
which cannot be quantified and monetized are, nonetheless, 
essential to consider, and there are other considerations--like 
disparate effects or regional effects--that have to be taken 
into account. And different agencies face different challenges. 
I would remind this Committee that the Department of Homeland 
Security (DHS) has its own set of issues. How do you quantify 
and monetize a reduction in risk of a terrorist attack? And if 
you can figure it out, do you really want to publish this and 
let the world know what sites you have hardened and what you 
have not?
    Most importantly, under the Executive Order, while agencies 
are required to conduct economic analysis in developing the 
regulations, they are in the first instance bound by their 
authorizing legislation--what Congress decided they should do 
and what they should consider when they were delegated the 
authority to do it.
    Some of the authorizing statutes are silent on the role of 
costs. Others do not permit consideration of such factors. And 
for that reason, the EO applies ``to the extent permitted by 
law.'' But if these provisions were codified, they would become 
the law. And as a result, a proposed regulation, even a 
regulation under a statute that does not permit the 
consideration of costs, could not become effective unless the 
benefits justify the costs. So by codifying these provisions, 
Congress is amending or would be amending a host of previously 
enacted statutes, and at this point we do not know how many, we 
do not know which ones, and we do not know the implications for 
either the regulated entities or the intended beneficiaries. 
Talk about uncertainty. Talk about what businesses need in 
order to plan rationally. This would throw, truly, a monkey 
wrench into the whole system.
    Now, there is one area where I think you can proceed, and 
that is extending the economic analysis and centralized review 
requirements to the independent regulatory commissions (IRCs). 
A number of people have touched on it, and I will not go there 
for now.
    The second subject is the imposition of additional 
analytical and procedural requirements on the agencies, and one 
proposal is to require affirmative congressional approval 
before rules become effective.
    Chairman Lieberman. Let me interrupt a moment. I think we 
gave you only 7 minutes. Normally we give the witnesses 10 
minutes, so I am going to add 3 minutes to everybody. If you 
can finish within 7 minutes, you will have earned the gratitude 
of the Committee, but if you need the extra 3 minutes, go 
ahead.
    Ms. Katzen. Thank you, Mr. Chairman.
    These extra steps are not cost free, both in terms of 
delaying or eliminating beneficial regulations as well as the 
cost of increased uncertainty and unpredictability. So, again, 
what is the compelling need?
    The bills' sponsors cite the relatively slow recovery from 
the recent economic meltdown, which some commentators believe 
is attributable to inadequate regulation of the banking 
industry rather than too much regulation. They cite the numbers 
of regulations. In fact, in the first 2 years of the Obama 
Administration, there were fewer regulations than in the last 2 
years of the Bush Administration. And they cite the total 
regulatory burden on the U.S. economy, the $1.75 trillion, 
which has taken on a life of its own, notwithstanding reputable 
scholars' critiques of both the assumptions and the 
methodologies.
    If, however, you are moved by the aggregates, then I would 
urge you to look at the document that Senator Whitehouse 
referred to earlier, which shows that in the aggregate Federal 
regulations do, in fact, provide more benefits, greater 
benefits than costs, producing net benefits, and these reports 
have been issued for over the last 10 years, so it is not a 
partisan document.
    The other question is: Why now? President Obama launched an 
initiative 6 months ago, which is continuing to date. As 
recently as 2 weeks ago, he issued an Executive Order affecting 
the IRCs. He has called for a regulatory lookback, and I have a 
sense, having lived through several of these, that this is 
being done much more aggressively than others in the past.
    He has also called for greater public participation, and 
his Executive Order specifically stresses the importance of 
promoting the economy, innovation, competitiveness, and job 
creation.
    So how will these edicts from the President to those who 
report to him and for whom he is constitutionally responsible 
play out? At least will the results of his efforts not inform 
you where the real problems are? Again, going back, it is not a 
one-size-fits-all. It is not all agencies. Where do you want to 
focus your attention and your resources?
    As you know, Congress has imposed on the agencies a series 
of process and analytic requirements over the last 30 years, 
including the Paperwork Reduction Act, Regulatory Flexibility 
Act, Small Business Regulatory Enforcement Fairness Act, the 
Unfunded Mandate Reform Act, to name a few, without increasing 
the agencies' resources to carry out those tasks assigned. 
Whether there is a causal connection or not, it takes years now 
rather than months to dot all the ``i's'' and cross all the 
``t's,'' and the additional requirements in these bills will 
necessarily lengthen the process, if not lead to paralysis by 
analysis or due process to due death.
    Perhaps Congress should rationalize the current set of 
requirements before adding another one or provide more 
resources to the agencies to do what they are already required 
to do. If there is an implementation, Congress should address 
that specifically and not just add another requirement that 
cannot be implemented.
    You obviously have a number of alternatives by which you 
can target your concerns, like Senator Collins' concern with 
the Boiler MACT and the Utility MACT that EPA is producing. 
Maybe it is agency overreach. Maybe it is the underlying 
statute, which Congress can do something about. But we do not 
know, and an across-the-board provision is not going to help us 
figure that one out.
    My time is running out, so I am just going to be very fast 
on the third subject which is the question of judicial review.
    Chairman Lieberman. Just give us a couple of sentences 
because I promise you we are going to ask you about that.
    Ms. Katzen. Yes, OK. I think it would be a mistake to add 
the courts as another check to the President and to the 
Congress in overseeing whether the economists are right about 
how to maximize benefits and the various determinations that 
must be made in implementing cost/benefit analysis in addition 
to the lawyers who are now going to have an opportunity to 
debate whether this statute trumps all the other statutes that 
have been out there in terms of substantive requirements.
    With Chevron and the hard-look doctrine, I suspect there 
will be deference to the agencies but there, nonetheless, will 
be a lot of time and money devoted to trying to pin down what 
are essentially judgment calls. And I want to emphasize the 
time element because, as I mentioned earlier, the issue of 
uncertainty. In my private practice and in my consulting work, 
I run across so many businessmen who want to do what is right. 
They want to comply with applicable regulations. They may not 
be happy with the rules, but they really want to do what is 
right. What is driving them crazy is regulatory uncertainty. 
And so if it takes years to do a regulation now, let us add 
another couple of years for more judicial review of these 
issues? What are we asking these people to do? I think that is 
a serious problem. Thank you.
    Chairman Lieberman. Thank you.
    Ms. Dudley, thanks very much for being here. We welcome you 
back.

 TESTIMONY OF HON. SUSAN E. DUDLEY,\1\ FORMER ADMINISTRATOR OF 
   THE OFFICE OF INFORMATION AND REGULATORY AFFAIRS (2007-09)

    Ms. Dudley. Thank you, Chairman Lieberman, Ranking Member 
Collins, and Members of the Committee. I am Susan Dudley, 
Director of the George Washington University (GWU) Regulatory 
Studies Center and a research professor of public policy at 
GWU. And as you mentioned, from April 2007 to January 2009, I 
oversaw the Executive Branch regulations of the Federal 
Government as Administrator of the Office of Information and 
Regulatory Affairs, where I had the pleasure to work under OMB 
Director Rob Portman. But the views I express here are my own.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Dudley appears in the Appendix on 
page 220.
---------------------------------------------------------------------------
    I appreciate this Committee's interest in bringing more 
accountability to Federal regulation. Successful regulatory 
reform efforts in the past have been bipartisan, and this 
Committee has an opportunity to effect needed improvements 
through bipartisan reforms.
    Probably the most significant historic period of reform was 
in the 1970s when bipartisan efforts of both branches of 
government brought about dramatic improvements in innovation 
and consumer welfare by removing unnecessary regulation that 
kept prices high, to the benefit of the regulated industries 
and at the expense of consumers. At the same time, a new form 
of regulation aimed at addressing environmental safety and 
health concerns was emerging, administered by newly formed 
agencies such as EPA, Occupational Safety and Health 
Administration, National Highway Traffic Safety Administration 
(NHTSA), and the Consumer Product Safety Commission.
    Concerns over the burden of these new regulations led 
President Jimmy Carter to expand on procedures begun by 
Presidents Nixon and Gerald Ford for analyzing the impact of 
new regulations and minimizing their costs. Every modern 
President has continued and expanded the procedural and 
analytical requirements that began in the 1970s. Nevertheless, 
the growth in regulation continues and with it concerns that we 
may have reached a point of diminishing returns.
    Executive and legislative requirements for analysis of new 
regulations appear to have been inadequate to counter the 
powerful motivations in favor of regulation. Politicians and 
policy officials have faced strong incentives to do something, 
and passing legislation and issuing regulations demonstrates 
action. Requirements to evaluate the outcomes of those 
actions--the benefits, the costs, and the unintended 
consequences--tend to take a back seat. So I really appreciate 
this Committee's interest in examining the merits of 
legislative reforms that alter both the procedures by which 
regulations are developed and the decision criteria on which 
they are based.
    In the procedural reform category, I would include the 
Regulations in Need of Scrutiny (REINS) Act and regulatory pay-
as-you-go (PAYGO).
    The REINS Act would require a congressional vote before a 
major new regulation can become effective. It would have the 
benefit of making not only legislators but presidents more 
accountable for the content of major new regulation. On the 
other hand, it could alter agency incentives in unintended 
ways.
    Under the regulatory PAYGO proposal about which Senator 
Warner spoke with the Committee last month, for every new 
regulation issued, agencies would have to remove an equivalent 
burden from regulations already on the books. While this poses 
non-trivial analytical challenges, a regulatory PAYGO system 
has the potential to impose needed discipline on regulatory 
agencies and generate a constructive debate on the real impacts 
of regulation.
    In the decision criteria category, several bills would 
build upon the widely accepted regulatory analysis requirements 
reinforced by President Obama in January. Some bills, including 
Senator Collins' CURB Act, would codify the requirements to 
examine regulatory costs and benefits currently embodied in 
Executive Orders and extend them to independent agencies. 
Others would expand the coverage of existing cross-cutting 
regulatory statutes, such as Senator Portman's Unfunded 
Mandates Accountability Act and Senators Snowe and Coburn's 
Freedom from Restrictive Excessive Executive Demands and 
Onerous Mandates (FREEDOM) Act.
    Since presidents of both parties have adopted virtually 
identical analytical requirements, I do not think codification 
is necessary to ensure future presidents continue to do so. But 
I do see three important advantages to creating a statutory 
obligation for regulatory impact analysis.
    One, it would lend congressional support for these non-
partisan principles and decision tools.
    Two, legislation could apply them to independent agencies, 
something presidents have been reluctant to do but many policy 
experts endorse.
    And, three, legislation could make compliance with these 
requirements judicially reviewable, though it sounds like we 
will have a debate on whether that is a pro or a con.
    In my view, Congress should not limit legislation to 
codifying the requirement for benefit/cost analysis but, 
rather, should capture the broader philosophy and principles 
articulated in EO 12866 that regulation should be based on the 
identification of a compelling public need, an objective review 
of alternatives, and an understanding of the distributional 
impacts of different approaches--who is expected to gain or 
lose.
    Congress may also need to consider whether these cross-
cutting decisional criteria would supersede or be subordinate 
to the decision criteria expressed in individual statutes. 
Rather than a super mandate, Congress may prefer to amend those 
statutes that constrain agencies' ability to weigh trade-offs, 
which have produced regulations with questionable benefits that 
divert scarce resources for more pressing issues, and I think 
the Boiler MACT may be an example of that.
    In closing, let me offer one more idea and respectfully 
encourage you to consider assigning responsibility for 
evaluating regulatory bills and regulations to a congressional 
office. Just as the Congressional Budget Office provides 
independent estimates of the on-budget costs of legislation and 
Federal programs, a staff of congressional regulatory experts 
could provide Congress and the public independent analysis 
regarding the likely off-budget effects of legislation and 
regulation.
    And with that, I will close--earning myself undying 
gratitude from the Committee. [Laughter.]
    Chairman Lieberman. Yes, really, a gold star next to your 
name.
    Thanks very much. That is an interesting idea that you 
ended with. I appreciate it. We will talk more about it.
    Mr. Goldston, thanks for being here, and we welcome your 
testimony now.

    TESTIMONY OF DAVID J. GOLDSTON,\1\ DIRECTOR, GOVERNMENT 
           AFFAIRS, NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Goldston. Thank you, Mr. Chairman, Senator Collins, and 
Members of the Committee. Thank you for inviting me to testify 
today and for setting up a balanced review of the many bills 
pending before the Committee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Goldston appears in the Appendix 
on page 242.
---------------------------------------------------------------------------
    I would add that as someone who spent more than 20 years as 
a House staffer, it is nice to be sitting in a seat in the 
Senate where they might feel obligated to hear me out. 
[Laughter.]
    It seems to me that the question before the Committee today 
is not whether regulatory agencies sometimes make mistakes or 
issue controversial rules. The question, rather, is twofold: 
One, is there something fundamentally amiss with the regulatory 
system? And, two, would the pending legislation make things 
better or worse? In other words, the Committee ought to be 
asking itself the very questions the existing Executive Orders 
and some of the pending bills put forward to the agencies: What 
problems are you trying to solve? Is this the best way to solve 
them? And would the benefits outweigh the costs?
    It seems to me that no one has identified a fundamental 
problem with the regulatory system for which the pending bills 
would serve as a remedy. The regulatory system has repeatedly 
been shown to yield benefits that significantly outstrip its 
costs, and studies have found the system to have, at worst, a 
neutral effect on employment. Moreover, the system produces 
benefits that the public has rightly come to expect: Cleaner 
air and water, safer food, and so on. When banks lend money 
with abandon, an oil platform collapses in the Gulf of Mexico, 
or salmonella sickens consumers, no one responds by praising 
the restraint of regulators.
    And I must say the complaints about the specific rules, 
including the industrial boiler rule that Senator Collins 
brought up that I am sure we will be discussing more, that are 
held up as examples of why these bills are necessary seem 
almost entirely unrelated to the legislative text. The 
offending rules, whatever their merits or flaws, have undergone 
cost/benefit analysis and public comment and are subject to 
judicial review. It is often not clear how the proposed 
measures would have changed anything except by making the 
process more time-consuming, expensive, and cumbersome for all 
concerned.
    It seems at times that these bills are not an effort to 
craft targeted solutions to specified problems but, rather, to 
use any tool at hand to run a war of attrition against already 
overburdened agencies that are trying to follow the laws that 
Congress has passed. Surely inducing exhaustion is not the 
proper way to reform the regulatory system, whatever its 
failings.
    Which brings me to my second question: Would these bills 
make the system better or worse? In general, I fear the bills 
would make the system less able to provide the protections the 
public expects. First, the additional, often ill-defined 
analysis required by some of these bills would provide little 
reliable or needed information but would impose additional 
costs on the agencies. Especially at a time when agencies may 
see their budgets cut substantially, these additional 
requirements seem like the wrong priority. In effect, the bills 
themselves would end up imposing unfunded mandates on the 
agencies.
    Allowing judicial review--I guess we will all be discussing 
that to some extent. Allowing judicial review before a rule is 
final would needlessly burden courts and agencies and short-
circuit the regulatory process. It would fly in the face of an 
elementary principle: How can one sue over something that, by 
definition, is not affecting anyone? That seems like a 
particularly odd approach for conservatives who have not been 
enamored of recourse to the courts.
    And early judicial review seems to contradict other goals 
of these bills, such as more open discussion of alternatives. 
How open will agencies be if they can be hauled into court 
simply for broaching an idea someone does not like?
    The worst and by far the most radical bill before the 
Committee is the REINS Act, which sets out really to destroy 
the regulatory system as it has existed for well over a 
century. Congress rightly decided long ago that it was not the 
right venue to decide every scientific, technical, and quasi-
judicial issue that a modern economy poses for the government. 
The REINS Act rejects that hard-earned wisdom in a way that 
legislators, business, and the general public would all quickly 
come to regret if this measure were ever enacted.
    If Congress truly believes the regulatory system needs 
reform, the proper approach would be to review the underlying 
statutes that direct the regulatory agencies, not to impose 
one-size-fits-all work-arounds. Agencies are carrying out their 
legislative mandates. If there are problems with those 
mandates, the solution is not monkeying with the regulatory 
process or, in the case of REINS, trying to overthrow it. No 
doubt one reason Congress is reluctant to address these 
purported concerns more directly is the level of public support 
for these underlying statutes, which have been and continue to 
accomplish their goals.
    Indeed, it is interesting that lists of offending rules are 
almost always prospective. Once rules are in effect, they 
generally are viewed as successful and far less expensive than 
anyone had claimed in advance.
    I urge the Committee not to further complicate a system 
that is fundamentally protecting the public without unduly 
burdening the economy. Thank you very much.
    I do not know if I left more or less time than---- 
[Laughter.]
    Chairman Lieberman. There is a momentum here. Thanks very 
much, Mr. Goldston.
    Finally, Ms. Harned, thanks for being with us, and we 
welcome your testimony now.

  TESTIMONY OF KAREN R. HARNED,\1\ EXECUTIVE DIRECTOR, SMALL 
   BUSINESS LEGAL CENTER, NATIONAL FEDERATION OF INDEPENDENT 
                            BUSINESS

    Ms. Harned. Thank you. Good morning, Chairman Lieberman, 
Ranking Member Collins, and Members of this Committee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Harned appears in the Appendix on 
page 245.
---------------------------------------------------------------------------
    The National Federation of Independent Business (NFIB), the 
Nation's largest small business advocacy organization, commends 
this Committee for examining legislative solutions which would 
help grow the economy by reducing overly burdensome regulation. 
We believe that it is vitally important to the Nation's economy 
to achieve regulatory reform now, especially when there is 
momentum to do so in the 112th Congress. Various proposals have 
been introduced or discussed that would improve current law, 
and we are hopeful that the Committee takes the needed steps to 
act in a bipartisan way and pass these important provisions.
    The NFIB Research Foundation's Problems and Priorities, has 
found ``unreasonable government regulations'' to be a top 10 
problem for small businesses for the last two decades.
    Job growth in America remains at recession levels. Small 
businesses create two-thirds of the net new jobs in this 
country, yet those with less than 20 employees have shed more 
jobs than they have created every quarter but one since the 
second quarter of 2007, according to the Bureau of Labor 
Statistics. Moreover, for the first 6 months of 2011, 17 
percent of small businesses responding to the NFIB Research 
Foundation's Small Business Economic Trends report cite 
regulation as their single most important problem. Therefore, 
reducing the regulatory burden would go a long way toward 
giving entrepreneurs the confidence they need to expand their 
workforce. NFIB believes that Congress must take actions to 
level the regulatory playing field for small business.
    The Small Business Regulatory Enforcement and Fairness Act 
(SBREFA)--when followed correctly--can be a valuable tool for 
agencies to identify flexible and less burdensome regulatory 
alternatives. NFIB supports reforms like S. 1030, introduced by 
Senator Snow, which would expand SBREFA's reach into other 
agencies and laws affecting small businesses. SBREFA and its 
associated processes, such as the Small Business Advocacy 
Review (SBAR) panels, are important ways for agencies to 
understand how small businesses fundamentally operate, how the 
regulatory burden disproportionately impacts them, and how the 
agency can develop simple and concise guidance materials.
    In reality, small business owners are not walking the halls 
of Federal agencies lobbying about the impact of a proposed 
regulation on their businesses. Despite great strides in 
regulatory reform, too often a small business owner will find 
out about a regulation after it has taken effect. Expanding 
SBAR panels and SBREFA requirements to other agencies would 
help regulators learn the potential impact of regulations on 
small business before they are promulgated. It also would help 
small businesses be alerted to new regulatory proposals in the 
first instance.
    Regulatory agencies often proclaim indirect benefits for 
the regulatory proposals they offer, but they decline to 
analyze and make publicly available the indirect costs to 
consumers, such as higher energy costs, jobs lost, and higher 
prices. As an example, environmental regulations have 
particularly high costs. Whether a regulation mandates a new 
manufacturing process, sets lower emission limits, or requires 
implementation of new technology, the rule will increase the 
cost of producing goods and services. Those costs will be 
passed on to the small business consumers that purchase them. 
Does that mean that all environmental regulation is bad? No. 
But it does mean that indirect costs must be included in the 
calculation when analyzing the costs and benefits of new 
regulatory proposals.
    NFIB would like to thank Senator Collins for ensuring more 
small business owners had a chance to learn about and be 
certified under EPA's lead renovation and repair rule. Although 
the rule took effect in April of last year, Senator Collins was 
successful in pushing the effective date back to October 2010. 
However, the rule continues to negatively impact small 
business. NFIB member Jack Buschur, of Buschur Electric in 
Minster, Ohio, recently testified that because of the time and 
financial costs of EPA's lead renovation and repair rule, he 
will no longer bid on residential renovation projects. Because 
he will no longer be bidding on these projects, Mr. Buschur 
will not be hiring new employees at his company that currently 
has 18 employees. That is down from 30 employees in 2009.
    Reforms like those in the CURB Act, introduced by Senator 
Collins, S. 602, and S. 1030 would be a great start in ensuring 
that agencies make public a reasonable estimate of a rule's 
indirect impact. Other regulatory reforms that would help 
minimize unintended consequences of regulation on small 
business include reforms to strengthen the role of the Small 
Business Administration's Office of Advocacy, increased 
judicial review within SBREFA, and ensure agencies focus 
adequate resources on compliance assistance.
    Finally, Congress should pass legislation which would waive 
fines and penalties for small businesses the first time they 
commit a non-harmful error on regulatory paperwork. Because of 
a lack of specialized staff, mistakes in paperwork will happen. 
If no harm is committed as a result of the error, the agencies 
should waive penalties for first-time offenses and instead help 
owners to understand the mistake they made. We appreciate that 
Senator Collins and Senator Vitter have introduced legislation 
to add a first-time waiver protection into law, and we look 
forward to working with them toward finding an effective 
solution.
    With high rates of unemployment continuing, Congress needs 
to take steps to address the growing regulatory burden on small 
businesses. NFIB is hopeful that the 112th Congress can pass 
regulatory reforms that would improve current law and level the 
regulatory playing field for small businesses.
    NFIB looks forward to working with you on this and other 
issues that are important to small business. Thank you.
    Chairman Lieberman. Thanks, Ms. Harned. That was very 
helpful testimony. Thanks to all of you.
    I am very pleased that there is a good turnout of Members 
of the Committee here, which expresses the interest in Congress 
in this subject, so we will have 7-minute rounds of questions.
    The Committee has heard in recent hearings, particularly 
from Cass Sunstein--and as you know, because it is a matter of 
public record--the Administration has undertaken some 
regulatory reform initiatives of its own, including a lookback 
process which is designed to weed out flawed regulations 
already on the books. I wanted to ask each of you, if you are 
familiar with this, to give the Committee a quick reaction to 
the recent Administration executive regulatory reform effort. 
Ms. Katzen.
    Ms. Katzen. Thank you, Mr. Chairman. We had a lookback 
process during the Clinton Administration. There was another 
one during the Bush Administration, and now we have the Obama 
Administration.
    Chairman Lieberman. Yes, we do. [Laughter.]
    Ms. Katzen. I think this is being pursued more aggressively 
than in earlier times. I think we will find some savings, as 
Cass Sunstein has indicated. But there is something that Mr. 
Goldston mentioned that I think is very relevant here, and that 
is, when the regulation is being proposed, everyone says it is 
going to cost a fortune and it is going to be totally 
disruptive and it is going to be impossible to comply. Then the 
regulation is adopted, and we find that the estimated cost is 
appreciably less than had been originally estimated, in part 
because of American ingenuity. When you are told you have to do 
something, you figure out an efficient way of doing it.
    Similarly with existing rules. Once they are on the books, 
they become part of what we do. So we have a lookback. Do you 
want to get rid of seat-belt regulation? After all, we have 
airbags now. But the assembly lines have already been set up 
with the seat belts all ready to be put in. So what kind of 
savings would we have?
    Therefore, while I think a lookback is important and it 
keeps the regulators on their toes and provides the right 
incentives, I am not so sure that we will find that this is the 
silver bullet that will cure all.
    Chairman Lieberman. Thank you. Ms. Dudley.
    Ms. Dudley. Yes, it has been done before. Previous 
Administrations have taken a look back. And I think there is an 
element of truth to the idea that for existing regulations, 
once we have complied with them, some costs are sunk. And so 
removing them--there are some big regulations, if you have 
already invested in that very expensive boiler, you do not want 
to hear that if you did not have to. But I do take issue with 
the idea that costs are always less than predicted. There are 
some academic studies that suggest that, others that suggest 
otherwise, because there are opportunity costs to complying 
with regulation. So the American ingenuity that is diverted to 
addressing the regulatory goal is not addressing something else 
that consumers may want more. So I think you do need to keep 
that in account.
    As far as looking specifically at the current lookback, I 
think we need to look carefully at what the effects of those 
reforms are. For example, one of the big ones that has been 
used as an example is that milk will not be classified as a 
hazardous waste if it is spilled.
    Chairman Lieberman. That is right.
    Ms. Dudley. That was never enforced. Maybe some zealous 
enforcement officials at EPA thought, under the statute we 
could define milk that way, but that was not something that was 
ever implemented that way. And, in fact, that was one of the 
midnight regulations on my watch, was to put that clarifying 
regulation in place. It was withdrawn and then reissued in this 
Administration.
    Chairman Lieberman. Mr. Goldston, is the Administration 
review a good idea, enough, or not enough?
    Mr. Goldston. We think it is a reasonable idea. It would 
not necessarily be our top priority for what they should be 
doing, but it is reasonable to look at past regulations. We 
think that it has been done in a serious and reasonable way. 
The regulations that they have come up with seem in this 
preliminary look--and there is a notice and comment period now, 
or a comment period now on it--seem to be regulations that 
merit being looked at.
    But I would say the point that--taking a slightly different 
take on the point that Ms. Dudley just made, I mean, the fact 
is some of these horror stories about regulations on the books, 
when you look at what has actually happened with them, they are 
not enforced or they did not actually create a problem. So I 
think that needs to be kept in mind as well.
    A last point on--I believe it is--I cannot find it quickly, 
but it is a Resources for the Future study that is most often 
cited that did look in detail at costs of regulations that had 
been anticipated and then that actually occurred, and not in 
every case, but in the vast majority of the cases, the actual 
costs were far smaller than the predicted ones--for two 
reasons: One, innovation, as Sally Ericsson and Ms. Katzen 
said. I am thinking of the current OMB person--as Sally Katzen 
said; and also because most of the cost estimates come from 
industry that has no incentive to give the lowest cost 
estimates. So it is not a surprise, but there have been some 
studies, and routinely but not universally, the actual costs 
are significantly below the predicted ones.
    Chairman Lieberman. Thanks. Ms. Harned.
    Ms. Harned. Yes, I mean, NFIB thinks it is a good step that 
the Obama Administration is looking at existing regulations. 
But we really believe that, as a practical matter, we need more 
regulatory reform so that we can really get teeth and, as a 
practical matter, actually eliminate some regulations that are 
on the books. We just have not seen, as Ms. Dudley indicated, 
regulations that have been a true problem for small business 
eliminated under these provisions, these lookback provisions 
yet.
    And I would also say, as Ms. Dudley alluded to, and 
actually even Ms. Katzen said, there is an issue--again, once 
the regulation is in effect, we see that it is very hard to get 
it off the books, and that is why NFIB is so committed to 
reforms that will do more on the front end to assess small 
business impact, because once they are on the books, it is hard 
to pull them back. And really getting our homework done on the 
front end will help with that.
    Chairman Lieberman. Thank you. My time is up. Senator 
Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Ms. Harned, I want to start just where you left off. I 
could not help but think when we were talking about the 
recently repealed regulation on spilled milk being treated as 
if it were an oil spill--and we heard that it has never been 
enforced--that to me is not of great comfort because it raises 
the issue of why was it issued in the first place, and that is 
why I think we do need more attention on the front end.
    There is a lot of disagreement about the cost of 
regulation, and I would like to ask you a few questions about 
the Crain study that was commissioned by SBA, and that study 
estimated the total cost of the regulatory system as more than 
$1.75 trillion. By contrast, OMB estimates the cost as far, far 
lower, ranging between $62 billion and $73 billion.
    Now, clearly, that is an extraordinary range. I know you 
have looked at the Crain study. Could you explain for the 
Committee the difference in methodology and what OMB covered 
versus what the Crain study covered?
    Ms. Harned. Right. Well, one of the main things that the 
Crain study covered that OMB did not capture, my understanding 
is, is those rules that are not considered to have a 
significant economic impact. And there are hundreds of those 
that come out every year.
    Senator Collins. Let me just interject. So OMB's estimate 
only included major rules which have an impact of $100 million 
on the economy, correct?
    Ms. Harned. That is correct. And, truthfully, what small 
business owners face is the death by a thousand cuts, and we 
feel like the Crain study better reflects that number because 
it does show the disproportionate impact to small business by 
capturing the entire regulatory burden that they are 
experiencing and not just focusing on those major rules.
    Senator Collins. It is also my understanding that OMB did 
not count rules that were adopted 10 years ago. Is that correct 
also, to your knowledge?
    Ms. Harned. To my knowledge, that is correct. And, again, 
small business owners, every paperwork requirement, once it is 
out there, that is a continuing burden for them because they do 
not have the in-house staff to deal with these issues. So they 
really do feel the burdens longer than, I would say, a larger 
company. I think it is easier for a large firm to absorb those 
earlier.
    Senator Collins. Now, Ms. Katzen made the point that once 
regulations are in effect, she believes that the costs go away 
or disappear or tend to be much lower. Yet your survey, which 
was done just a month ago, seems to indicate that small 
businesses still consider government regulations to be a major 
problem for them. Could you tell me where it ranked among the 
10 issues that you asked small businesses about?
    Ms. Harned. Right. Well, this year, like I mentioned, we do 
this monthly study that is very well regarded and is a very 
good indicator of where the economy is and what small business 
owners are thinking about the economy. And regulation has 
consistently come in third only to poor sales and taxes as the 
biggest issues that they are facing. And we have definitely 
seen the numbers, if you look at the trends over the past 
probably 30 or more years--I think it was somewhere in the 
middle of last year and in the high teens consistently as one 
of the most important problems they are facing today as they 
are trying to grow their business.
    Senator Collins. And has that grown as a higher percentage 
in the last couple of years?
    Ms. Harned. Yes, very much so.
    Senator Collins. Thank you.
    I would like to, for my final question, ask each of the 
panelists about the issue of applying cost/benefit analysis and 
other provisions of the President's Executive Order to 
independent regulatory agencies because this is a big issue. It 
is something that Cass Sunstein advocated for when he was an 
academic at Harvard but no longer advocates for it now that he 
is head of OIRA. So I would like to get the opinion of each of 
you, and let me start by pointing out that last week, on July 
11, 2011, the President issued an Executive Order and a 
directive, a Memorandum to the Executive, to the independent 
regulatory agencies in which he requests that they comply with 
cost/benefit analysis, public participation, and other 
provisions of the Executive Order. He cannot direct it without 
changes in law, but he asked them to do so.
    So, Ms. Katzen, do you agree with the President's request 
in this area?
    Ms. Katzen. It is somewhat more complicated than that. When 
I was at OMB, we were drafting EO 12866, and we asked the 
Office of Legal Counsel at the Department of Justice whether or 
not the President had the constitutional authority to extend 
these requirements to the IRCs. We were told yes. We declined 
to do so solely for political reasons, and that was in 
deference to the Congress.
    The same thing was true with President Reagan in 1981. His 
Office of Legal Counsel, in which a young man named Mr. 
Sunstein worked, said that they had the constitutional 
authority to do it, but might want to consider deferring that 
out of deference to Congress.
    I have flipped completely. Having recommended that we not 
extend these provisions to the IRCs in 1993 when the President 
signed the Executive Order, I am now a staunch supporter and 
have been testifying in the House on several occasions over the 
last 3 or 4 years in favor of extending these requirements to 
the IRCs. I think it is a no-brainer.
    Senator Collins. Thank you. Ms. Dudley.
    Ms. Dudley. I think they should be extended to the 
independent agencies. We had a conference of all the former 
OIRA Administrators on the 30th anniversary of ORIA last month, 
and all the former Administrators agreed they should be 
extended to the independent agencies.
    Senator Collins. Very interesting. Mr. Goldston.
    Mr. Goldston. Claiming some of my earlier time, if I could 
say two quick things before that. First is the Crain study has 
been discredited by numerous people, even if you accept what 
should be in or out of the package, the methodology used, and I 
refer the Committee particularly to the Congressional Research 
Service (CRS) report on that.
    Second, in terms of regulations that are already on the 
books, it is not just that there are sunk costs; it is that the 
public comes to expect the benefits of those, and it turns out 
those benefits come at acceptable costs. So it is actually 
truly accepting those----
    Senator Collins. Since my time has expired, if you could 
answer the question I asked.
    Mr. Goldston. Yes, absolutely. We do not support the 
extension to the IRCs because we feel their independence is a 
feature of law that should be maintained. I would say that 
Sally Katzen in her testimony, even when talking about 
extending them, talks about treating the IRCs differently, 
recognizing that difference in statute. And, again, CRS in 
their review of the bills has pointed out that it would change 
the fundamental understanding of the IRCs.
    Senator Collins. Thank you. Ms. Harned.
    Ms. Harned. Yes, NFIB strongly supports extending to the 
independent agencies.
    Senator Collins. Thank you. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Collins.
    As is the Committee's tradition, in order of appearance we 
will have Senators Johnson, Pryor, Portman, Carper, and Paul. 
Senator Johnson.

              OPENING STATEMENT OF SENATOR JOHNSON

    Senator Johnson. Thank you, Mr. Chairman.
    As somebody who has lived under the rules and regulations 
in a manufacturing plant for about 31 or 32 years, I will just 
say that certainly there are up-front costs of compliance with 
regulations, so you maybe have to invest in some equipment, and 
that is kind of a one-time cost, but even that equipment has to 
be maintained. And the costs of reporting compliances, that is 
a continuous cost. It is a cumulative cost. It simply is. And 
it costs jobs in the long term.
    Mr. Goldston, you said that we are looking at what is the 
fundamental problem with regulation. I think the fundamental 
issue here is the fact that there is a trade-off between safety 
and economic activity. I think the theory behind regulation is 
that you are doing something for the public good, in the public 
interest. But from my standpoint, the first part of the public 
interest is robust economic activity, and I think we are not 
seeing it.
    As an accountant, I kind of look for metrics, and if you go 
back to the Franklin Roosevelt Administration--I know that is a 
long time ago--the total number of pages in the Federal 
Register was about 80,000. As recently as under the Nixon 
Administration, the total number of pages was about half a 
million. Right now the Federal Register totals about 3 million 
pages. I realize that is not an exact replica in terms of what 
the regulatory burden is, but it is a pretty good indicator.
    In trying to maintain that delicate balance between public 
safety and economic activity, which is the trade-off, certainly 
in hard economic times people like me, people who have lived 
under the rules and regulations, do come down on the side that 
I think we have overregulated. I think regulation is strangling 
our economy. I want to get everybody's opinion in terms of 
where you fit in that spectrum. Do we have too many 
regulations? And is it harming our economy? Ms. Katzen.
    Ms. Katzen. Well, first, if I could talk about the number 
of pages in the Federal Register because it has been used now 
by both Senator Collins and by yourself. When I teach a course 
in administrative law, I have a 1977 NHTSA rule on airbags and 
a 1997 NHTSA rule on airbags. One is four pages. One is 40 
pages. The difference? The 40-page rule has all the data that 
everybody wants to see displayed, and it has a response to all 
the comments which everybody wants to have considered. 
Repetition to the point of insanity, so that the number of 
pages I would respectfully say is not a----
    Senator Johnson. And I admit it is not perfect, but it is 
indicative. But to answer my question, what is the effect of 
regulation on employment? Do you believe we are at a point 
where it is harming our economic activity?
    Ms. Katzen. I think most of the academic studies show that 
it is essentially neutral on employment, and I think the Wall 
Street Journal yesterday said lack of employment is because of 
lack of demand. Lack of employment is because the Federal 
payments to the States have been, and are expected to continue 
to be cut and the States have fired a lot of people. And in the 
private sector, I think part of the reluctance to add jobs is 
regulatory uncertainty, not regulatory burden; employers are 
not sure what is going to be happening. While unemployment is 
still up, it is interesting that corporate profits are at an 
all-time high. So if regulation is such a burden, why is it not 
coming out of the corporations' bottom line?
    Senator Johnson. Ms. Dudley.
    Ms. Dudley. I think everyone agrees that regulations have 
benefits as well as costs. We have heard several times today 
that OMB's estimates of the benefits are so much higher than 
their estimates of costs, and I think it is important to 
understand what those benefits are. The costs, as you say, are 
real compliance costs. They might prevent you from hiring a new 
employee or being able to make a new innovation. Whereas, the 
benefits--and I will not take up too much of your time, but the 
benefits are much more uncertain. They are not dollars that a 
family can use to put food on the table or that you can use to 
hire a new employee. They are estimates of how people might 
value a change in risk.
    So I think while we all agree that some regulation is 
necessary, I think we have reached a point of diminishing 
returns. And that does not mean all regulations, but there are 
some that are not providing incremental net benefits.
    Senator Johnson. Mr. Goldston.
    Mr. Goldston. First of all, I would agree with everything 
that Sally Katzen said on this. Obviously, we are not arguing 
that there are no regulations that are in error or that 
regulations do not impose costs on industry. But the idea that 
the Nation is grossly overregulated or that regulations are 
responsible for the current unfortunate economic situation I do 
not think can be borne out by the facts.
    The other thing I would say is regulations also protects 
the economy. I think there is certainly a strong argument to be 
made that one of the reasons we got into this problem that we 
have right now is because of inadequate regulation, and those 
are real costs.
    Senator Johnson. Do you think the banking industry was 
underregulated?
    Mr. Goldston. I am not an expert on the banking industry, 
but there is certainly an argument that they were not 
sufficiently regulated in terms of the kinds of loans they were 
allowed to make, in terms of the way they packaged them, and in 
terms of the kinds of reserves they had to hold.
    Senator Johnson. So there is a difference, though, in terms 
of effective regulation versus the number of regulators.
    Mr. Goldston. Sure.
    Senator Johnson. Coming from a small business that had to 
compete against large businesses, it was very easy to compete, 
because as a small business you were close to the customer, you 
were very nimble, you could be very effective in terms of 
customer service. Whereas, the bureaucracies in large 
businesses made it very easy to compete, and I think that is 
part of my problem with the regulatory environment. Actually, I 
agree with you, Ms. Katzen. Throwing more laws on top of this, 
another layer of bureaucracy--I am quite dubious about putting 
more bureaucrats in charge of making other bureaucrats more 
effective and efficient. I have a real concern about that.
    Ms. Harned.
    Ms. Harned. Yes, three quick points. What we continue to 
hear from our small business owners anecdotally is, ``We need 
the government to get off our backs, out of our way, so we can 
get moving again.'' That is borne out again by the numbers I 
reflected earlier today where nearly one in five small business 
owners are saying that regulation is their most important 
problem today.
    And, finally, to your point on the regulatory costs, the 
continuous regulatory costs, our research has shown--the 
``Coping with Regulations'' study that our research foundation 
did--that 26 percent of small business owners say that 
paperwork costs are their biggest Federal regulatory burden, 
and that is an ongoing annual cost that they must incur.
    Senator Johnson. I will just make one final statement in 
terms of government's ability to estimate costs. Back when they 
passed Medicare in the 1960s, they said it would cost $12 
billion in 1990. It ended up costing $109 billion. So I just do 
not have a great deal of faith in government's ability to 
estimate costs.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Johnson. Senator 
Portman--and the Committee will note the extraordinary tribute 
paid to you by your former employee, Ms. Dudley here.

              OPENING STATEMENT OF SENATOR PORTMAN

    Senator Portman. I thought it was kind of mild, actually. 
[Laughter.]
    Chairman Lieberman. It just all depends on where you sit 
how you hear these things.
    Senator Portman. Well, first of all, she did a terrific 
job, and I am delighted that you are here today, Professor 
Dudley. And, Ms. Katzen, thank you for your testimony.
    Sally Katzen actually asked me to come up and speak at one 
of her classes at the University of Michigan Law School, which 
was really intimidating. Not just that these students are so 
bright, but there is Ms. Katzen, as a former OIRA Director, and 
me talking about OIRA, and as Administrator you did get 
involved in a lot of these issues, so this is a great 
experience for us to have.
    If I could just quickly talk about this legislation we have 
introduced, we have over 20 co-sponsors. It addresses many of 
the issues that have been raised here today. It gets into this 
issue of strengthening the economic impact analysis. 
Understanding that we do not want to overburden the agencies, 
you also, I think want to have consistent information coming 
from the agencies. And, frankly, the Unfunded Mandates Reform 
Act, which I was a co-sponsor of in the House, was directed as 
much at State and local government as it was at the private 
sector. In fact, that was our focus. And so there are some 
things that I think need to be changed to be sure that it makes 
sense for the private sector. One I would say is broadening the 
economic impact definition.
    Under UMRA now it is triggered by rules that require a 
direct expenditure of $100 million or more, and I think major 
rules is where we need to put most of our focus. That works 
well for State and local government. It works less well for the 
private sector. So in this legislation we have a change in the 
economic impact definition to say it focuses on expenditures, 
not from intergovernmental mandates but on a whole host of 
other compliance costs that may be borne by the private sector. 
So it says annual effect on the economy of $100 million or 
more. I think that would be helpful to put more rules into this 
major rule category.
    It also says, as we have talked about today, that 
independent agencies ought to be covered, and I really 
appreciate the testimony today. It was sort of fun, as Senator 
Collins was saying, to talk to Professor Sunstein about his 
previous writings in 2002. I think it was a law review article 
where he said what Ms. Katzen said, in essence. You said ``no-
brainer.'' He did not go that far. He used more legalistic 
language, but that it should be done. And I think it makes 
sense. In the last 15 years, there have been over 200 major 
rules over $100 million in expenditure, and that is the 
Government Accountability Office (GAO) data. Seventeen rules, 
by the way, in fiscal year 2010 and none of them included a 
monetized assessment of both costs and benefits, despite, 
again, the urging from OIRA and OMB.
    I think, Ms. Katzen, you and I may disagree a little bit on 
the President's ability to direct the independent agencies. You 
received legal advice at the time in the Clinton 
Administration, it sounds like, saying it could be done. There 
is certainly a mixed view on that, and it is a question that we 
can address through a statute. As Senator Collins said, we can 
put into statutory language what the President has just put 
into an Executive Order last week and a presidential 
memorandum. And we have offered that now on, I think, three 
bills, and I have separate legislation on that as well. And 
this is an area, Mr. Chairman, I would hope we could find some 
bipartisan buy-in.
    But this legislation is broader than that. It also talks 
about judicial review, which is more controversial, so let me 
talk about judicial review for a second.
    The debate often gets focused on what should the criteria 
be that agencies follow in writing new rules. How do they weigh 
the costs and the benefits? And how do they evaluate the 
economic impact, consider alternatives, and so on? And the 
goal, as then-Professor Sunstein said, ought to be for judicial 
review to ``increase the likelihood that agencies will take the 
order's requirements seriously.'' Again, that is when he was a 
professor. I am not saying he is taking that position today as 
Administrator.
    I think that is about right, and I guess my question would 
be to Professor Dudley and Ms. Katzen: Do you agree that 
agencies would tend to take their obligations more seriously 
and do a more thorough job if there was some judicial check?
    Ms. Katzen. No. I can add to that--but, first of all, I do 
support the bill that you have to extend the requirements to 
the IRCs. I think that is a sensible, sound decision.
    What I was referring to in terms of the complexity--what 
David Goldston referred to is how the requirements are 
enforced. Do you go straight through OIRA or do you have 
another oversight group? And if you do not want to go the full 
nine yards, you could simply have a Sense of Congress 
resolution that the President can do this. That would give the 
signal, I think, for the President to go ahead.
    But on the issue of judicial review, I think the agencies 
take their responsibilities seriously now, period. I do not 
think they sit around saying, ``Will we get caught? Will anyone 
take us to court?'' I mean, we are a litigious country, and 
there is virtually no disincentive for running off to Federal 
court whenever you are unhappy with what an agency has done. I 
think the agencies expect that they will constantly be under 
scrutiny for something. But I do not think simply saying, ``And 
now there is going to be a third check on you, in addition to 
the President, in addition to the Congress, we are now going to 
have the courts looking at these things,'' I do not think that 
is going to make them take their job more seriously.
    Senator Portman. I would say there is a current check, 
which is OIRA. I would not say that Congress, once it passes 
the statute, does not do an ongoing check.
    Let me hear from Professor Dudley, and then I am going to 
ask you about an example.
    Ms. Dudley. I do not think courts are expert in economic 
analysis. But I do think that having the judicial review will 
make agencies take their analysis more seriously. I think what 
a lot of these bills do is it adds checks and balances, which 
is what our Constitution is founded on, and that is why I think 
judicial review could be very helpful.
    Senator Portman. Let me give you an example. Section 321(a) 
of the Clean Air Act says that, ``The EPA Administrator shall 
conduct continuing evaluations of potential loss or shifts of 
employment caused by certain regulations.'' Would it be fair to 
say that they take this statutory obligation seriously? Have 
you ever seen any rigorous or regular job impacts analysis 
coming out of Section 321(a)? I mean, it is just one example, 
because I think it has been effectively ignored. It is not 
subject to judicial review. They never produce an analysis as 
is called for in Section 321(a). And when it includes job 
impact assessments in some of these individual proposed rules 
we have been talking about, the estimates are viewed by 
others--subjectively, I think, some third-party groups--as 
being incomplete.
    So I agree with what Professor Dudley says. The courts are 
not necessarily experts at this, although they do it a lot. I 
mean, you think about all the statutes within which there is 
judicial review. The courts are asked to do it frequently, and 
so I do think it would help. The Toxic Substances Control Act, 
Energy Policy and Conservation Act, Federal law governing 
pesticides, safe drinking water--all those are ones where the 
courts are asked to step in and provide some of that expertise, 
both on the science and the economic impact side.
    Any thoughts on that, Ms. Katzen?
    Ms. Katzen. I think, again, the agencies do what they can 
with the resources that they have, focused on the most pressing 
obligations. They are subject to OIRA oversight. You are right, 
Congress has not been diligent in its oversight, and I think 
that is something that should and could easily be improved. But 
while the courts have some expertise, I would not just throw 
them in wholesale. Remember, major regulations cover the whole 
gamut, and I would refer you back to Department of Homeland 
Security problems, in quantifying and monetizing costs and 
benefits. Do you really want courts going through that with a 
fine-tooth comb? I do not think it is very helpful.
    Senator Portman. And, again, fine-tooth comb, this would be 
the arbitrary and capricious standard, a highly deferential 
standard?
    Ms. Katzen. Even substantial evidence--and I know that has 
been in the bills proposing to change the standard, a subject 
that one could write volumes on. But, in fact, as Justice 
Scalia has said, you are looking for rationality, and there is 
not a whole lot of daylight between arbitrary, capricious, and 
substantial evidence. What you are talking about is the 
difference between two types of proceedings, formal and 
informal. I know there is support now for formal rulemakings, 
but in my view that is misguided. With formal rulemaking, we 
had the peanut butter case that took two decades to figure out 
something because we due process to due death.
    Senator Portman. Well, again, I think if you look at the 
statutes where agencies are discouraged from cutting corners, 
it works. And it may be imperfect because not all courts have 
the expertise, but at that deferential standard, I think it 
would be an improvement and would not be, therefore, the 
exception rather than the rule that you have that kind of 
review.
    My time is up, and I want to keep in good graces with the 
Chairman because I know he is eager to move forward on all this 
legislation, and I want to support him in that. So I will end 
my questions, hoping we have a second round.
    Chairman Lieberman. Thanks, Senator Portman. We will. 
Senator Paul.

               OPENING STATEMENT OF SENATOR PAUL

    Senator Paul. Thank you. Much has been said about this 
President looking back at regulations. I think trusting this 
President to look back at regulations is sort of like trusting 
the fox to guard the henhouse. If this Administration was 
serious about reducing regulations, we would see proposals to 
reduce regulations. Instead we have seen ObamaCare, we have 
seen Dodd-Frank, we have seen a whole host of new regulations. 
In fact, the estimates are now that the regulations for this 
current year will cost us $26 billion, and it will set a record 
for the most regulations.
    Mike and Claudia Sackett bought a lot up near Priest Lake 
in Idaho, and they wanted to build a house on it. There is a 
house on either side of them. There is a sewage hook-up already 
in the ground that the developer put in there. They dumped some 
gravel down. The EPA told them it was a wetlands. There is no 
river. There is no pond. There is no standing water on their 
lot. But to fight this, to fight for their property, to build 
on it, will cost them more than their property is worth. For 
anybody to argue that we are short of regulations I think is 
just on its face wrong, and the public disagrees with you.
    I think we need checks and balances. The problem is that 
professional regulators want to regulate. They do not care 
about business. They may think they do, but they think they do 
a good job when they regulate. Our job is to protect the 
interest of people trying to do business, people trying to 
create jobs. And so I think you need give and take, but you 
also need review.
    I think our Founding Fathers would roll over in their grave 
to think that we are passing rules that would cost $100 million 
and the people's representatives have no say in that. I think 
to say that we are going to trust this Administration just to 
review these rules when there is no evidence that they are 
against regulations, I think the REINS Act is what we need. It 
is what the American people expect. They think that we are 
supposed to be writing these rules. They do not understand why 
unelected people would write rules that would have such impact 
on the economy.
    Now, some have said this is paralysis by analysis. If only 
we could paralyze some of the onslaught of new regulations, I 
think we would unleash an economic boom. If we could get some 
of these regulatory reforms, we could unleash an economic boom 
unseen--it would be a stimulus unforeseen, unseen before in our 
economy.
    My question for Professor Dudley is: With the REINS Act, 
would it not help to bring back and have some checks and 
balances to have Congress involved in these major rulemaking 
processes?
    Ms. Dudley. I do think that is a real advantage of the 
REINS Act. I think OMB is a necessary office, OIRA's review is 
necessary, but it is not sufficient. Part of the problem is 
that legislators can pass legislation with good-sounding goals, 
but then they can turn around and blame agencies for the 
implementation of those regulations. I think really it should 
be called the ``Congressional Accountability Act'' because it 
would make Congress accountable for the legislation it passes.
    I do not really see it slowing things down because agencies 
would still go through the analysis, but the final 
determination would be made by our elected officials rather 
than unelected.
    Senator Paul. It would at least give the people some say 
and there would be some check and balance, because I think even 
honest regulators are honestly trying to regulate. They really 
think they are doing the right thing. But they are not seeing 
it from our perspective because they are not business people. 
They do not employ people. They are seeing only one side of the 
equation. We need somebody who is on the other side of the 
equation which would be the check and balance.
    The other problem we have is there are disagreements. I 
mean, we cannot agree on how much regulations cost, and 
obviously that is probably difficult to make estimates and 
difficult to be precise about. But when we come to regulating 
mercury--Senator Johnson has talked about this--how do we know 
and can we prove that two parts per billion is better than 
four? Well, less is better than more, but do we know that there 
might be crippling effects? Some are estimating 17 percent of 
the power plants will shut down. Some have estimated that the 
greenhouse regulations could be so onerous as to make it 
difficult to continue to produce the electricity we produce for 
our country.
    So the realistic aspect of this, I think, is difficult when 
you only have one side, professional bureaucrats, professional 
regulators, and no people speaking out for the people. And I 
just think that the system is so horribly broken, but I can 
tell you from being on the front lines that the people out 
there in industry and the business and the farmers--I have a 
farmer, a German immigrant in northern Kentucky who was moving 
some dirt around on his cattle pond, and a host of bureaucrats 
showed upon his land one day and said, ``We will fine you 
$25,000 a day until you put the dirt back.'' It was, like, 
``Well, how do I know exactly where I pushed the dirt from? And 
what business do you have on my land?'' And finally he showed 
them the bill--they were out there, 10 of them, some of them 
armed. He had to show them the bill that said, ``Farms are 
exempt from this regulation.'' They were not even reading their 
own regulations properly, and he said, ``Get off my land.''
    That is what is going on in America. People want you off 
their land. And that is why we have to have checks and 
balances. We feel like it is out of control.
    I guess I would like to hear Professor Dudley make a 
comment about the mercury rule. And how can we get to agreeable 
science and how do we impose science that may not be even 
technologically feasible?
    Ms. Dudley. I have looked a little bit at the mercury rule. 
What you will find with the mercury rule and a lot of EPA's 
regulations is that the benefits that are being estimated are 
not actually from reducing mercury. The benefits from reducing 
mercury, according to EPA's analysis, are 510 intelligence 
quotient (IQ) points per year nationwide. That works out to two 
one-thousandths, I think, or maybe two ten-thousandths of an IQ 
point per affected child. The calculated benefits are from 
reductions in particulate matter, which comprise the vast 
majority of OMB's benefits estimates; more than 65 percent are 
from particles in the air.
    Senator Paul. We lose some general things, is that, if you 
talk to school kids in America, what they are being taught, 
they are being taught that we are polluting the world in a 
horrible way. Pollution is much better than it has ever been. 
Air quality is much better than it has ever been. The whole 
point is: Is there a reasonable amount of regulations? No one 
is proposing that we pollute the air or that we go back to the 
way it was in 1919. But I think we have gotten to the point 
where everybody is accepting that polar bears are dying, New 
York will be flooded next year. This environmental extremism 
has taken over education and public debate, and because of that 
we have a real problem with having any sensibleness to the 
regulations being promulgated.
    I have reached the end of my time. Thank you.
    Chairman Lieberman. Thanks, Senator Paul.
    I have just a couple of quick questions. Some of the bills 
that are before us would codify all or parts of existing 
Executive Orders governing the regulatory process, and I wanted 
to ask for a quick reaction from the panelists whether you 
think the advantages outweigh the disadvantages of doing that 
or vice versa. Maybe we will start with you, Ms. Harned.
    Ms. Harned. Well, I think that Ms. Dudley actually 
articulated very well why codification is such an important 
thing. It will signal to the agencies, again, culturally that 
this is important, that Congress needs to follow these rules 
going forward. That truthfully is an issue we continue to see 
out of different agencies, if there are still instances where 
the rules are not being followed. And, also, the judicial 
review component would be something that NFIB would very much 
support that would happen as a result of that.
    Chairman Lieberman. Mr. Goldston.
    Mr. Goldston. I think the disadvantages of codification 
were cited by Ms. Katzen well. I do not think there is any 
particular advantage. I do not think there is any agency at 
this point that thinks that they are going to escape from doing 
cost/benefit analysis. And many of the bills actually, when you 
look closely--as, of course, you have--they actually expand on 
the requirements of the current Executive Orders. The CURB Act, 
for example, CRS says would add about another 650 rules a year 
for OIRA to look at because of the definition it uses. That is 
rules--separate from the guidance issue.
    Chairman Lieberman. Ms. Dudley, you talked a little about 
this. I wonder if you think codifying an Executive Order would 
have the effect of opening up an agency's actions under its 
provisions to judicial review and how you would weigh that.
    Ms. Dudley. Well, I think future presidents will definitely 
continue to require regulatory impact analysis, so I am not 
worried that it is necessary for that. I do think it is 
valuable for extending it. Mr. Goldston said that every agency 
does it. No, they do not. Independent agencies do not do 
benefit/cost analysis, as Senator Collins' bill would do. They 
do not always do it for a guidance document, so her bill would 
require more analysis of guidance documents that are big enough 
to have the effect of law.
    And then I do think it is valuable for judicial review for 
the reasons mentioned earlier. Not that courts are going to be 
great at it, but agencies take more seriously things they might 
get sued over.
    Chairman Lieberman. Ms. Katzen, codification.
    Ms. Katzen. I think this is where I used the bulk of my 
time, and so I will not use it again.
    Chairman Lieberman. OK.
    Ms. Katzen. But I think the disadvantages greatly outweigh 
the advantages. Or stated a different way, I think the benefits 
do not justify the costs.
    Chairman Lieberman. That was clear. Thank you.
    Let me ask you and Ms. Dudley particularly, if Congress 
enacts legislation that mandates cost/benefit analysis or other 
requirements, a question has naturally been raised about 
whether--and there has been some testimony on this--that 
language would trump the provisions of existing statutes, and 
both of you testified on this, Ms. Katzen, saying, I believe, 
you would oppose that, and Ms. Dudley raising some concerns, I 
think it is fair to say, about whether it might be more 
appropriate to amend existing statutes. But I wanted to invite 
you both to speak a little more in detail to that question.
    Ms. Katzen. I think codifying Executive Order provisions 
would, in fact, amend previously existing laws, and it would 
create a super mandate, and that would be, I think, highly 
detrimental. There are some underlying statutes that maybe 
should be amended, but it should be done one at a time with 
attention through the authorizing committee that knows the 
subject rather than an across-the-board, government-wide, 
change-all-the-laws, and we do not even know which laws we are 
changing.
    Chairman Lieberman. Ms. Dudley.
    Ms. Dudley. I do think that is something that Congress 
needs to think through--whether a benefit-cost requirement 
should supersede or be subordinate to existing statutory 
requirements. There are several statutes that are silent, and 
it may be that Congress would like those statutes to--when they 
are reviewed judicially--for courts not to say silence means 
you cannot consider trade-offs.
    Chairman Lieberman. Right.
    Ms. Dudley. I think there are some specific statutes that 
really are doing more harm than good because they prohibit 
trade-offs, in part because they suggest that science can give 
you an answer on the right level of risk, and science alone can 
not. And I think Mr. Goldston has actually said this more 
articulately than I can. A lot of the problems or concerns 
about politicization of science, are really because we have 
statutes that ask science to do things it is not capable of 
doing. Policy decisions need to weigh trade-offs. So I think 
going after some of those statutes--and only Congress can do 
that--would be very useful.
    Chairman Lieberman. Do the two of you have any comments on 
a super mandate?
    Mr. Goldston. I think we would be particularly concerned 
about that. I think as both Ms. Katzen and Ms. Dudley said, 
that requires looking at the individual statutes and thinking 
through them, even in the case that we have alluded to, 
sometimes indirectly, sometimes directly, of the one part of 
the Clean Air Act that has been interpreted 9-0 by the Supreme 
Court to say that you cannot take costs into effect. It is for 
that piece of setting the standard and then for how you 
actually apply the standard, costs are allowed.
    So I think that it really does--I think a super mandate 
would probably cause collateral damage that Congress would not 
intend or even fully be aware of if it were done in that way.
    Chairman Lieberman. Ms. Harned.
    Ms. Harned. I do not have a comment.
    Chairman Lieberman. Thank you. You have been really 
helpful. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman. I think we have a 
vote coming up momentarily.
    Chairman Lieberman. We do.
    Senator Collins. So I am going to withhold any further 
questions for the record, but let me just thank all of the 
members of the panel. I think this was a very helpful 
discussion that will be very valuable to our Committee as we 
move ahead. So thank you all for your testimony.
    Chairman Lieberman. Thanks, Senator Collins. I agree with 
you. As has become clear throughout this discussion 
particularly and our earlier hearings, these regulations do not 
spring miraculously into the Federal Register. They are the 
result of congressional action. And so part of the problem is 
us, and how we regulate ourselves, how we self-regulate in that 
regard is an interesting question and a challenge.
    But the other thing to say is that, generally speaking, it 
is not easy to get legislation through this checks and balances 
system of ours, so that there is probably some reason why it 
was passed, which the public is interested in. On the other 
hand, it is clear that some of the regulations have a 
disproportionate effect on some of those who are regulated. And 
how we balance this--I am not saying anything new because this 
is always the challenge. It takes me back to what I said at the 
outset. The question is not whether to regulate, because there 
is and should be regulation, but it is how best to regulate, 
how most fairly to regulate, and you have all helped us--you 
have really informed our efforts here.
    There is a lot of interest in this subject in this 
Congress. It is a controversial area, and it is politically 
touched, but Senator Collins and I have waded into such storms 
before----
    Senator Collins. And emerged.
    Chairman Lieberman [continuing]. And emerged on our feet 
and hopefully with some rational response. So we are going to 
try that again.
    We will leave the record of the hearing open for 15 days 
for any additional questions or statements. I thank you very 
much for your testimony today, and with that, the hearing is 
adjourned.
    [Whereupon, at 11:47 a.m., the Committee was adjourned.]

                            A P P E N D I X

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