[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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \1\ The prepared statement of Senator Paul appears in the Appendix on page 129. --------------------------------------------------------------------------- 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. 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