Regulatory Burden: Measurement Challenges and Concerns Raised by Selected
Companies (Chapter Report, 11/18/96, GAO/GGD-97-2).
Pursuant to congressional requests, GAO reviewed the cumulative impact
of federal regulations on a limited number of businesses, focusing on:
(1) what selected businesses and federal agencies believed were the
federal regulations that applied to those businesses; (2) what those
businesses believed were the cost and other impacts of those
regulations; and (3) the regulations those businesses said were most
problematic to them and relevant federal agencies' responses to those
concerns.
GAO found that: (1) most of the businesses contacted declined to
participate in the study; (2) none of the 15 participating companies
developed a complete list of regulations that were applicable to them or
provided comprehensive data on the cost of regulatory compliance; (3)
time and resource constraints and the difficulty of disentangling
federal regulatory requirements from those of other jurisdictions and
other nonregulatory procedures proved to be major obstacles for the
companies; (4) most federal regulatory agencies said that they could not
detail which regulations applied to a particular company without a great
deal of company-specific information and the expenditure of a
substantial amount of resources; (5) measuring the incremental impact of
all federal regulations on individual companies is extremely difficult
and, therefore, decisionmakers need to be aware of the conceptual and
methodological underpinnings of studies that attempt to measure total
current regulatory costs; (6) many of the 15 participating companies
recognized that regulations provide benefits to society and their own
businesses, but all of them provided GAO with a varied list of concerns
about regulatory costs and the regulatory process; (7) these concerns
included perceptions of high compliance costs, unreasonable, unclear,
and inflexible demands, excessive paperwork, and a tendency of
regulators to focus on deficiencies; (8) the agencies responsible for
the regulations the companies viewed as problematic often said that the
companies misinterpreted regulatory requirements; (9) the agencies and
some congressional members do not always agree on the extent to which
problematic regulations are statutorily driven; and (10) the agencies
said that they were aware of and were responding to a number of the
companies' concerns.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-97-2
TITLE: Regulatory Burden: Measurement Challenges and Concerns
Raised by Selected Companies
DATE: 11/18/96
SUBJECT: Federal regulations
Paperwork
Administrative costs
Compliance
Reporting requirements
Statutory law
Congressional/executive relations
Economic analysis
Legislative procedures
Non-government enterprises
IDENTIFIER: DOL Labor News Electronic Bulletin Board
OSHA Workplace Consultation Program
EPA Spill Prevention Control and Countermeasures Plan
EPA National Emissions Standards for Hazardous Air
Pollutants
Medicare Program
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Cover
================================================================ COVER
Report to Congressional Requesters
November 1996
REGULATORY BURDEN - MEASUREMENT
CHALLENGES AND CONCERNS RAISED BY
SELECTED COMPANIES
GAO/GGD-97-2
Measurement Challenges and Companies' Concerns
(246066)
Abbreviations
=============================================================== ABBREV
ADA - Americans with Disabilities Act
ADEA - Age Discrimination in Employment Act
BSA - Bank Secrecy Act
BSR - Business for Social Responsibility
CAA - Clean Air Act
CFR - Code of Federal Regulations
CMA - Chemical Manufacturers Association
CWA - Clean Water Act
DOJ - Department of Justice
DOL - Department of Labor
DOT - Department of Transportation
EEOC - Equal Employment Opportunity Commission
EPA - Environmental Protection Agency
EPCRA - Emergency Planning and Community Right-to-Know Act
ERISA - Employee Retirement Income Security Act of 1974
ESA - Employment Standards Administration
FAA - Federal Aviation Administration
FDA - Food and Drug Administration
FDIC - Federal Deposit Insurance Corporation
FinCEN - Financial Crimes Enforcement Network
FMLA - Family and Medical Leave Act
FRB - Federal Reserve Board
GEMI - Global Environmental Management Initiative
HCFA - Health Care Financing Administration
HHS - Department of Health and Human Services
HUD - Department of Housing and Urban Development
IRS - Internal Revenue Service
NAM - National Association of Manufacturers
NESHAP - National Emissions Standards for Hazardous Air Pollutants
NFIB - National Federation of Independent Businesses
NPDES - National Pollutant Discharge Elimination System
OCC - Office of the Comptroller of the Currency
OFCCP - Office of Federal Contract Compliance Programs
OIRA - Office of Information and Regulatory Affairs
OMB - Office of Management and Budget
OSHA - Occupational Safety and Health Administration
PBGC - Pension Benefit Guaranty Corporation
PWBA - Pension and Welfare Benefits Administration
RCRA - Resource Conservation and Recovery Act
SBA - Small Business Administration
SEC - Securities and Exchange Commission
SPCC - Spill Prevention, Control, and Countermeasures
TSCA - Toxic Substances Control Act
USSC - United States Sentencing Commission
Letter
=============================================================== LETTER
B-260085
November 18, 1996
The Honorable Ted Stevens
Chairman
The Honorable John Glenn
Ranking Minority Member
Committee on Governmental
Affairs
United States Senate
The Honorable Peter Hoekstra
Chairman, Subcommittee on Oversight
and Investigations
Committee on Economic and Educational
Opportunities
House of Representatives
The Honorable Don Nickles
United States Senate
The Honorable Amory Houghton, Jr.
House of Representatives
This report responds to your requests that we obtain information on
the impact of federal regulations on businesses. Specifically, we
were asked to describe (1) what selected businesses and federal
agencies believed were the federal regulations that applied to those
businesses, (2) what those businesses believed was the impact (cost
and other) of those regulations, and (3) the regulations those
businesses said were most problematic to them and relevant federal
agencies' responses to those concerns.
We are sending copies of the report to the Director of the Office of
Management and Budget's Office of Information and Regulatory Affairs.
Copies will also be made available to others upon request.
If you have any questions about this report or would like to discuss
it further, please contact me on (202) 512-8676. Major contributors
to this report are listed in appendix III.
L. Nye Stevens
Director, Federal Management
and Workforce Issues
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
The process of issuing and enforcing regulations is one of the basic
tools of government. However, measurement of the effects of
regulation on the economy is imprecise and controversial. Some
analysts have claimed that federal regulations cost the economy
hundreds of billions of dollars each year. However, others question
these claims or assert that regulations provide even greater
benefits.
Because of their interest in regulatory issues, five Members of
Congress asked GAO to investigate the cumulative impact of federal
regulations on a limited number of businesses. In this report, GAO
attempted to identify the impact of federal regulations on those
businesses by asking the businesses to identify which regulations
applied to them, the costs and other impacts of those regulations,
and the regulations that were most problematic. GAO also attempted
to gather information from regulatory agencies regarding the
regulations applicable to the businesses and the regulations the
businesses viewed as problematic. Although the businesses did not
provide all of the information GAO requested, the results illustrated
the inherent difficulties associated with measuring aggregate
regulatory burden.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
Regulations generally start with an act of Congress. They are issued
by executive or independent agencies as the means by which statutes
are transformed into specific requirements. Today, federal
regulations in such areas as the environment, public health, the
economy, consumer protection, and workplace safety affect virtually
everyone's lives.
Some business groups and individual companies have complained that
the cumulative impact of these requirements at the company level has
imposed too great a burden on business operations. Congress has
responded to these complaints through passage of the Paperwork
Reduction Acts of 1980 and 1995, the Regulatory Flexibility Act of
1980, the Unfunded Mandates Reform Act of 1995, and the Small
Business Regulatory Enforcement Fairness Act of 1996, which provides
an expedited procedure by which Congress can review and possibly
disapprove agencies' regulations. The executive branch has also
initiated several efforts to make the federal regulatory process less
burdensome on business.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
Most of the business associations and other groups that GAO contacted
did not nominate companies to participate in its review of the impact
of federal regulations. Also, most of the companies that GAO
contacted on its own declined to participate in the study.
Ultimately, GAO worked with 15 companies that were willing to provide
information.
None of the 15 companies developed a complete list of regulations
that were applicable to them. Time and resource constraints and the
difficulty of disentangling federal regulatory requirements from
those of other jurisdictions and other nonregulatory procedures
proved to be major obstacles for the companies. Most federal
regulatory agencies also said that they could not detail which
regulations applied to a particular company without a great deal of
company-specific information and the expenditure of a substantial
amount of resources.
Likewise, none of the companies provided comprehensive data on the
cost of regulatory compliance. This inability to provide such data
was partially a function of the difficulty companies faced in
identifying all applicable regulations. Companies also found it
difficult to identify their incremental compliance costs, i.e., costs
that would not have been borne in the absence of federal regulation.
No company had a database capable of capturing incremental costs,
probably because there is no regular business use for such data.
GAO's work suggests that measuring the incremental impact of all
federal regulations on individual companies, although perhaps not
impossible, is an extremely difficult endeavor. Therefore,
decisionmakers using studies that attempt to measure total current
regulatory costs to guide public policy need to be aware of those
studies' conceptual and methodological underpinnings.
Many of the 15 participating companies recognized that regulations
provide benefits to society and their own businesses. However, all
of the companies provided GAO with a varied list of concerns about
regulatory costs and the regulatory process. These concerns included
perceptions of high compliance costs; unreasonable, unclear, and
inflexible demands; excessive paperwork; and a tendency of regulators
to focus on deficiencies.
The agencies responsible for the regulations the companies viewed as
problematic often said that the companies misinterpreted the
regulatory requirements, indicating that communications between
regulators and the companies GAO reviewed had not always been
effective. The agencies and some Members of Congress do not always
agree on the extent to which problematic regulations are statutorily
driven. This suggests that opportunities exist for improved
communication between Congress and the agencies about the statutory
basis of agencies' rules. Recently enacted congressional review
procedures in the Small Business Regulatory Enforcement Fairness Act
have the potential to improve those communications. Finally, the
agencies also said that they were aware of and were responding to a
number of the companies' concerns.
PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4
MANY COMPANIES WERE
RELUCTANT TO PARTICIPATE
-------------------------------------------------------- Chapter 0:4.1
GAO had difficulty locating companies willing to participate in the
review. Seven of nine business and public interest groups GAO
contacted did not nominate any companies to participate. Of 51
companies GAO identified, mostly through public sources, as having
views on the impact of regulations, 17 agreed to participate in the
study and 15 eventually provided views and data. Ten of those 15
companies requested anonymity. Many of the companies that declined
to participate in the study cited a lack of time or resources or said
they did not have the types of data GAO was seeking. (See ch. 1.)
COMPANIES AND AGENCIES HAD
DIFFICULTY DEVELOPING LISTS
OF APPLICABLE REGULATIONS
-------------------------------------------------------- Chapter 0:4.2
Although nearly all of the companies participating in the study
initially told GAO they could develop a complete list of applicable
regulations, ultimately, none did so. The task proved to be a
substantial burden to the companies, and most cut the effort short
citing limited resources and higher priorities. Several companies
also found that their efforts to develop a comprehensive list of
regulations were hampered because many regulations had become part of
the everyday operations of the company. Other companies found it
difficult to separate federal regulations from those of other
governmental jurisdictions. One company was reluctant to
characterize its list as complete because it may have exposed the
company to suspicions that it was failing to observe some applicable
requirements.
GAO found that federal regulatory agencies themselves had difficulty
determining the applicability of their regulations to particular
companies without a detailed knowledge of the companies' situation
and affairs. Several agencies noted that such an effort would use
too many scarce resources and pointed to extensive amounts of
information they made available to the public so that businesses
themselves could determine their regulatory responsibilities.
However, GAO observed that the sources of information often appeared
to be fragmented both within and across agencies. GAO also
determined that the regulations applicable to two companies from
three agencies varied, but, in the aggregate, were substantial. (See
ch. 2.)
COMPANIES LACKED DATA ON
REGULATORY COSTS
-------------------------------------------------------- Chapter 0:4.3
In its efforts to collect comprehensive data on the direct costs of
compliance with federal regulations, GAO encountered a number of
obstacles. First, the companies did not provide a complete inventory
of applicable federal regulations that could then be used to
determine associated costs. Also, the companies generally did not
identify the incremental costs that were attributable to regulatory
requirements because they could not determine what costs they would
have incurred in the absence of regulations. The companies'
financial information systems were not geared to identifying costs
associated with regulations. No business purpose would be served by
such information, and collecting it regularly would be a substantial
incremental cost in itself. Indirect costs, such as lost
productivity, construction delays, and misallocation of resources,
are even more difficult to measure than direct costs.
Several frequently cited studies have attempted to measure aggregate
regulatory costs. For example, a 1993 study estimated that the cost
to the economy would be $607 billion in 1995. However, some elements
of this analysis have been questioned by economists and others.
GAO's work indicated that, although perhaps not impossible, measuring
the incremental cost of all regulations on even a single business is
very difficult. Therefore, users of aggregate regulatory cost
studies need to be aware of the inherent difficulties and assumptions
involved in producing such measures. Questions need to be raised and
answered regarding which regulations are included in the studies and
whether they focus on incremental costs. (See ch. 3.)
COMPANIES RECOGNIZED SOME
BENEFITS TO REGULATION
-------------------------------------------------------- Chapter 0:4.4
Despite concerns the businesses expressed about the costs of
regulatory compliance, most company officials recognized that
regulations provide not only benefits to society but also, in certain
cases, to their own businesses. For example, a glass company said
federal regulations had opened up new markets for the company. They
and officials from other companies also said that federal regulations
provide a level playing field for businesses operating in multiple
states, making compliance easier and less costly. (See ch. 3.)
COMMON THEMES CONCERNING
PROBLEMATIC REGULATIONS AND
ENFORCEMENT
-------------------------------------------------------- Chapter 0:4.5
The 15 companies cited more than 100 specific concerns about the
regulatory process. GAO grouped these concerns into 10 broad themes,
such as the high cost of compliance, the unreasonableness or
inflexibility of certain regulations, excessive paperwork, the
unclear nature of certain regulatory requirements, severe regulatory
penalties, a "gotcha" enforcement approach, and poorly coordinated
requirements among agencies and between governmental jurisdictions.
Regulatory agencies responding to these concerns often said that the
companies mischaracterized, misstated, or misinterpreted the
regulations involved, suggesting a breakdown in communication between
the companies and the agencies. Because of these misunderstandings,
the agencies sometimes indicated that the companies were incurring
unnecessary expenses. The agencies also said that they were taking
or already had taken action to alleviate some of the problems that
the companies cited. These actions suggest that a variety of
regulatory reform initiatives are currently under way within the
federal government. Finally, opportunities appear to exist for
improved communication between Congress and the agencies regarding
the statutory basis of agencies' rules. The agencies said that many
of the companies' concerns were driven by statutory requirements
underlying the regulations. However, some Members of Congress
believe that certain agencies have promulgated regulations that go
beyond the intent of Congress. This perception, in part, led to the
establishment of the Small Business Regulatory Enforcement Fairness
Act's expedited congressional regulatory review procedures, which may
serve as a vehicle for improved congressional-agency communications.
(See ch. 4.)
RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5
GAO is making no recommendations in this report.
AGENCY COMMENTS AND OUR
EVALUATION
---------------------------------------------------------- Chapter 0:6
GAO invited comments on a draft of this report from the Administrator
of the Office of Management and Budget's Office of Information and
Regulatory Affairs as well as top officials or their designees in 19
federal departments and agencies responsible for the companies'
federal regulatory concerns. The Office of Information and
Regulatory Affairs and 6 of the other 19 departments and agencies
said that they had no comments on the report. Most of the other
agencies suggested technical corrections or additions of text, which
were incorporated as appropriate. Overall, the agencies indicated
that the report was an accurate characterization of their regulatory
operations and their positions regarding the companies' concerns.
INTRODUCTION
============================================================ Chapter 1
The process of issuing and enforcing regulations is one of the basic
tools of government, and the process has generated considerable
controversy. Some individuals and organizations have called for
increasing regulation of businesses and other nonfederal entities to
achieve certain goals, such as fairer competition, cleaner water, or
safer consumer products and services. Others have recommended
drastic reductions in federal regulatory activity and/or the
imposition of constraints on how agencies develop or implement
regulations, often because of the burden associated with regulatory
compliance and questions about whether the regulations are actually
achieving their stated purposes.
A number of studies have attempted to analyze the effect of federal
regulations on businesses or the economy as a whole, with some
analysts claiming that federal regulations cost the economy hundreds
of billions of dollars each year. Although these estimates are
frequently cited, measurement of the effects of regulation on the
economy is imprecise and controversial. Also, relatively little is
known about the impact of all regulations on individual businesses or
even how many regulations apply to a business. This type of
information about the impact of regulations on individual businesses
would provide a better understanding of the impact of regulations on
the economy as a whole.
BACKGROUND
---------------------------------------------------------- Chapter 1:1
Regulations generally start with an act of Congress and serve as the
means by which statutes are implemented and specific requirements are
established. These requirements tell people and businesses what must
be done to comply with the law. The statutory basis for a regulation
can vary dramatically, from (1) very broad grants of authority that
state only the general intent of the legislation and leave agencies
with a great deal of discretion as to how that intent should be
implemented to (2) very specific requirements delineating what
regulatory agencies should do and how they should do it.
The Agricultural Adjustment Act is an example of a broad grant of
authority, delegating to the Secretary of Agriculture wide discretion
to make agricultural marketing "orderly." The statute provides little
guidance on which crops should have marketing orders or how to
apportion the market among growers.
The toxic air provisions of the Clean Air Act Amendments of 1990 are
examples of very specific statutory requirements. The provisions
specified that the Environmental Protection Agency (EPA) establish
standards, on the basis of the best existing pollution control
technologies, for major sources of 189 of the most prevalent and
hazardous air pollutants. The provisions also established three
interim milestones and a final milestone for setting the standards
and specified certain consequences if EPA missed a milestone for any
source category. Likewise, in the Safe Drinking Water Act Amendments
of 1986, Congress specified 83 contaminants for which EPA was to
promulgate standards within 3 years. The act also required EPA to
regulate drinking water contaminants to be as close as technically
feasible to a level at which no known or anticipated health effects
occur.\1
The federal government has long regulated economic activity, often
through independent regulatory agencies established separate from
traditional federal departments and agencies.\2 Social regulation in
such areas as environmental quality, workplace safety, and consumer
protection is a relatively recent phenomenon. Beginning in the
1960s, a number of major new statutes were enacted in those areas,
including amendments to the Clean Air Act (CAA) and the Clean Water
Act (CWA), the Toxic Substances Control Act (TSCA), the Resource
Conservation and Recovery Act (RCRA), the Occupational Safety and
Health Act, the Truth in Lending Act, and the Consumer Product Safety
Act. Those and other acts, as well as executive orders, also created
new regulatory agencies, such as EPA, the Occupational Safety and
Health Administration (OSHA), the National Highway Traffic Safety
Administration, and the Consumer Product Safety Commission. By the
1980s, an array of federal regulations were in place that affected
many decisions made by American businesses. Concerns then began to
be raised about whether the benefits these regulations and regulatory
agencies were attempting to achieve were worth the costs associated
with compliance. Concerns were also being raised about the
cumulative effect of all federal regulations on individual
businesses.
--------------------
\1 Approaches for Environmental Regulations (GAO/RCED-96-135R, Apr.
25, 1996).
\2 The first of these agencies was the Interstate Commerce
Commission, established in 1887. Other independent regulatory
agencies include the Securities and Exchange Commission and the
Federal Communications Commission.
RULEMAKING PROCESS
-------------------------------------------------------- Chapter 1:1.1
The basic rulemaking process is spelled out in section 553 of the
Administrative Procedure Act, which, among other things, generally
requires agencies to (1) publish notice of a proposed rulemaking in
the Federal Register; (2) allow interested persons an opportunity to
participate in the rulemaking by providing "written data, views, or
arguments"; and (3) publish the rule 30 days before it becomes
effective. Other procedural rulemaking requirements have been added
through general statutes, executive orders, and judicial decisions.\3
For example, certain executive orders since 1981 have required
agencies (other than those considered to be independent regulatory
agencies) to submit at least their significant regulations to the
Office of Management and Budget (OMB) for its review before
publication in the Federal Register. Because of the numerous
processes involved, federal rulemaking can take years to complete.\4
Once completed, federal regulations are compiled in the Code of
Federal Regulations (CFR).
--------------------
\3 These include the Freedom of Information Act; the Government in
the Sunshine Act; Dole v. United Steelworkers of America, 494 U.S.
26 (1990), which was effectively overturned by the Paperwork
Reduction Act of 1995; as well as other statutes and orders discussed
later.
\4 We reported in Clean Air Rulemaking: Tracking System Would Help
Measure Progress of Streamlining Initiatives (GAO/RCED-95-70, Mar.
2, 1995) that EPA rulemaking took, on average, 3 years to complete at
the time of the Clean Air Act Amendments of 1990. Some rules took as
long as 9 years to complete.
REGULATORY REFORM EFFORTS
-------------------------------------------------------- Chapter 1:1.2
Numerous attempts have been made legislatively and by the executive
branch to reform federal regulatory processes. For example, Congress
enacted the following two regulatory reform initiatives in 1980: (1)
the Paperwork Reduction Act and (2) the Regulatory Flexibility Act.
As its name implies, the Paperwork Reduction Act attempted to
minimize the paperwork and reporting burdens agencies impose on
nonfederal entities. The act also established the Office of
Information and Regulatory Affairs (OIRA) within OMB to review and
approve all agency information collection activities. The Regulatory
Flexibility Act required agencies to assess the impact of their
regulations on small entities (e.g., businesses and governments) and
to publish their plans for new regulations. We have reported on the
effects these laws have had on agencies' regulatory programs and
recommended improvements to their design and implementation.\5
During the 104th Congress, numerous legislative initiatives have been
introduced that attempted to reform the regulatory process and/or
reduce businesses' regulatory burden. As of July 1996, at least
three major governmentwide reform initiatives had been enacted. The
Unfunded Mandates Reform Act of 1995 established a mechanism for
advising Congress of the nature and size of federal mandates in
proposed legislation or regulations to allow congressional
consideration of the appropriateness of such mandates on state,
local, or tribal governments or the private sector. As part of that
process, agencies are required to assess the anticipated costs and
benefits of federal mandates. The Paperwork Reduction Act of 1995
reaffirmed the principles of the 1980 Act, required OIRA to establish
governmentwide and agency-specific paperwork reduction goals,
redefined key terms such as "collection of information," and required
agencies to establish their own paperwork review and clearance
function. The Small Business Regulatory Enforcement Fairness Act of
1996 made several changes in regulatory procedures, including (1)
amending the Regulatory Flexibility Act to allow for judicial review
of agency decisions, (2) requiring the publication of "small entity
compliance guides" to explain the actions a small business or other
small entity must take to comply with a rule or a group of rules, and
(3) establishing a congressional review process through which
Congress can disapprove of final agency regulations. Some Members of
Congress viewed this review process as necessary because they
believed some agencies had issued regulations that went beyond the
intent of Congress when it passed the underlying statutes.
Every president in recent years also has taken steps intended to
reduce the burden of federal regulations. In 1981, President Reagan
issued Executive Order 12291, which gave OMB the authority to review
all new regulations for consistency with administration policies.
The order also required agencies to prepare a "regulatory impact
analysis" for each major rule, describing the costs, benefits, and
alternatives to the rule. In 1985, President Reagan issued Executive
Order 12498, which required agencies subject to Executive Order 12291
to submit a list of significant regulatory actions they expected to
propose during the upcoming year to OMB for clearance. The President
also established a Task Force on Regulatory Relief, headed by then
Vice President Bush. In turn, President Bush named his Vice
President to head the Competitiveness Council, which was charged with
advocating regulatory relief for business. In 1992, President Bush
sent a memorandum to all federal departments and agencies calling for
a 90-day moratorium on new proposed or final rules. During the
moratorium, agencies were ". . . to identify and accelerate action
on initiatives that will eliminate any unnecessary regulatory burden
or otherwise promote economic growth."
The Clinton administration has also made a number of attempts to
reform the federal regulatory process. Issued in September 1993,
Executive Order 12866 revoked Executive Orders 12291 and 12498 and,
among other things, established a number of "principles of
regulation" (e.g., use the best scientific, technical, economic, or
other information; specify performance objectives, not behaviors;
make regulations simple and easy to understand; and use cost-benefit
analysis and risk assessment) and reaffirmed the role of OMB in the
regulatory review process (although only for "significant" rules).\6
Vice President Gore's National Performance Review also made a number
of recommendations to improve the regulatory process, including (1)
encouraging innovative regulatory approaches and negotiated
rulemaking; (2) streamlining agency rulemaking procedures; and (3)
ranking the seriousness of environmental, health, or safety risks.\7
In March 1995, the President reiterated his interest in regulatory
reform, calling on all agencies to (1) conduct a page-by-page review
of all their regulations and eliminate or revise those outdated or in
need of reform; (2) change the performance measures of agencies and
regulators to focus on results, not process and punishment; (3)
convene groups of regulators and the people affected by their
regulations around the country and create "grassroots partnerships";
and (4) expand their efforts to promote consensual rulemaking.
During 1995 and early 1996, the President also announced regulatory
reform initiatives aimed at certain agencies or issues (e.g., the
environment, pensions, and cancer drugs) and announced other reforms
applicable to all federal agencies. For example, agencies were asked
to halve many of their reporting requirements, reduce penalties for
self-disclosed violations of certain regulations, and allow companies
to change processes for certain low-risk manufacturing operations
without agency preapproval.
--------------------
\5 Paperwork Reduction Act: Opportunity to Strengthen Government's
Management of Information and Technology (GAO/T-AIMD/GGD-94-126, May
19, 1994); Regulatory Flexibility Act: Status of Agencies'
Compliance (GAO/GGD-94-105, Apr. 27, 1994); and Paperwork Reduction:
Burden Reduction Goal Unlikely To Be Met (GAO/T-GGD/RCED-96-186, June
5, 1996).
\6 Executive Order 12866 also contained "general requirements" for
rulemaking, such as maximization of the net benefits to society and
selection of the least costly regulatory alternatives. For an
evaluation of certain elements of Executive Order 12866, see
Regulatory Reform: Implementation of the Regulatory Review Executive
Order (GAO/T-GGD-96-207, Sept. 25, 1996).
\7 From Red Tape to Results: Creating a Government That Works Better
and Costs Less, report of the National Performance Review, Vice
President Al Gore, Sept. 7, 1993, pp. 167 and 168, and the
accompanying report Improving Regulatory Systems, September 1993. We
commented on those recommendations in Management Reform:
Implementation of the National Performance Review's Recommendations
(GAO/OCG-95-1, Dec. 5, 1994), pp. 516-527.
MEASURES OF REGULATORY
ACTIVITY/BURDEN
-------------------------------------------------------- Chapter 1:1.3
The level of federal regulatory activity, and the burden placed on
businesses and others as a result of that activity, has been measured
in a number of ways. For example, a number of commentors have used
relatively simple, easy-to-understand indicators, such as the number
of pages in the CFR, the length of the CFR on the bookshelf, the
total weight of the rules, and even the length of all of the rules if
each sheet of paper were placed end to end.\8
Others have characterized federal regulatory burden in terms of
federal spending on regulatory programs or the number of federal
employees assigned to regulatory activities.\9 Although these types
of measures are relatively easy to develop and are appealing in some
respects, they are at best only relative and indirect measures of
regulatory burden and may not accurately reflect the difficulties
experienced by the public or individual businesses in complying with
federal regulations. These measures also require careful
interpretation.\10
Another indicator of regulatory burden that some analysts have used
is the number of hours federal agencies estimate are needed to fill
out their required paperwork.\11 Although a more direct measure of
regulatory burden than the measures previously described, a paperwork
hour estimate has several limitations as a measure of overall
regulatory burden. First, paperwork is but one element of the
overall burden of federal regulations, and paperwork burden does not
include other potentially relevant factors, such as labor costs
unrelated to paperwork or capital expenditures. Second, paperwork
burden is generally considered to be inaccurately measured. Not all
paperwork burden is always counted in the data that agencies submit
pursuant to the Paperwork Reduction Act, and many believe that the
paperwork burden that is measured is underestimated. Finally, users
of these paperwork estimates must be careful in their interpretation;
changes in the burden hour totals may not reflect changes in the
regulatory burden felt by businesses and individuals.\12
Another common measure of regulatory burden is the cost borne by
entities responsible for complying with the regulations involved.
Studies of the costs associated with federal regulations vary in such
terms as their scope (i.e., whether focused on individual businesses,
sectors, or the economy as a whole) and the factors they consider
(i.e., economic costs, social costs, paperwork costs, etc.). Types
of regulatory cost studies are discussed in detail in chapter 3 of
this report. Regardless of the nature of the study, though, the
results must be carefully interpreted.\13
--------------------
\8 When the President announced the results of agencies' regulatory
reinvention efforts in June 1995, he said the 16,000 pages of rules
being eliminated would stretch 5 miles if put end to end. He also
said that, as a result of those rules being eliminated, the federal
regulatory burden would be "lighter, specifically 39 pounds lighter."
\9 Melinda Warren, Regulation on the Rise: Analysis of the Federal
Budget for 1992, Occasional Paper No. 89. St Louis: Center for the
Study of American Business, Washington University, July 1991.
\10 We reported that although by some estimates federal spending on
regulatory programs had increased, those same estimates when compared
with increases in the gross domestic product have remained relatively
constant. See Regulatory Reform: Information on Costs,
Cost-Effectiveness, and Mandated Deadlines for Regulations
(GAO/PEMD-95-18BR, Mar. 8, 1995).
\11 The Paperwork Reduction Act requires agencies to submit requests
for information collections to OMB for approval before they are
carried out and when a previous OMB approval has expired. Agencies
usually develop an estimate of the average time each respondent would
need to spend to comply with that collection and the total number of
respondents who must comply with the collection requirement. Total
burden is measured by multiplying the average response time per
respondent by the expected number of respondents times the number of
responses required each year. OMB uses this information to prepare
an annual information collection budget that measures paperwork
requirements imposed on everyone outside of the federal government.
\12 In our report entitled Paperwork Reduction: Reported Burden Hour
Increases Reflect New Estimates, Not Actual Changes (GAO/PEMD-94-3,
Dec. 6, 1993), we noted that the burden hour estimate increased by
261 percent between 1987 and 1992--from more than 1.8 billion hours
to nearly 6.6 billion hours. However, most of this increase was due
to a Department of the Treasury reestimate of the time spent dealing
primarily with tax-related reporting and filing burdens, not the
imposition of new burdens.
\13 In Regulatory Burden: Recent Studies, Industry Issues, and
Agency Initiatives (GAO/GGD-94-28, Dec. 13, 1993), we reviewed
regulatory burden studies conducted by, or on behalf of, the federal
banking agencies and several of the major banking industry trade
associations. We found the estimates of regulatory compliance costs
to be of little value due to serious methodological problems evident
in these studies.
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:2
At the request of five Members of Congress,\14 we agreed to obtain
information about the cumulative impact of federal regulations on
selected businesses. Therefore, we focused our efforts on a limited
number of businesses that could help us understand the issues and
variables involved. Our specific objectives were to describe (1)
what selected businesses and federal agencies believed were the
federal regulations that applied to those businesses, (2) what those
businesses believed was the impact (cost and other) of those
regulations, and (3) the regulations those businesses said were most
problematic to them and relevant federal agencies' responses to those
concerns.
To accomplish these objectives, we first needed to identify the
businesses that would be the focus of our study. Because some of the
information we wanted to collect was proprietary in nature (e.g.,
information on the companies' operating expenses) or involved
regulatory enforcement actions that could be very sensitive, we
recognized that some companies might not want to participate in our
study unless their identities could be concealed. Therefore, we told
the businesses we contacted that we would not disclose their identity
unless we had their permission to do so or unless we were legally
compelled or required to do so by Congress. We asked for and
received pledges from our requesters that they would concur with and
honor our pledge of confidentiality, and that they would oppose
disclosure requests from other committees or Members of Congress.
The requesters agreed that, although they would have access to
summary data that would not identify individuals or firms, neither
they nor their staff would have access to the individual business'
responses.
We initially attempted to obtain nominations of businesses to
participate in our study from two types of organizations: (1)
business interest groups, including several that had testified before
Congress and/or made public comments criticizing federal regulations,
and (2) public interest groups, some of which had defended the need
for federal regulatory action. The five business interest groups we
contacted were the U.S. Chamber of Commerce, the National Federation
of Independent Businesses (NFIB), the National Association of
Manufacturers (NAM), the Chemical Manufacturers Association (CMA),
and the Greater Washington Board of Trade. The four public interest
groups we contacted were Public Citizen Litigation Group, OMB Watch,
Business for Social Responsibility (BSR), and Global Environmental
Management Initiative (GEMI). We initially contacted most of these
organizations during June through August 1994 and asked them to
nominate businesses that they believed would be good candidates for
our study.
Of these organizations, NAM and the Greater Washington Board of Trade
provided nominees for the study (three and six nominees,
respectively). Although the U.S. Chamber of Commerce initially
indicated it would be able to provide nominees for our study, several
months later a representative of the Chamber said that it would not
provide any nominees because of concerns its member companies had
about our ability to guarantee the confidentiality of their
responses. During several months of telephone calls, the NFIB
representatives said that they were not able to provide nominees
because their efforts were then directed toward other legislative
initiatives and priorities. GEMI's board of directors declined to
participate but did not provide a reason. BSR representatives
initially appeared interested in providing nominees for the review,
but they did not respond to any of our subsequent telephone calls.
CMA, Public Citizen, and OMB Watch initially agreed to try to
identify companies for us to contact, but we never received any
nominees from either organization.
Because we wanted to contact more companies than the interest groups
identified, we turned to other sources for potential study
participants. One such source was a list of companies that had
participated in a March 1994 forum on regulatory reform sponsored by
the Small Business Administration (SBA). SBA staff who worked on the
forum identified seven companies that they believed would be good
candidates for participation in our review, and we accepted the
nomination of another company from one of the SBA nominees. Another
source that we used to identify possible company participants (35
companies) was newspaper and magazine articles in which specific
companies commented either positively or negatively about federal
regulations or their federal regulatory experience. The periodicals
we reviewed to identify these companies included INC., Nation's
Business, The Wall Street Journal, and the ABA Banking Journal. We
also used a literature search to improve the diversity of our company
selections, focusing on articles about companies in certain
industrial categories and geographic areas that were not represented
by the other nominees. The combination of all of these methods
yielded a total of 51 companies as potential participants.
--------------------
\14 The Honorable Ted Stevens, Chairman, and the Honorable John
Glenn, Ranking Minority Member, Committee on Governmental Affairs,
U.S. Senate; the Honorable Peter Hoekstra, Chairman, Subcommittee on
Oversight and Investigations, Committee on Economic and Educational
Opportunities, House of Representatives; the Honorable Don Nickles,
U.S. Senate; and the Honorable Amory Houghton, Jr., House of
Representatives.
MANY COMPANIES WERE
RELUCTANT TO PARTICIPATE IN
THE STUDY
-------------------------------------------------------- Chapter 1:2.1
Before contacting the 51 company nominees, we developed a
standardized telephone interview guide as part of an initial
screening process to (1) provide consistent descriptions of the
purpose of our review, (2) collect preliminary information about the
companies' views regarding federal regulations, (3) explain the
confidentiality guarantees we were able to offer, and (4) determine
the companies' interest in participating in our study and their
ability to provide the information we needed.
Of the 51 company nominees we contacted, 8 did not respond to
repeated telephone calls made over the course of several months. Of
the remaining 43 companies, 16 declined to participate in the study
during the screening process. Officials from 12 of these 16
companies said they did not have the time or resources needed to
participate in our study. Two companies' officials said they did not
have the kinds of documentation we were seeking. The other two
companies did not specify the reason for their decision not to
participate. Some companies decided not to participate in the study
after we had been in discussions with them for several months.
We then sent each of the 27 companies that agreed to participate in
the study a standardized interview guide we developed for use in our
site visits. The interview guide included an overall description of
the study, a list of the questions we intended to ask, and
definitions of what regulations and regulatory costs would and would
not be considered applicable in the study. (See app. I for a
reprint of this interview guide.) We asked that the companies review
the guide's instructions and prepare the requested information in
advance of our visit.
Of the 27 companies that initially agreed to participate in the
study, 10 withdrew before we could visit them and collect any
detailed information. These companies cited a variety of reasons for
their withdrawal, such as a lack of resources needed to participate
in the study, the review's data requirements, and company personnel
problems. Of the remaining 17 companies, we selected 15 for
inclusion in the study. We did not select one company because of its
remote geographic location, and another company was not chosen
because we had already selected other companies in the same industry.
Ten of the 15 companies requested that we not disclose their
identity. Whenever we discussed those companies with federal
regulators and whenever those companies are referred to in this
report, we used 10 generic company descriptors. Those 10 descriptors
are listed below:
-- a federally chartered community bank ("Bank A"),
-- a state-chartered community bank ("Bank B"),
-- a large commercial bank ("Bank C"),
-- a large teaching hospital ("hospital"),
-- a manufacturer of railway tank cars ("tank car company"),
-- a manufacturer of flexible plastic packaging ("packaging
manufacturer"),
-- a manufacturer of consumer glassware and fiber optic systems
("glass company"),
-- a manufacturer of paper and allied products ("paper company"),
-- a tropical fish farm ("fish farm"), and
-- a producer of crude oil and natural gas ("petrochemical
company").
The following five companies allowed us to use their names.
-- Metro Machine Corporation, a ship repair and maintenance company
located in Norfolk, VA, with 850 employees;
-- Minco Technologies Labs, Inc., a computer chip testing company
located in Austin, TX, with 129 employees;
-- Multiplex Company, Inc., a beverage dispenser equipment
manufacturer headquartered in St. Louis, MO, with 217
employees;
-- Roadway Services, Inc., a transportation and logistics company
headquartered in Akron, OH, with about 50,000 employees; and
-- Zaclon, Inc., a chemical manufacturing company located in
Cleveland, OH, with 52 employees.
Table 1.1 shows the distribution of all 15 participating companies by
size and industry category. We defined a company as small if it had
49 or fewer employees, medium if it had from 50 to 249 employees, and
large if it had 250 or more employees. The industry category
groupings are the nine major Standard Industrial Classifications
defined by the Department of Labor (DOL). As table 1.1 indicates,
larger manufacturing companies constitute the largest proportion of
participating companies while companies with few employees and
companies in the services, transportation, agriculture, and mining
industries constitute the smallest proportion of participating
companies.
Table 1.1
Number of Companies Participating in the
GAO Review, by Industry Category and
Size
Small Medium Large Total
(49 or (50- (250 or (by
Industry category fewer) 249) more) category)
------------------------- ---------- ------ ---------- -----------
Services 0 0 1 1
Finance, insurance, and 1 1 1 3
real estate
Manufacturing 0 4 4 8
Retail trade 0 0 0 0
Transportation and public 0 0 1 1
utilities
Wholesale trade 0 0 0 0
Construction 0 0 0 0
Agriculture, forestry, 0 1 0 1
and fisheries
Mining 0 0 1 1
======================================================================
Total (by size) 1 6 8 15
----------------------------------------------------------------------
The 15 companies that participated in the review were geographically
dispersed. They were located in California, the District of
Columbia, Florida, Illinois, Iowa, Missouri, New York, Ohio,
Tennessee, Texas, and Virginia.
COLLECTION OF INFORMATION
FROM THE COMPANIES
-------------------------------------------------------- Chapter 1:2.2
Using our standardized interview guide developed for the site visits,
we visited 14 of the 15 companies, interviewed company officials, and
obtained any available supporting documentation.\15
Specifically, we asked each company for information on (1) the
aggregate list of regulations with which the company must comply, (2)
the aggregate impact (cost and other) of all of those regulations on
the company, (3) the regulations the company viewed as most
problematic, (4) what the company believed government and businesses
could do to correct or mitigate those problematic regulations, and
(5) what the company viewed as the benefits of federal regulations.
After our discussions with the companies, we developed written
summaries of the concerns they expressed about problematic
regulations, sent them to the companies for their review and
correction, and obtained their written agreement that the summaries
accurately portrayed the concerns they expressed. Subsequently, the
companies also reviewed and approved any other information in our
report that we attributed to a named company.
The companies provided more than 100 usable examples of regulations
or regulatory actions that they considered problematic.\16 To present
a general summary of those concerns, we coded each concern according
to 10 recurring themes that we developed by analyzing the companies'
comments. (See ch. 4 for a discussion of these 10 themes.) Most of
the companies' concerns contained expressions of more than one theme.
To verify our coding, we had a staff reviewer, who was otherwise not
involved in the job, select a random sample of about 26 percent of
the concerns (29 of 111 concerns) and independently code each concern
using our original theme definitions. The independent reviewer
agreed with our original determinations as to whether a theme was
present in more than 90 percent of the cases.
--------------------
\15 We did not visit one company because we were able to collect
information by telephone and facsimile.
\16 Some of the companies' concerns were not usable because they were
too general (e.g., "too many regulations"). Other company concerns
were eliminated because they were not concerns about federal
regulations.
AGENCY INFORMATION
COLLECTION METHODOLOGY
-------------------------------------------------------- Chapter 1:2.3
We provided the verified summaries of the companies' regulatory
concerns to the appropriate federal regulatory agencies for their
review and comment. The following agencies responded to the
companies' concerns:
-- Board of Governors of the Federal Reserve System;
-- Department of Health and Human Services' (HHS) Food and Drug
Administration (FDA) and Health Care Financing Administration
(HCFA);
-- Department of Housing and Urban Development (HUD);
-- Department of the Interior's Fish and Wildlife Service;
-- Department of Justice (DOJ);
-- Department of Labor's Occupational Safety and Health
Administration, Employment Standards Administration's (ESA), and
Pension and Welfare Benefits Administration (PWBA);
-- Department of Transportation (DOT);
-- Department of the Treasury's Financial Crimes Enforcement
Network (FinCEN) and Internal Revenue Service (IRS);
-- Environmental Protection Agency;
-- Equal Employment Opportunity Commission (EEOC);
-- Federal Deposit Insurance Corporation (FDIC);
-- Federal Emergency Management Agency;
-- Office of the Comptroller of the Currency (OCC);
-- Pension Benefit Guaranty Corporation (PBGC); and
-- United States Sentencing Commission (USSC).
Each agency was allowed to decide how it would respond to the
companies' regulatory concerns. We used a content analysis, which
was similar to the one we used for the companies' concerns, to code
each of the agencies' responses to one of nine recurring themes to
allow summarization of those responses. The agency response coding
was also independently reviewed by a staff reviewer to ensure
accuracy and consistency.
We also asked the agencies to identify which of their regulations
were applicable to each of the selected companies. However, several
of the regulatory agencies said developing a regulatory inventory for
each company would be very time consuming and would require detailed
information about the companies. Because 10 of the 15 companies
requested anonymity, and because detailed information (location,
industry, and size) could lead to identification of those companies,
we could not provide the agencies with the information they said they
needed to identify the companies' responsibilities. Therefore, we
asked several of the regulatory agencies to identify (1) the general
types of company information they would need to determine which of
their regulations would apply to a specific company (i.e., regulatory
determinants) and (2) the types of assistance they provide to
businesses to help them identify their regulatory responsibilities
and how to comply with those responsibilities (i.e., informational
mechanisms). We also asked three of the agencies--EPA, DOL, and
EEOC--to identify their regulatory responsibilities for two of the
companies that did not request anonymity--Minco Technologies Lab,
Inc., and Zaclon, Inc.
REVIEW LIMITATIONS
-------------------------------------------------------- Chapter 1:2.4
The methodology we used in this study--focusing on a small group of
nonrandomly selected businesses--prevents us from drawing statistical
generalizations from the information we obtained. The 15 companies
we selected were generally those that (1) were identified by interest
groups, SBA officials, or in the literature and (2) were willing to
participate in our study and to provide the information we requested.
Therefore, we make no inferences about the representativeness of
their responses to how other companies would respond. For example,
even though 8 of our 15 companies were manufacturers, we cannot
conclude that their responses are typical of how other manufacturing
companies would have responded. However, the comments the companies
we contacted made during this study were similar in many respects to
comments made by companies in some of our previous reports and in the
literature.\17 Therefore, we believe that these 15 companies are not
atypical and their comments and experiences provide insights
regarding issues common to organizations beyond the limited sample of
companies.
Because the purpose of our review was to determine businesses' and
federal agencies' views regarding regulatory issues, we did not
collect information from individuals and organizations outside of
those groups. For example, we did not discuss companies' regulatory
responsibilities or their regulatory concerns with labor unions or
other employee organizations. Neither did we collect information
from individuals and organizations that were the potential
beneficiaries of the regulations cited by the companies as
problematic. Collecting the views of all such organizations for all
of the regulations cited in this report would have been difficult, if
not impossible. Therefore, this report does not reflect the full
range of opinions that may exist regarding the issues raised during
this review. However, it does reflect the views of the two
stakeholders in which we were most interested--certain elements of
the regulated community and the regulators themselves.
One of our objectives was to describe what the selected businesses
believed was the impact (cost and other) of all existing federal
regulations that applied to them. This portion of the study does not
address the development of cost or cost-benefit analysis information
for individual regulations, such as the analyses agencies are
required to perform under Executive Order 12866.
Although we attempted to obtain documentation wherever possible, we
were unable to verify most of the data companies provided on the cost
of regulatory compliance, their regulatory concerns, and other
issues. Companies frequently provided little documentation to
support their cost estimates, and we had no basis to judge whether
the costs they identified were reasonable, comparable to costs
incurred by similar companies, or even whether such costs were, in
fact, the direct result of a specific federal regulatory requirement.
Neither did we evaluate the accuracy of the information we obtained
from federal regulatory agencies. Our approach was to present the
views of both the businesses and the agencies without attempting to
resolve the many differences in opinions or attempting to
independently determine whether sufficient evidence was available to
support either view.
In this report, when we indicate that "some" of the companies met a
certain condition, we mean that at least three and no more than five
companies met that condition. When we use the term "many companies"
we mean either 6 or 7 companies, and the term "most companies" refers
to between 8 and 14 companies.
We conducted our review from June 1994 to July 1996 in accordance
with generally accepted government auditing standards. We invited
comments on a draft of this report from the OIRA Administrator
because of OIRA's governmentwide regulatory responsibilities, but an
OIRA official said OIRA had no comments. We also invited comments
from the top officials or their designees in the previously listed 19
federal departments and agencies responsible for the companies'
federal regulatory concerns. Between August 19, 1996, and September
19, 1996, we received comments from top officials or their designees
in 13 of these 19 departments and agencies, but officials from the
Board of Governors of the Federal Reserve System, FDA, HUD, the
Department of the Interior's Fish and Wildlife Service, the Federal
Emergency Management Agency, and USSC said they had no comments. In
general, the agencies' comments indicated that the report was an
accurate characterization of their regulatory operations and their
positions regarding the companies' concerns. Most of the agencies
suggested technical corrections or additions of text, which were
incorporated as appropriate.
--------------------
\17 Workplace Regulation: Information on Selected Employer and Union
Experiences (GAO/HEHS-94-138, June 30, 1994).
COMPANIES AND AGENCIES HAD
DIFFICULTY DEVELOPING LISTS OF
APPLICABLE REGULATIONS
============================================================ Chapter 2
As noted in chapter 1, representatives from both government and
industry have described federal regulatory burden in terms of the
sheer volume of regulations with which businesses and other regulated
entities must comply. Several of the companies participating in this
review also made such comments to us in the course of our discussions
with them. For example, an official from the fish farm compared the
range of regulatory requirements to "getting pecked to death by
ducks--each bite may not hurt, but all together they are very
painful."
In recognition of the large number of federal regulations and the
burden they impose, an element of both the Clinton administration's
and Congress' recent regulatory reform initiatives has been the
review of existing regulations and, where possible, the elimination
of certain requirements. Although the total number of regulations is
only a rough indication of regulatory burden, developing an inventory
of those requirements is the first step in developing an accurate
measure of an organization's regulatory burden. Therefore, we asked
the companies participating in this review to develop a list of all
of the federal regulations with which they had to comply at the time
of our review. We also asked a number of federal regulatory agencies
to identify which of their regulations they believed were applicable
to those businesses.
NONE OF THE COMPANIES PROVIDED
A COMPLETE LIST OF REGULATIONS
---------------------------------------------------------- Chapter 2:1
We generally provided the companies with a copy of our data
collection instrument several weeks in advance of our visit, and each
company agreed to develop a list of regulations applicable to their
firm.\1 We recognized that, in preparing such a list, the companies
might find it difficult to identify the specific names or legal
citations of regulations. Therefore, we told the businesses that
their list of applicable regulations should, at a minimum, cite the
major federal statutes governing the regulations. For example, we
said the list of statutes in the health and safety area of workplace
regulations might include the Occupational Safety and Health Act or
the Drug Free Workplace Act. We also said that other categories of
workplace regulations could include labor standards (e.g., the Fair
Labor Standards Act); employee benefits (e.g., Employee Retirement
Income Security Act (ERISA)); civil rights (e.g., title VII of the
Civil Rights Act of 1964); and labor relations (e.g., the National
Labor Relations Act). Finally, we noted that other categories of
regulations (e.g., environmental and tax regulations) could also be
listed.
We told the companies not to include certain types of regulations on
their lists, such as federal regulations that had been proposed but
had not been published as a final rule. We also said that they
should not include state or local regulations, but we said that any
state or local requirement that they believed was mandated by federal
law or regulation should be included.
Although all 15 of the companies participating in the review
identified at least some regulations that they believed were
applicable to their organizations, none of the companies provided us
with a complete list of applicable federal regulations. The
companies' lists varied substantially in the degree to which they
covered the general regulatory areas that would probably be
applicable to the companies (e.g., tax, wage and hour, and workplace
rules). Several companies listed regulations in only certain
functional areas or for certain agencies. For example, officials
from the paper company identified what they believed were applicable
environmental, health and safety, and transportation
regulations--areas that they said were their company's greatest
concern. However, they did not identify any regulations in the
employee benefits, civil rights, labor relations, or tax areas. Some
companies provided what they described as a partial list of
regulations and indicated they would provide additional information,
but never did so. Two companies' lists reflected only the
problematic regulations we asked them to identify for another portion
of this review. (See ch. 4 of this report.) Although officials from
several companies said they believed their lists contained 75 to 90
percent of the regulations applicable to them, most of the companies'
officials acknowledged that their lists were incomplete.
The companies' lists also varied in the level of detail they
provided. Some companies identified only broad regulatory areas or
general regulatory requirements (e.g., "workmen's compensation" or
"IRS") but other companies' lists were more specific. For example,
one section of Roadway's list focused on civil rights and employee
benefits. Within that section, the company officials cited title VII
of the Civil Rights Act of 1964 and listed its associated
regulations--29 C.F.R. Parts 1601 and 1602 (Subparts A-E) and 29
C.F.R. Parts 1604-1606, 1608, and 1610-1612.
Most of the companies did not maintain lists of applicable
regulations, so they had to compile the information they provided in
response to our request. Although officials from each company told
us they would prepare a list of applicable regulations, several
companies had not done so at the time of our site visit. Other
companies made a more extensive effort to respond to our requests for
information. For example, a number of officers and staff within
Roadway conducted research and developed documentation. The hospital
provided several lists of applicable regulations, one that the
administrative staff had developed covering a variety of issues and
another from hospital health protection staff.
A few companies compiled the information we requested on the basis of
lists of regulations that had been previously developed for certain
areas of their operations. However, even these lists were not
comprehensive. For example, the petrochemical company had developed
a list of environmental, workplace safety, and other regulations for
use by their internal auditing staff. However, company officials
told us that the list was not necessarily complete. The paper
company used an EPA publication entitled Federal Environmental
Regulations Potentially Affecting the Commercial Printing Industry.
However, company officials noted that this document contained a
disclaimer that said it should "not be relied on by companies in the
printing industry to determine applicable regulatory requirements."
--------------------
\1 See appendix I for a reprint of the data collection instrument.
COMPANIES CITED VARIOUS
REASONS FOR INCOMPLETE LISTS
OF REGULATIONS
-------------------------------------------------------- Chapter 2:1.1
Some of the companies said it was difficult for them to produce a
complete list of applicable regulations because they had limited
resources and higher priorities. For example, Multiplex officials
said that to compile a complete list of regulations would "use so
much time and so many resources that it would be a burden on the
company and adversely affect its business operations." Bank C's
official said the bank could not devote the time and staff resources
needed to produce a complete list of regulations due to higher
priority bank-related work. We recognized that producing an
aggregate list of regulations would be an expensive and
time-intensive endeavor because of the complex analysis required to
identify every regulation affecting the business.
Some of the companies also said that some federal regulatory
requirements were hard to identify because they had become part of
the companies' standard procedures. For example, Roadway's officials
said that developing a comprehensive list of regulations was
difficult because many regulations have been around for so long they
are now part of everyday operations of the company. Officials from
the fish farm said that some regulatory requirements (e.g., payroll
recordkeeping standards) are now considered part of their everyday
business operations. The officials also said that some outside
organizations (e.g., insurance companies) require the company to
follow certain safety procedures, and they were not sure whether
those procedures were also required by regulations. Officials from
the petrochemical company said regulations often cause a fundamental
shift in business processes that later becomes less distinctive. The
officials noted that industry incurred start-up costs associated with
the requirement to produce unleaded gasoline, but because the entire
industry was required to be in compliance the identification and
capture of these costs became less relevant over time.
Some of the companies also said it was difficult to distinguish
between federal requirements and those of other governmental
jurisdictions. Officials from the paper company said making this
distinction was "difficult, if not impossible." The petrochemical
company indicated that it was particularly difficult to separate the
requirements when state or local governments enforce federal
standards and can add additional requirements. One California
company noted that all OSHA regulations and many EPA regulations are
enforced by the state, and that California often adds stricter state
requirements.
The companies also cited other reasons why their lists of applicable
regulations were incomplete or difficult to compile. For example, a
fish farm official said that the regulators themselves are sometimes
unable to inform the company of all applicable regulations.
Petrochemical company officials were reluctant to characterize their
list as complete because of a concern that if a regulator saw certain
requirements missing from their list they might assume the company
was not complying with the missing regulations and pursue some type
of enforcement action against the company. Other companies simply
noted that their lists were incomplete, but did not provide a reason
for this characterization.
AGENCIES HAD DIFFICULTY
PROVIDING LISTS OF APPLICABLE
REGULATIONS
---------------------------------------------------------- Chapter 2:2
We also planned to ask each of the agencies whose regulations were
cited by the companies to provide a list of regulations applicable to
each of the companies. However, officials from several of the
agencies we initially contacted said they could not provide such
lists without first obtaining a great deal of specific information
about the company. For example, a DOT official said that the agency
would need such information as whether the company uses rail
transportation, the types of material the company transports, and the
nature of the business enterprise (e.g., whether it was a partnership
or a corporation). IRS officials said they would need to know
whether the business was privately or publicly held, whether it
imported or exported materials or products, and whether it had
foreign as well as domestic operations. The IRS officials said
operational and administrative decisions made throughout the
existence of the companies affect their tax status and, therefore,
the applicable tax regulations.
EPA officials also said that the collection of the information they
needed to identify applicable regulations would require a large
expenditure of resources at a time when their budget was uncertain.
The officials said they would have to conduct a site visit at each
company to identify their applicable regulations.
Another reason we did not ask the agencies to provide lists of
regulations for each of the participating companies was that 10 of
the 15 participating companies wanted to remain anonymous.
Therefore, the agencies could not contact them directly to collect
information, and we could not provide the agencies with detailed
information about the companies (e.g., industry, size, location,
etc.) that could disclose their identities.
Because we were unable to receive lists of applicable regulations
from the agencies, we changed the nature of our inquiry to focus on
three related issues. First, we asked 17 of the regulatory agencies
that the companies had cited in their lists of regulations to
describe the kinds of information they needed to be able to determine
the applicability of their regulations to a particular company.
Second, we asked each of these agencies to describe the kinds of
assistance they provide to companies to help them determine which
regulations were applicable to them and how to comply with the
regulations. Finally, we asked six agencies and offices to identify
which of their regulations were applicable to two of the
participating companies that had not asked for anonymity.
AGENCIES' DETERMINANTS OF
REGULATORY COVERAGE VARIED
-------------------------------------------------------- Chapter 2:2.1
Fifteen agencies provided information on their regulatory
determinants. Officials from many of the 15 agencies said that
unique characteristics of a business or a business activity determine
whether their regulations are applicable to that business. See the
following examples of agencies' regulatory determinants.
-- DOT officials said that the applicability of its regulations
generally varied by industry, transportation mode, location, and
other factors, including the type of material being shipped and
the nature and ownership of the transportation firm.
-- OCC officials said that a bank's specific activities determined
the applicability of its regulations. Similarly, the Federal
Reserve Board's (FRB) officials said that coverage of its
regulations "is determined by either the nature of a particular
company or the nature of the activities in which a particular
company engages or intends to engage."
-- EPA officials said that "there is no single set of regulatory
determinants that would cover all situations in which a facility
may be covered by EPA's regulations. Many of our regulations
are event driven, some factors are related to facility location,
and many regulations are triggered by physical and operational
characteristics of a particular facility."
-- IRS officials said it was difficult to come up with criteria for
the development of a list of regulations applicable to a
particular company because of decisions that companies make in
the course of their business. For example, IRS officials said
that if a company chooses to provide a qualified retirement
plan, it must comply with the statutory provisions and
regulations applicable to such plans.
-- OSHA's officials said that it "regulates occupational safety and
health hazards, not specific industries." Therefore, the
"applicability of individual standards depends on whether or not
the hazard addressed by the standard is present in the
workplace."\2
Officials from DOL indicated that companies' specific reporting
requirements also varied according to specific criteria. For
example, the officials said that the requirements for the Form 5500
used by employee benefit plan administrators to satisfy their
reporting obligations under title I of ERISA, title IV of ERISA, and
the Internal Revenue Code depend on (1) the type of plan (i.e.,
whether the plan is a pension or welfare plan); (2) the size of the
plan (i.e., whether the plan has fewer than 100 participants or 100
or more participants); and (3) how the benefits are funded (i.e.,
through a trust or insurance or from the general assets of the
employer).\3
On the other hand, some agencies' officials said that determining the
applicability of their regulations is relatively straightforward.
See the following examples:
-- EEOC officials said that, with the exception of reporting
requirements, EEOC regulations apply to all entities covered by
the statutes it enforces, and the officials indicated that the
applicability of those statutes is primarily a function of
company size. For example, EEOC officials said that title VII
of the Civil Rights Act of 1964 and the Americans with
Disabilities Act (ADA) apply to any company with 15 or more
employees. The officials also said that the Age Discrimination
in Employment Act (ADEA) applies to all employers with 20 or
more employees. According to the officials, any private
employer with 100 or more employees must complete their EEO-1
reporting form indicating the race, ethnicity, and sex of
employees by job category.\4
-- Officials from the Office of Federal Contract Compliance
Programs (OFCCP) in DOL said Executive Order 11246, which OFCCP
administers, applies only to contractors and subcontractors who
perform government contracts that total at least $10,000 in a
12-month period. However, the officials said that
nonconstruction contractors with 50 or more employees and
contracts greater than $50,000 have additional obligations.
-- The PBGC officials said PBGC's insurance program and regulations
apply only with respect to defined benefit pension plans as
described in section 4021 of ERISA. The agency officials said
that section 4021 generally covers all defined benefit pension
plans voluntarily established by private sector employers, and
specifically states what plans are excluded from coverage.
-- The FDIC officials said that coverage by FDIC regulations "is
determined basically by whether an institution is FDIC-insured,
and as a subset of that status, whether the institution is an
insured nonmember bank for which the FDIC has primary
supervisory responsibility at the federal level."
--------------------
\2 However, OSHA went on to say that "(d)etermining which standards
apply to a particular worksite can be done easily (by a regulated
business) through a process of elimination. For example, if an
employer is engaged in retail trade or service and does not have
compressed gases, flammables, or explosives on his or her premises,
the employer can eliminate Hazardous Materials (29 C.F.R. 1910,
Subpart H) as not applying to his or her business."
\3 Medical, surgical, hospital care, vacation, and scholarship
benefits are among those that may be offered by a welfare plan.
\4 EEOC officials noted that federal contractors and subcontractors
are covered by other regulatory requirements.
AGENCY INFORMATIONAL
MECHANISMS VARIED
-------------------------------------------------------- Chapter 2:2.2
Sixteen agencies described how they provide information to companies
and the public on their regulatory requirements. Most of the
agencies identified telephone numbers and listed various
publications, handouts, brochures, informational pamphlets, and
notifications containing regulatory information. Half of these
agencies had or were developing (1) special programs to communicate
regulatory requirements to affected businesses and (2) outreach
efforts to gather feedback on their regulatory requirements. Six
agencies indicated that they used some type of electronic bulletin
board as an informational mechanism.
OSHA described a variety of informational resources and programs,
including the following examples:
-- more than 80 different publications available from OSHA's
Publications Office, some of which were also available in OSHA's
100 field offices;
-- safety and health standards in CD-ROM format (available for
purchase from the Government Printing Office) containing all
OSHA standards, compliance directives, and standards
interpretations;
-- a DOL-operated Labor News Electronic Bulletin Board and an OSHA
Computer Information System accessible through the Internet,
which contains some of the information on the CD-ROM;
-- the OSHA Consultation Program, which offers free, on-site,
expert assistance to small employers in all 50 states to help
them comply with OSHA requirements and establish effective
safety and health programs (according to OSHA, more than 100,000
employers have used this service and priority is given to small
firms in high-hazard businesses); and
-- courses on specific safety and health issues for employers who
want intensive information about specific safety and health
issues at OSHA's Training Institute in Des Plaines, IL, and at
OSHA Education Centers in 12 states.
OSHA's officials said OSHA is also piloting several other ways to use
computer technology to provide assistance to employers, including the
development of interactive compliance tools.
EPA also cited dozens of sources of information about its
regulations, including brochures, pamphlets, fact sheets, booklets,
letters, hotlines, regional contact numbers, guidance manuals,
posters, question and answer sheets, and catalogues of informational
materials. EPA listed informational sources for each of its program
offices and, within those offices, the sources were also often
differentiated by issue. For example, the Office of Prevention,
Pesticides and Toxic Substances said it had many of the informational
modes listed above as well as information lines for pesticide
questions, "PR Notices" providing detailed information to regulated
industries, registration kits for those interested in how to register
new pesticide products, and outreach efforts to help growers that
rely on minor use pesticides. Among the initiatives EPA particularly
noted were the following:
-- Compliance assistance centers were being established by EPA's
Office of Compliance for four industry sectors--automotive,
metal finishing, printing, and agriculture. EPA officials said
the centers offer "one-stop shopping" for understandable
guidance materials, waste minimization and pollution prevention
assistance, and advice in reducing regulatory compliance costs.
-- Sector Notebooks, which are profiles of 18 industries (e.g.,
metal fabrication, petroleum refining, and printing), were
designed to assist firms in understanding what multimedia
regulations apply to them. Each profile includes, among other
things, applicable federal statutes and regulations as well as
compliance assistance information. Notebooks are available
through the Government Printing Office and on an electronic
bulletin board.
-- The Office of the Small Business Ombudsman was established to
provide a variety of information mechanisms to help
communication between the small business community and EPA. EPA
officials said the Office has a hotline service that receives
nearly 20,000 calls per year, serves as the "one-stop shop" for
EPA technical assistance and information, maintains an informal
dialogue with over 45 trade associations, and advocates small
business positions inside EPA.
EPA also described the mechanisms one of its regional offices (Kansas
City) used to communicate regulatory information to the public,
including an Agricultural Compliance Assistance Center, public
meetings and workshops, "availability sessions" in which regional
staff privately meet with citizens one-on-one to discuss issues,
state- and trade association-sponsored meetings, mass mailings,
public speaking, a toll-free Action Line, and an Iowa RCRA Hazardous
Waste Helpline.
Other agencies cited many of the same kinds of mechanisms. According
to its officials, EEOC (1) conducted training and outreach seminars
during fiscal year 1993 that reached an estimated 4,000 private
sector employers and more than 94,000 individuals; (2) published and
distributed millions of copies of training materials; (3) mailed out
477,933 publications during the first three quarters of fiscal year
1995; and (4) responded to thousands of public inquiries per year.
DOT's officials said DOT public information efforts include
electronic bulletin boards, toll-free hotlines, free guidance
materials, news releases, mailing lists, and briefings to industry
associations. The DOJ officials cited their toll-free ADA
Information Line; technical assistance materials; a computer bulletin
board and Internet connections; a speakers' bureau, which provides
technical assistance at about 120 events each year; more than 40
technical assistance grants to trade associations; an ADA Information
File containing more than 30 technical assistance publications placed
in 15,000 public libraries throughout the country; and informational
notices about the ADA, which are distributed to 6 million businesses
through IRS' quarterly mailing to employers.
REGULATORY INFORMATION
RELIES ON BUSINESSES'
INITIATIVE, APPEARS
FRAGMENTED
-------------------------------------------------------- Chapter 2:2.3
Some of the agencies' regulatory informational mechanisms are
proactive, providing information to businesses and others at the
agencies' initiative. However, many agencies, if not most, require
businesses to take the initiative in obtaining compliance
information. For example, OSHA officials said that although the
agency offered a variety of informational mechanisms, it was up to
each business to understand its own regulatory compliance
responsibilities.\5 However, the businesses that we talked to
sometimes indicated a reluctance to approach regulatory agencies for
information. For example, an official from Minco said that it was
difficult to stay aware of the changes in regulatory requirements
because they could not ask "enforcers" to provide information without
potentially calling Minco's actions into question. Other indications
of the businesses' reluctance to address regulators directly were the
decisions by 10 of the 15 companies to remain anonymous during this
review.
Also, it is not always readily apparent to businesses which agency of
the federal bureaucracy is responsible for a particular program. For
example, DOJ officials explained that the ADA defines separate
responsibilities for EEOC and DOJ. EEOC provides information about
ADA employment regulations, but information about titles II and III
of the act (architectural barriers) is available only from DOJ\6 .
Sometimes multiple information sources exist within a particular
agency, with businesses frequently required to make more than one
contact to gather information about that agency's regulatory
requirements. As previously noted, EPA listed informational
mechanisms by program office--Air and Radiation; Prevention,
Pesticides, and Toxic Substances; Solid Waste and Emergency Response;
and Water--as well as within a regional office. Therefore, a
business would need to be aware of EPA's structure and programmatic
configuration to obtain information about all EPA programs. However,
EPA has taken some steps to consolidate this information by providing
single points of contact for small businesses in its Small Business
Ombudsman office and compliance assistance centers for certain
industries.
--------------------
\5 OSHA officials also said that one of their informational
mechanisms was a nationwide small business compliance consultation
program.
\6 DOJ officials later noted that although the statute defines
separate roles for EEOC and DOJ, it also provides for technical
assistance coordination and, as a result of their efforts, the public
is being referred to the appropriate agency.
SEVERAL AGENCIES RECENTLY
DEVELOPED INNOVATIVE
INFORMATIONAL MECHANISMS
-------------------------------------------------------- Chapter 2:2.4
Some agencies are attempting to develop methods by which businesses
can obtain information about regulatory requirements and other topics
in a more efficient and understandable way. For example, in June
1995, the President asked SBA to cochair an effort to make government
information more accessible to government customers. SBA developed
the idea of a World Wide Web site on the Internet that would, among
other things, allow companies to know what federal regulations apply
to their operations. Working with the Lawrence Livermore National
Laboratory, the University of Massachusetts, and more than two dozen
federal departments and agencies, SBA developed the "U.S. Business
Advisor" home page, a version of which was formally unveiled in
February 1996.\7 Using the Advisor, businesses can access a
regulatory assistance center to search an electronic database of
current and proposed regulations within particular subject areas.
For example, a business can type in the term "chlorine production"
and get a listing of chlorine-related regulations and proposed
regulations. Businesses can also use the Advisor to obtain the full
text of the current or proposed rule. SBA officials said the Advisor
is still being developed, and they hope that future iterations will
be even more user-friendly.
Some agencies are developing their own World Wide Web sites on the
Internet with regard to particular issues. For example, in October
1995, OSHA worked with the business community to create an on-line
"asbestos advisor" program that helps businesses determine whether
their company is complying with regulations on asbestos exposure.\8
The program solicits information about users' workplaces and tasks,
and automatically provides guidance to ensure compliance. As of July
1996, more than 6,100 people had downloaded copies of the program.
OSHA said that because of further distribution of the asbestos
advisor by major corporations and trade associations, actual
circulation could be 10 times greater than the number of downloaded
copies. OSHA has developed on-line advisors for other standards
(e.g., permit-required confined spaces and cadmium) and plans to
create other interactive expert advisors on other issues (e.g., lead
in construction and control of hazardous energy sources). DOL
officials said the Department has also developed an Internet web site
that includes copies of its statutes and regulations and a small
business handbook that provides information about all DOL workplace
requirements in nontechnical language.
--------------------
\7 The Internet address for the U.S. Business Advisor is
http://www.business.gov.
\8 The Internet address for the asbestos advisor is
http://www.osha.gov.
REGULATIONS APPLICABLE TO
TWO COMPANIES OFTEN DIFFERED
-------------------------------------------------------- Chapter 2:2.5
We asked EPA, EEOC, and four agencies and offices within DOL--OSHA,
PWBA, and the Wage and Hour Division and OFCCP within ESA--to
identify which of their regulations were applicable to two of the
companies participating in this review--Minco and Zaclon. Neither of
these two companies requested anonymity, and they agreed to provide
any information needed by the agencies in determining their
applicable regulations. Minco is located in Austin, TX; has 129
employees; and is a federal subcontractor that tests computer chips
for federal contractors involved in military, space, and medical
industries. Zaclon is located in Cleveland, OH; has 52 employees;
and manufactures organic and inorganic chemical compounds.
Officials from some of the agencies we contacted initially expressed
concerns about providing a list of regulations applicable to the
companies. For example, EPA officials said that if the list was
incomplete in any way (e.g., because new regulations were issued
after they provided a list or because EPA did not know about an
element of a company's operations that was covered by its
regulations), the absence of a regulation from its list could be
construed to mean that the company did not legally have to comply
with that requirement. An official at OSHA questioned whether
developing a list of applicable regulations was a useful method to
measure the impact of OSHA's regulatory requirements. The official
said that a list of all OSHA regulations a company must comply with
could appear extensive, but would not provide any information on the
beneficial results produced by these requirements. The official also
said that this exercise might create an unfair impression of OSHA
outreach efforts or a company's knowledge of its regulatory
responsibilities.
Despite these concerns, EPA, EEOC, and each of the four DOL agencies
provided a list of regulations they said were applicable to the
companies. Several of the agencies indicated that the two companies'
regulatory responsibilities varied substantially. One indicated that
the companies' regulatory responsibilities were the same in some
respects and different in others. One agency said the two companies'
responsibilities were the same in all respects.
EPA REGULATIONS
------------------------------------------------------ Chapter 2:2.5.1
EPA limited its description of applicable regulations to four major
environmental statutes--RCRA, CAA, CWA, and TSCA. The agency also
emphasized that its observations were not meant to indicate there had
been a formal compliance review or audit of the companies and,
therefore, its observations were not an explicit or implied
assessment of the companies' compliance status. With regard to
Minco, EPA officials said that the company is not regulated at the
federal level with regard to any of the above-mentioned statutes
because it has no air permits, does not formulate new or existing
chemicals, does not manufacture or handle herbicides or pesticides,
and does not have any underground storage tanks.
However, the officials said that EPA's limited review of Zaclon's
operations indicated that it faced a number of federal regulatory
requirements.
-- Because the company produces chemicals, EPA officials said
Zaclon is responsible for reporting under TSCA's sections 5 and
8 and is subject to annual Emergency Planning and Community
Right-to-Know Act (EPCRA) Section 313 emissions reporting.
-- EPA officials said Zaclon's discharges to the local waterways
make the company responsible under CWA and its permits for (1)
monthly discharge monitoring reports; (2) the Spill Prevention,
Control, and Countermeasures' (SPCC) revision deadline; and (3)
the National Emissions Standards for Hazardous Air Pollutants'
(NESHAP) benzene waste water report.
-- EPA officials said Zaclon's stack emissions make the company
responsible under CAA, including NESHAP fugitive and point
source emission reporting for benzene, and air compliance
reports.
-- As a hazardous waste generator EPA officials said Zaclon is
subject to RCRA, including quantifying amounts of annual
hazardous wastes, annual financial assurance reporting, and
waste minimization reports.
EPA officials also said that Zaclon is required under many of the
statutes to report any spills or releases when they occur. The
officials said that certain chemicals could be considered a pesticide
under the Federal Insecticide, Fungicide, and Rodenticide Act; a drug
or cosmetic under the Federal Food and Drug Act; a chemical under
TSCA; or a waste under RCRA. However, because EPA assumed that the
company knew whether any chemicals it produces or uses fall under one
of these statutes, it did not describe applicable regulations in
those situations.
EEOC REGULATIONS
------------------------------------------------------ Chapter 2:2.5.2
EEOC divided its response into reporting and recordkeeping issues.
The agency's officials said that the only reporting requirement EEOC
imposed on Minco was that it annually submit a complete Form 100
(also known as an EEO-1 report) because the company had at least 100
employees. However, the agency officials said that Zaclon does not
have to submit the form because it has less than 100 employees.
EEOC officials said both Minco and Zaclon are covered by the agency's
recordkeeping requirements, but the length of time for which the
records must be maintained varied by statute. The officials said 29
C.F.R. 1602.14 requires both companies to preserve all personnel and
employment records for 1 year after the preparation of the record or
the date of a related personnel action, whichever is later. Also,
records must be retained for any employee involuntarily terminated.
EEOC officials said 29 C.F.R. 1620.32 requires both companies to
preserve records relevant to the payment of wages under the Equal Pay
Act for 2 years. The officials said 29 C.F.R. 1627.3 requires each
company covered by the ADEA to make and keep records for each
employee (name, address, date of birth, occupation, rate of pay, and
compensation earned each week) for 3 years. Employers also must keep
a copy of their employee benefit plans on file. If an enforcement
action is initiated under title VII, the ADA, or the ADEA, EEOC
requires the employer to retain any related records until a final
disposition.
Finally, EEOC noted that Minco and Zaclon are covered by the
recordkeeping requirements in the Uniform Guidelines on Employee
Selection Procedures (29 C.F.R. 1607), but that each company has
different obligations under these requirements. Since Minco has more
than 100 employees, it is required to maintain records that would
disclose whether its selection procedures have an adverse impact on
the basis of race, gender, or ethnic group. The Guidelines also
require Minco to annually evaluate whether its selection process is
having an adverse impact. If so, it must maintain and have available
evidence supporting the validity of its selection process. However,
because Zaclon has less than 100 employees, it can use simplified
recordkeeping procedures that use the existing statistical
information present in the company's personnel files.
DOL-OSHA REGULATIONS
------------------------------------------------------ Chapter 2:2.5.3
OSHA officials indicated that the regulatory responsibilities of
Minco and Zaclon are identical. The officials cited 29 C.F.R. 1903
(Inspections, Citations and Proposed Penalties); 1904 (Recording and
Reporting Occupational Injuries and Illnesses); 1910.20 (Access to
Employee Exposure Records); and various other subparts of section
1910 as applicable to both companies. They also said OSHA's General
Industry Standards would generally apply to each company, depending
on the hazards in the workplace.
DOL-WAGE AND HOUR
DIVISION REGULATIONS
------------------------------------------------------ Chapter 2:2.5.4
DOL's Wage and Hour Division stated that most of the regulations it
cited applied to both Minco and Zaclon. For example, it said the
following:
-- The Fair Labor Standards Act (29 U.S.C 201 et seq.) and its
applicable regulations (29 C.F.R. Parts 510-794) apply to both
companies because they are covered "enterprises" with sales in
excess of $500,000 per year.
-- The Employee Polygraph Protection Act (29 U.S.C. 2001-2009) and
its applicable regulations (29 C.F.R. Part 801) apply to both
companies because they are ". . . engaged in or affecting
commerce or in the production of goods for commerce . . . ."
-- FMLA (29 U.S.C. 2601 et seq.) and its applicable regulations
(29 C.F.R. Part 825) apply to both companies because they are
both ". . . engaged in commerce or in any industry or
activity affecting commerce . . ." and employ at least 50
employees during 20 or more work weeks during the year.
However, the Wage and Hour Division's officials said that the
McNamara-O'Hara Service Contract Act (41 U.S.C. 351 et seq.) and its
regulations (29 C.F.R. Part 4) applied only to Minco because Zaclon
does not contract to provide services to the federal government or
the District of Columbia.
DOL-OFCCP REGULATIONS
------------------------------------------------------ Chapter 2:2.5.5
OFCCP's officials said that OFCCP administers and enforces three
equal employment opportunity programs that pertain to government
contractors and subcontractors and to federally assisted construction
contractors and subcontractors. The programs OFCCP officials noted
are listed below:
-- Executive Order 11246, as amended (41 C.F.R. Parts 60-1 through
60-60), which prohibits discrimination in employment on the
basis of race, color, religion, sex, or national origin and
requires affirmative action;
-- section 503 of the Rehabilitation Act of 1973, as amended (29
U.S.C. 793), and its implementing regulations (41 C.F.R. Part
60-741), which require affirmative action and prohibit
discrimination in employment against qualified individuals with
disabilities; and
-- provisions of the Vietnam Era Veterans' Readjustment Assistance
Act of 1974, as amended (38 U.S.C. 4212), and its implementing
regulations (41 C.F.R. Part 60-250), which require affirmative
action and nondiscrimination with respect to special disabled
and Vietnam-era veterans.
The programs apply to contractors and subcontractors who perform
government contracts or federally assisted construction contracts
that total at least $10,000 in a 12-month period. Because Zaclon was
not a federal contractor or subcontractor at the time of our review,
OFCCP officials said the programs' requirements did not apply to the
company. However, Minco was a federal subcontractor with contracts
in excess of $10,000, so OFCCP officials said that all three programs
applied to the company. Also, because Minco had more than 50
employees and performed government contracts worth at least $50,000,
OFCCP's officials said it was obligated to develop a written
affirmative action program under each of these laws. OFCCP officials
said these plans could be separate documents containing the different
analysis that each law requires or a single document consolidating
each of the laws' required analyses into one affirmative action plan.
DOL-PWBA REGULATIONS
------------------------------------------------------ Chapter 2:2.5.6
PWBA summarized the companies' basic reporting and disclosure
requirements under Part 1 of ERISA. PWBA's officials stated that
PWBA did not attempt to summarize all conceivable reporting and
disclosure requirements because the requirements vary according to
the size and nature of the benefit plan. For example, the officials
said PWBA did not discuss the Consolidated Omnibus Budget
Reconciliation Act of 1985, Part 6 of title I, or disclosure
requirements related to fiduciary regulations. The agency officials
also noted that ERISA contains general recordkeeping requirements.
For example, adequate records must be maintained to verify the
accuracy of benefit calculations and information reported in the
annual report.
PWBA said that the two companies' 401(k) regulatory reporting and
disclosure responsibilities differed somewhat because of differences
in the companies' plan size and operations. For example, it said
because Minco has a single-employer defined contribution 401(k)
profit-sharing pension plan subject to Part 1 of title I of ERISA
covering 105 of Minco's 129 eligible individuals with assets held in
trust, the plan administrator must file the Form 5500 (with all
applicable schedules) for each plan year. An annual audit is
required and an opinion of an independent, qualified public
accountant must also be filed. However, because Zaclon has fewer
than 100 eligible employees, PWBA's regulations allow Zaclon's plan
administrator to file the Form 5500-C/R (with all applicable
schedules), which is an abbreviated Form 5500. Also, under PWBA's
regulations for such small plans, an audit and opinion of an
independent, qualified public accountant is not required. Although
in both companies, participants covered by the pension plans and
beneficiaries receiving benefits under the plans must be furnished a
summary description of the plan, a summary of any material plan
modifications, and a summary of each year's annual report. Both
companies must also file their pension plan's description and
modifications with DOL.
PWBA also said that because Minco's welfare plans cover 100 or more
employees, the administrator of Minco's plans must file the Form 5500
(and all applicable schedules) for each plan year, but Minco is
exempt from the audit requirements because the plan was fully insured
or unfunded. Zaclon, with less than 100 participants in its fully
insured or unfunded welfare plans, is exempt from the Form 5500
report and the audit requirements. PWBA officials said that both
companies must furnish their welfare plan participants a summary plan
description; a summary of any material modifications; and, for
Minco's welfare plan, a summary of each year's Form 5500 report.
Minco must also file its welfare plan's description and modifications
with DOL.
CONCLUSIONS
---------------------------------------------------------- Chapter 2:3
Our work suggests that the number of federal regulations applicable
to a particular company may be substantial. However, producing a
complete inventory of those regulations is a very difficult
undertaking for both businesses and federal regulatory agencies. A
business must have a sophisticated level of knowledge of its
regulatory environment and be able to devote the time and resources
needed to develop a comprehensive inventory. Our efforts to acquire
this information from federal agencies demonstrated that regulatory
requirements are contingent on a variety of factors and can vary
substantially from one company to the next, thereby making this task
more difficult than it appears to be.
Although most of the companies initially told us that they could
develop a complete list of regulations applicable to their companies,
none of them ultimately did so. The partial lists the companies did
develop often focused on only certain functional areas or certain
problematic regulations. The companies said their lists were
incomplete because of time and resource constraints and because of
difficulties they experienced disentangling federal regulatory
requirements from their regular operating procedures, state or local
requirements, and other nonregulatory requirements. Other
participating companies did not provide a reason why their lists were
incomplete.
Because of their day-to-day involvement in regulatory matters, it may
seem logical that regulatory agencies would be able to determine the
applicability of their regulations to particular companies quite
easily. However, several of the agencies we contacted said they
could not make that determination without expending a substantial
amount of their limited resources. Several of the agencies said that
unique characteristics of a business or a business activity determine
whether their regulations apply to that business. Therefore, they
said they would have to collect detailed information about each
company to determine regulatory coverage--information such as whether
the firm (1) was a federal contractor or subcontractor, (2) had a
qualified retirement plan, (3) had an underground storage tank, (4)
used certain types of compressed gases, and (5) discharged water into
a local waterway.
The agencies also indicated that they made extensive amounts of
information available to the public, so the businesses themselves
could determine their regulatory responsibilities. However, these
sources of information often appear to be fragmented both within and
across agencies. As a result, a business attempting to determine its
regulatory responsibilities may find it necessary to contact multiple
agencies, and sometimes multiple offices within particular agencies,
to collect the information it needs. In some cases, responsibility
for an issue may be spread between two or more agencies, making it
difficult for companies to determine which agency or agencies should
be called regarding that issue. The increasing complexity of the
federal regulatory environment makes effective communication between
regulatory agencies and the regulated community even more important,
and some agencies are taking steps in that direction.
The difficulties businesses and agencies experienced in developing a
list of applicable regulations also suggest two other
conclusions--one is an issue of compliance and the other is a
research concern. First, a business that finds it difficult to list
its regulatory compliance responsibilities may not be fully aware of
those responsibilities. As a result, the business runs the risk of
being out of compliance with regulations that it did not know were
applicable. Second, the development of a list of a company's
compliance responsibilities is the first step in determining the
impact of all regulations on that company. If the list of
regulations applicable to a company is incomplete, any assessment of
the impact of regulations on that company will be equally incomplete.
The difficulties businesses and agencies described in developing
company-specific lists of regulatory compliance responsibilities
suggest that the development of information on the costs and benefits
of regulations to those companies will be at least as difficult.
COMPANIES LACKED DATA ON
REGULATORY COSTS
============================================================ Chapter 3
To fairly assess the impact of regulations on businesses, one must
consider both the burden and the benefits of compliance. Of the two
issues, regulatory burden is generally considered to be easier to
measure than benefits. As mentioned in chapter 1, regulatory burden
has been described and measured in various ways, including the number
of pages in the CFR, the number of federal employees involved in
regulatory activities, and the number of paperwork burden hours
imposed by federal information collection requirements. One commonly
cited measure of regulatory burden is the cost associated with
compliance with regulations.
In this chapter, we briefly discuss the ways regulatory costs could
be assessed, what we attempted to measure in this review, and what
company officials told us when we asked about the costs and other
types of burden associated with compliance with federal regulations
to their businesses. This chapter also discusses what businesses
told us about the benefits associated with federal regulations.
MEASURES OF REGULATORY COSTS
VARY
---------------------------------------------------------- Chapter 3:1
Studies of regulatory costs vary in a number of ways, one of which is
the types of costs the studies attempt to assess. Direct costs are
those that regulated entities incur in the course of complying with
regulatory requirements. These direct costs include the wages and
salaries of workers carrying out regulatory responsibilities; capital
expenditures (e.g., wastewater treatment facilities or safety
equipment); employee training expenses; and other costs incurred as a
direct result of regulatory requirements. Indirect or secondary
costs include costs such as lost productivity, decreased
competitiveness, construction delays, or resource misallocation.
Still other costs include those associated with the development and
enforcement of regulations, not just costs borne by regulated
entities; therefore, these studies could include the budgets of
regulatory agencies.
Regulatory cost studies also vary in terms of the range of
regulations included within the scope of the study. Studies may
focus on costs associated with compliance with any regulatory
requirements issued by any agency, or on only selected regulations,
such as those within certain subject areas (e.g., environmental
rules) or those issued by certain agencies.
Cost studies also vary in terms of the types of costs considered
attributable to regulatory requirements. Studies could include all
expenditures by the regulated entity that are in any way related to
the regulatory requirements at issue. In such studies, for example,
if a company spent a total of $1 million during the course of a year
on worker safety training and equipment, the full $1 million would be
counted toward the company's regulatory costs. However, because the
cost study includes all of the company's expenditures in this area,
such an approach implicitly assumes that the company would have spent
nothing on worker safety training and equipment during that year in
the absence of regulatory requirements. Because many companies
probably spend some money to protect their workers in the normal
course of business, attributing those expenditures to regulatory
requirements is erroneous and overstates the burden of regulations.\1
Another approach does not include all expenditures in the measurement
of regulatory costs, focusing only on the incremental costs directly
attributable to the regulations in question. If, in the above
example, the company had spent $600,000 on worker safety training and
equipment, regardless of any regulatory requirements, the incremental
cost attributable to regulations in that year would be $400,000 ($1
million minus $600,000).
In a January 1996 description of "best practices" for preparing
economic analyses of significant regulatory actions, OMB said that
the benefits and costs of an action
". . . must be measured against a baseline. The baseline
should be the best assessment of the way the world would look
absent the proposed regulation. . . . All costs calculated
should be incremental, that is, they should represent changes in
costs that would occur if the regulatory option is chosen
compared to costs in the base case (ordinarily no regulation or
the existing regulation) or under a less stringent alternative."
Therefore, OMB recommends calculation of regulatory costs in
incremental terms, not the total expenditures in a regulatory area.
The scope of the cost studies we reviewed also varied widely. Some
studies, such as the work of Thomas Hopkins, attempted to estimate
the cost of regulations to the economy as a whole.\2 Hopkins included
the following five expenditure categories in his estimates of
cumulative regulatory costs:
-- direct costs of environmental regulations;
-- direct costs of other social regulations, including consumer
safety, nuclear safety, worker health, and worker security and
pensions;
-- direct costs of economic regulations, which include
agricultural, communications, transportation, energy, financial,
construction, and international trade regulations;
-- transfers stemming from economic regulations, including
transfers stimulating exports and agricultural price supports;\3
and
-- process costs of paperwork and reporting obligations, based upon
the OMB estimate of the number of hours spent on federal
paperwork requirements.\4
Totaling data from all five cost categories, Hopkins estimated in
1993 that the cumulative cost of federal regulations to the economy
would be $607 billion in 1995.\5 However, some economists believe
that one of the elements of Hopkins' study--transfer costs--should
not be considered part of the cost of regulations to the economy
because transfers represent a loss to one group and a corresponding
benefit to another.\6 There are also concerns about the accuracy of
some of the data included in Hopkins' analysis. For example, we have
noted that not all burden is counted in the preparation of OMB's
paperwork burden-hour estimate, and that which is counted is often
underestimated.\7
Other studies have attempted to measure the costs of regulatory
compliance on individual businesses, not the economy as a whole. One
such study by Arthur Andersen and Company focused on 48 large
companies' compliance with federal regulations during 1977.\8 The
study did not attempt to assess the companies' cost of complying with
all federal regulations, focusing instead on six federal agencies and
programs.\9 Arthur Andersen auditors went to each company, instructed
company officials on what they considered to be allowable and
unallowable regulatory costs, and required company officials to
estimate the amount the company spent complying with the identified
regulations. The study used an incremental measure of regulatory
cost, subtracting from the companies' total expenditures the amount
the company would have spent to achieve the objectives of the
regulations had those regulations not been in force. Using this
methodology, Arthur Andersen estimated that the 48 companies' total
compliance costs in 1977 were $2.6 billion--an average of more than
$54 million per company. This cost can be compared with the
companies' 1977 net income after taxes of $16.6 billion--an average
of about $346 million per company.
--------------------
\1 GAO/GGD-94-28.
\2 Thomas D. Hopkins; Cost of Regulation, a report to the Regulatory
Information Service Center, August 1991; "Federal Regulatory
Burdens," RIT Public Policy Working Paper, Rochester, N.Y.:
Rochester Institute of Technology, 1993; and Regulatory Costs in
Profile, Policy Study Number 132, St. Louis: Center for the Study
of American Business, August 1996.
\3 Transfers are redistributions of resources within society, thereby
placing a burden on some groups while benefiting others. For
example, agricultural price supports involve a transfer of resources
from consumers to farmers.
\4 Hopkins, in his 1991 study, used a formula that multiplies the
number of hours to complete all federal paperwork requirements by $20
per hour. Tax forms accounted for about 80 percent of the estimate.
\5 In 1996, Hopkins revised his 1995 cost estimate to $668 billion.
\6 GAO/PEMD-95-18BR.
\7 GAO/PEMD-94-3. In his 1996 study, Hopkins said that "[t]he
regulatory cost estimates that appear in this paper lay no claim to
precision; both conceptual and empirical challenges make precision
unattainable."
\8 Arthur Andersen and Co., Cost of Government Regulation Study, a
report to the Business Roundtable, March 1979.
\9 The six federal agencies and programs were EPA, EEOC, OSHA, the
Department of Energy, the Federal Trade Commission, and ERISA.
COMPANIES GENERALLY COULD NOT
PROVIDE COMPREHENSIVE,
INCREMENTAL COST DATA
---------------------------------------------------------- Chapter 3:2
To assess the burden of federal regulations on the 15 companies
participating in our review, we used an approach that was similar in
some respects to the approach used in the Arthur Andersen study.
Like the Arthur Andersen study, we asked each of the companies to
provide information on their direct incremental costs. However,
unlike the Arthur Andersen study, we focused on costs associated with
complying with all federal regulations during 1994, not just selected
agencies and programs. Also, we did not require the companies to
estimate the costs associated with regulatory compliance. Instead,
we left it to the companies to provide what information they believed
was appropriate.
Because we wanted to be sure that the companies described their
regulatory costs consistently, we provided extensive instructions to
the companies regarding what should and should not be included in
their tabulations. (See app. I for the instructions provided to the
companies and the data collection instrument.) For example, because
our focus was on incremental costs, we told the companies that any
costs that would have been incurred in the normal course of business
during that period should not be included in their cost measures.
Because indirect costs are more difficult to measure, we told the
companies to provide cost data on direct costs and asked for examples
of indirect costs. We also delineated other types of costs that
should be excluded from their tabulations, including lobbying costs;
costs associated with nonfederal rules; and payments to the federal
government, such as taxes and fines for noncompliance.
We asked the companies to include costs for all regulations that they
had identified in developing their aggregate list of federal
regulations (presented in ch. 2). We attempted to collect the cost
data in total and in each of three cost classifications: (1) capital
costs, (2) labor costs, and (3) other costs.\10 We told the companies
that their accounting and financial records should be their primary
source of the cost data, and that we would like to collect, or at
least review, any documentation of these costs.
Although all of the 15 companies participating in our review provided
at least some data on their compliance costs, none of the companies
provided cost data that were both comprehensive and incremental.\11
Some of the officials with whom we met recognized that the data
provided were not what we had asked them to provide. Our interviews
with these company officials and our review of the information they
provided revealed various reasons why the companies' cost data were
neither comprehensive nor incremental.
--------------------
\10 However, we also told the companies that if this system was not
workable for them as a way to break down their incremental compliance
costs, they could use some other system.
\11 These results correspond with those of our recent work looking at
the effect of regulatory compliance on research grantees at the
National Institutes of Health. We found that although members of the
research community were confident that compliance costs were high,
they were unable to provide cost data directly attributable to
compliance activities. See Regulatory Compliance for NIH Grantees
(GAO/HEHS-96-90R, Mar. 25, 1996).
COMPANIES' COST DATA WERE
NOT COMPREHENSIVE
-------------------------------------------------------- Chapter 3:2.1
Although we asked each of the companies to provide cost data for all
the regulations they faced, none of the companies provided
comprehensive cost data. The uncomprehensive nature of the cost data
provided was sometimes a function of the difficulty company officials
had in citing all applicable regulations. (See ch. 2.) Because we
asked each company to provide cost information for all applicable
federal regulations, and because company officials generally said
they could not identify all applicable regulations, they, therefore,
could not provide a measurement of their regulatory costs that they
believed reflected all of their responsibilities.
Another reason company officials said they had difficulty providing
data on their companies' federal regulatory compliance costs was
because they found it difficult to distinguish between federal
requirements and those of other governmental jurisdictions. For
example, officials from Roadway told us that the intertwining of
federal, state, and local requirements made it difficult to separate
the effects of each type of requirement. Also, officials from the
paper company said that determining their federal regulatory costs
was "difficult if not impossible" because they could not distinguish
between costs to comply with federal regulations versus state and
local requirements. Making this distinction was particularly
difficult for the companies in regulatory areas where state
governments enforced federal standards and could also attach
additional requirements. Officials from a company operating in
California said that California enforces all of OSHA's regulations
and some of EPA's regulations--often adding stricter state
requirements.
In other cases, company officials recognized federal regulatory
requirements in certain functional areas but still did not provide
any cost data for those functional areas. For example, officials
from the petrochemical company provided data on environmental,
health, and safety costs, but did not provide data on costs
associated with other types of regulations with which they said they
had to comply (e.g., transportation and shipping). The cost data the
companies provided were also incomplete in other ways. For example,
one company provided data on its incremental regulatory costs, but
only for a portion of its labor expenses.\12
The company did not provide comprehensive data on capital or other
types of costs, and the labor cost data did not include the company's
hourly workers.\13
Also, although one company said its incremental cost estimate covered
the entire company, the manner in which the estimate was calculated
revealed that all units were not actually represented. Company
officials estimated the company's total incremental regulatory costs
at $52.4 million--$44.9 million for labor costs, $6.8 million in
capital costs, and $700,000 in other costs. The officials said they
developed these cost figures by first generating these costs for
their largest operating unit, then doubling this figure to arrive at
the estimated total cost. They said they used this method because
the operating unit generated one-half of the company's revenue and
accounted for one-half of the company's costs. Therefore, they said
that doubling the unit's regulatory costs was a reasonable estimate
of the whole company's incremental regulatory costs. However, we
believe that if their largest operating unit's regulatory costs were
atypical in any way, simply doubling this estimate could result in an
underestimate or an overestimate of the company's total incremental
costs.
--------------------
\12 To obtain these data, the company surveyed its salaried employees
and asked them to (1) develop a list of the federal regulations that
they encountered in doing their jobs and (2) estimate the amount of
time they or their subordinates spent each month complying with those
regulations. Using the results of this survey and its knowledge of
the employees' salaries, the company estimated its direct incremental
labor costs for salaried employees to be $145,000 in 1994--about 5
percent of its total payroll of $2.5 million.
\13 Company officials provided cost data for certain problematic
regulations, but did not provide any other data on the company's
comprehensive, incremental costs. For example, the officials said
that the company spent $200,000 for capital improvements to its
wastewater treatment facility and spent $1,000 per month for water
testing to comply with specific EPA water quality requirements.
COMPANIES' COST DATA WERE
NOT INCREMENTAL
-------------------------------------------------------- Chapter 3:2.2
Although we requested that companies provide incremental compliance
costs because we believe they are more accurate measures of
regulatory burden than total expenditures in areas covered by
regulations, most companies did not provide incremental cost data.
As previously noted, calculation of incremental costs requires
company officials to decide what actions their company would have
taken in the absence of the identified regulations--a determination
that can be difficult, if not impossible, to make in retrospect. For
example, officials from Bank C indicated that it would be very
difficult, in most cases, to estimate what expenses they would have
incurred if the federal regulations did not exist. An official from
the glass company said that it was difficult to determine what
percentage of its costs were due to regulations and what part would
have been incurred as a normal part of business. Officials from the
paper company said a substantial amount of their costs were costs
they would have incurred even if federal regulations did not exist.
They said that they would still have formidable environmental and
health and safety programs simply as a good business practice, and
they could not separate what was required from what they were doing
voluntarily.
Reflecting the difficulty in separating regulatory and
business-related costs, the officials also said their companies'
accounting and financial records did not capture the information
necessary to determine incremental compliance costs. For example,
officials from the petrochemical company told us their company's
accounting systems were not designed to uniquely categorize the costs
of new and ongoing regulatory requirements. These officials said
that there is little incentive to isolate and monitor these costs
because such information has little business value. Officials from
Multiplex also said that their financial records did not itemize many
of the administrative costs associated with specific regulatory
compliance activities. Multiplex officials estimated that for
environmental compliance, about 60 to 70 percent of their costs were
captured using the company's financial records.
Company officials also said they could not provide incremental
regulatory cost data because the companies' regulatory
responsibilities were sometimes difficult to distinguish from their
regular processes and functions. For example, officials from the
glass company said regulatory responsibilities were woven into
individuals' jobs, and it was difficult to separate what was being
done strictly for regulatory reasons. Officials from the tank car
company said it would take a significant amount of time and resources
to separate these compliance costs from their day-to-day operations
costs. Officials from the petrochemical company said there is little
incentive to isolate and uniquely monitor the explicit costs
associated with new and ongoing regulatory requirements because they
generally view regulations as nonrevenue- producing mandates.
INDIRECT COSTS OF FEDERAL
REGULATIONS
---------------------------------------------------------- Chapter 3:3
Although we did not ask the companies that participated in our review
to quantify their indirect costs of complying with federal
regulations, company officials provided a number of examples of those
costs that they said their companies had experienced. The examples
indicate that indirect costs can be substantial and are probably the
most difficult types of costs to measure. The types of indirect
costs that the companies provided included lost productivity,
decreased competitiveness, lost business opportunities, delays in the
expansion of new products or businesses, misallocation of resources,
and delays in construction of new plants and/or equipment. Examples
of indirect costs the companies cited included the following.
-- Officials from the paper company said that regulations tie up
company resources and staff that could be better used in other
ways, such as developing new products or processes. They said
the company's international competitiveness is also affected by
regulations. The officials said that, contrary to popular
belief, European countries are less regulated than U.S.
companies, and as a result, U.S. companies are at a competitive
disadvantage.
-- Representatives from the petrochemical company said that the
company had curtailed or forgone facility expansions because of
regulations that discourage voluntary emissions reductions at
the plant site or emissions trading programs that are too
administratively burdensome. Company officials also expressed
concerns about regulations that restrict access to potential
natural gas markets even though the increased use of natural gas
is a cost-effective means of achieving emissions reductions.
The officials also referred to the unavailability of cash flow
to capture business opportunities because of the allocation of
funds to compliance requirements.
-- An official from Minco, a federal subcontractor, said that
regulatory activity tends to drive out other human
resource-related actions the company would like to take. For
example, she said that the company would like to offer more
training and employee development but cannot do so because
January and February are generally dedicated to development of
affirmative action plans. Another Minco official said that the
company could make more money as a prime contractor but
intentionally remains a subcontractor because of the complexity
of federal procurement regulations.
-- A Multiplex official commented on how responding to regulatory
requirements causes a delay of management information and
responsiveness to business-related needs. For example, the
official said that a company management team's required
involvement with an 18-month IRS audit slowed company
management's response to internal requests and to other company
business. He said a large company can easily absorb a certain
level of recordkeeping requirements, but the same requirements
can cause many problems for a smaller company like Multiplex.
THE BENEFITS OF FEDERAL
REGULATIONS
---------------------------------------------------------- Chapter 3:4
The assessment of benefits is of equal importance to the measurement
of costs and other types of burden in assessing the impact of a given
regulation or regulations in general. However, as previously noted,
accurate measures of the benefits of regulations appear even more
difficult to develop than cost measures. For example, in 1991 we
reported that, although environmental controls have resulted in
substantial and valuable benefits, assigning a monetary value to
these benefits was much more difficult than estimating costs.\14
--------------------
\14 Environmental Protection: Meeting Public Expectations With
Limited Resources (GAO/RCED-91-97, June 18, 1991).
FEW STUDIES HAVE EVALUATED
THE BENEFITS OF REGULATION
-------------------------------------------------------- Chapter 3:4.1
Much of the literature deals with the assessment of costs of
regulations, and relatively few reports and studies have addressed
the benefits of regulations. In June 1995, Public Citizen, a
national consumer advocacy organization, released a report that
sought to document the benefits of federal health and safety
regulations.\15 The report recognized that the benefits of health and
safety standards cannot always be measured in dollar terms, and it
highlighted the difficulty involved in attempting to calculate the
exact number of lives saved, injuries prevented, and costs averted by
a regulation. The report also criticized cost-benefit analysis by
maintaining that many of the variables used in the analysis are
unquantifiable, and in many cases the primary source of cost data is
from industry itself.
--------------------
\15 Saving Money, Saving Lives: The Documented Benefits of Federal
Health and Safety Protections, Public Citizen, June 1995.
MOST COMPANIES WE
INTERVIEWED AGREED
REGULATIONS HAVE BENEFITS
-------------------------------------------------------- Chapter 3:4.2
Despite the concerns the businesses expressed about the costs of
regulatory compliance, most of the company officials we interviewed
generally recognized that regulations provide benefits to society as
a whole, to certain groups and individuals, and even to their own
businesses. Company officials said federal regulations had helped
protect air and water quality, created safer workplaces, promoted
fair competition, and improved both the manufacturing process and
product quality. Specific examples of regulatory benefits the
companies cited included the following.
-- Officials from the paper company said that compliance with
federal regulations had helped to improve their manufacturing
process. They said some of the dioxin regulations would make
their paper manufacturing process more effective and less
costly, even though short-term costs could be high. Company
representatives added that solid waste regulations were leading
the company to use chemicals that are not as hazardous.
-- Representatives of the hospital indicated that OSHA's Blood-
borne Pathogens Standard had helped reduce the number of
needlestick injuries experienced in the hospital. They also
said that the Clinical Laboratory Improvement Amendment
regulations encouraged laboratories to look more closely at the
quality of their work.
-- Officials from the glass company said federal regulations had
created business opportunities for their company. They said the
company created its environmental products and pharmaceutical
services businesses to assist others in meeting their regulatory
requirements of air pollution control and product safety
testing. Company officials also said that federal regulations
protected environmental quality, created safer workplaces for
employees, and protected businesses from unfair business
practices by their competitors.
-- A Minco official said she believes the company's requirement as
a federal contractor to create an affirmative action plan has
aided in the employment of a diverse workforce and fair
employment practices. Another official at the company said
OSHA's regulations have brought about a greater awareness of job
safety for both management and employees.
-- Officials from Roadway, Zaclon, Bank B, and the glass company
indicated that federal regulations provide a level playing field
of uniform requirements for businesses. With this level playing
field, federal regulations preempt multiple and often different
state and/or local standards, making compliance easier and less
costly. As pointed out by the glass company, it can be far more
costly to track and comply with 50 different regulations than to
comply with a single federal regulation in a given area.
CONCLUSIONS
---------------------------------------------------------- Chapter 3:5
Our work suggests that measuring the incremental impact--direct
costs, indirect costs, and benefits--of federal regulations on
individual companies is an extremely problematical endeavor.
Although the companies clearly experienced indirect costs associated
with federal regulations and recognized that those regulations
provided benefits to society and to themselves, our discussions with
the companies also indicated that measuring indirect costs would be
extremely difficult. We encountered a number of serious obstacles in
our effort to assess even the most straightforward of such
costs--direct incremental costs.
Although all of the 15 companies participating in our review provided
some data on their regulatory costs, none could provide
comprehensive, verifiable measures of their direct incremental costs
of complying with federal regulations. As shown below, the companies
described several obstacles in the development of such information.
-- As discussed in chapter 2, the companies did not produce a
comprehensive inventory of federal regulations applicable to
their operations. For example, the companies found it difficult
to distinguish federal regulatory requirements from those of
other governmental jurisdictions and from their normal business
practices. Therefore, there was no comprehensive basis for cost
assessment.
-- Companies could not isolate incremental regulatory costs because
they were unable to identify what costs would have been incurred
in the normal course of business operations without federal
regulations.
-- Companies' financial information systems were not geared to
identifying costs associated with regulation.
These difficulties do not necessarily mean that regulatory costs are
not substantial or that the measurement of those aggregate costs is
impossible. However, they do suggest that serious conceptual and
methodological questions need to be raised and answered before
studies that attempt to measure total current regulatory costs are
used to guide public policy. The following are examples of such
questions.
-- Which regulations are included in the universe for which cost
measures are developed?
-- If federal regulations are the focus, how were they
distinguished from those of other jurisdictions?
-- Are incremental regulatory costs being measured?
-- If so, how did the researcher determine what businesses would
have spent in the absence of regulations?
-- What financial records were used to substantiate the cost
figures, and what assumptions guided the collection of the data?
Users of studies of regulatory costs need to be aware of the inherent
difficulties and assumptions involved in producing such measures.
COMPANIES' REGULATORY CONCERNS
FOCUSED ON REGULATIONS AND
REGULATORS
============================================================ Chapter 4
To this point, this report has attempted to assess the impact of
federal regulations on selected businesses by focusing on
aggregates--the total number of regulations applicable to a company
and the aggregate burden (cost and other) of those regulations.
Another way to understand the impact of regulations is to examine the
concerns those businesses have about the particular regulations that
comprise that aggregate.
In a June 1994 study, we used this type of approach to obtain
comments on a defined set of federal regulations.\1 Employer and
union representatives in selected businesses were asked about their
experiences in dealing with 26 statutes and 1 executive order on
workplace regulation, including the ADA, the Equal Pay Act, and the
Service Contract Act. In summary, both groups generally supported
the need for workplace regulations but voiced concerns about the
operation of the overall regulatory process. For example, many of
the employers said that certain paperwork requirements had
questionable value. These employers also said that the regulatory
approach used by many agencies was largely adversarial, characterized
by poor communication, unfair and inconsistent enforcement, and vague
laws and regulations. Both employers and union representatives
called for agencies' providing a more service-oriented approach to
workplace regulation; improving information access and educational
assistance to employers, workers, and unions; and permitting more
input into agency standard-setting and enforcement efforts.
In this study, we asked officials representing the 15 participating
companies to identify the specific federal regulations that they
considered most problematic for their organizations. We also asked
those officials what government (Congress or federal agencies) and
businesses could do to address either the problems they identified or
the federal regulatory process in general. In our instructions to
the companies, we defined "problematic regulations" as any federal
program, regulation, or law that the officials viewed as causing
their companies the greatest difficulty. We said a regulation could
be considered problematic for a variety of reasons, such as being too
costly, too vague, unnecessary, or duplicative.
In contrast to the difficulties the companies experienced in
compiling an aggregate list of regulations and determining
incremental regulatory costs, all 15 companies provided examples of
what they considered to be their most problematic regulations. In
total, we received more than 100 such concerns from the participating
companies. We developed written summaries of each of the companies'
concerns and verified the accuracy of those summaries with company
officials.
We then sent the verified summaries to the appropriate regulatory
agencies for their review and comments. In some cases, the agencies
said that they needed more information to allow them to respond to
the companies' concerns. For example, one agency said it needed to
know the state in which a company was located so that it could be
certain that the company's concern involved a federal regulation and
not a state or local regulation. In those cases, we attempted to
obtain additional information from the companies or permission to
disclose information we already had that could address the agencies'
questions. We were usually able to provide the agencies with the
additional information they said that they needed. However, in some
cases we could not provide the information because doing so could
have led to the identification of companies that wanted to remain
anonymous. In those cases, the agencies responded as best they could
with the information that was available to them.
By obtaining and presenting agencies' responses to the companies'
concerns, we attempted to present a balanced picture of the
regulatory issues involved. However, it is important to note the
limitations of this methodology and presentation sequence. The
companies were able to set the agenda by specifying the topics to
which the agencies had to respond. Also, although agencies could
question or dispute the companies' concerns about regulatory issues,
we did not give companies a comparable opportunity to respond to the
agencies' assertions. Lastly, agencies had the final word regarding
the companies' concerns, but this presentation should not be
interpreted to imply our agreement with the agencies' positions
regarding these issues.
--------------------
\1 GAO/HEHS-94-138.
COMPANIES EXPRESSED CONCERNS
ABOUT REGULATIONS AND
REGULATORS' ACTIONS
---------------------------------------------------------- Chapter 4:1
The 15 companies' regulatory concerns varied substantially. Many of
these concerns were about specific federal regulations, but others
focused on federal regulatory agencies' actions and the
interrelationship between regulations at other levels of government.
After analyzing them, we grouped the companies' concerns into the
following 10 broad themes:
(1) Compliance with a regulation was costly and/or those costs
outweighed the benefits provided by the regulation.
(2) The compliance costs associated with a regulation affected the
companies' competitiveness.
(3) The regulation at issue was unreasonable (e.g., it was not
scientifically based).
(4) The requirements associated with a regulation were difficult to
understand, either because of the technical language involved or
because the requirements kept changing.
(5) Certain regulatory requirements were unnecessarily rigid or
inflexible.
(6) The paperwork or process requirements associated with a
regulation were excessive and costly.
(7) The penalties imposed on companies for noncompliance were too
severe.
(8) Regulators were overly deficiency-oriented or had a "gotcha"
enforcement approach.
(9) Regulators lacked knowledge of industries and provided little
assistance to businesses trying to comply with the regulations.
(10) Regulations from different agencies or levels of government were
poorly coordinated or duplicative.
About half of the concerns that the businesses expressed included
elements of more than 1 of these 10 themes. For example, 14 of the
companies' concerns indicated that certain regulations were both too
costly and unreasonable. Similarly, a number of concerns involved
both paperwork issues and regulatory costs. Some individual concerns
included as many as five themes.
Each of the 10 company concern themes is discussed below along with
the associated comments from the regulatory agencies. Like the
companies' concerns, the agencies' comments varied substantially. In
some cases, the agencies agreed with the companies' concerns and said
that actions had been taken or needed to be taken to address those
concerns. In other cases, the agencies disagreed with the companies'
portrayal of an enforcement action or of a regulation's requirements.
In still other cases, the agencies said the companies' concerns were
a function of the regulations' underlying statutory requirements.
Appendix II contains a sample of the companies' concerns and the
applicable agencies' responses for each of the 10 themes.
COMPANIES SAID REGULATORY
COMPLIANCE WAS COSTLY OR
COSTS OUTWEIGHED BENEFITS
-------------------------------------------------------- Chapter 4:1.1
Company officials most frequently expressed concerns about the cost
of complying with particular federal regulations. Representatives of
14 of the 15 companies mentioned this concern about at least one
regulation. For example, one official said DOT-required hazardous
materials training cost the company $475,000 annually. Another
company official said that as a result of changes to CAA's regulatory
requirements, the cost of air quality testing, which was needed to
get approval of a construction permit, increased from $10,000 to
$30,000.
In response to these concerns, the agencies most frequently said that
the companies had overstated regulatory compliance costs. For
example, EEOC and DOJ raised questions about the $750,000 Roadway
said it spent to comply with ADA requirements. Both agencies said
that practical experience to date indicates that the cost of ADA
compliance is limited. EEOC cited a study commissioned by Sears,
Roebuck and Co. showing that less than 3 percent of the
accommodations that Sears made to comply with the ADA cost the
company more than $1,000. In several cases, agencies said the costs
incurred by the companies might be a function of the way that they
complied with the regulations. For example, one company said that
OSHA required them to replace certain electrical receptacle boxes
with more expensive ones. In response, OSHA said the company only
had to abate the electrical hazard, and it was up to the company to
decide how to accomplish that goal. According to OSHA officials, the
company could have found other ways to power its equipment or used
other, less expensive receptacle boxes available for indoor use.
OSHA officials added that their standard is consistent with the
national electrical code, which is recognized by most authorities as
a safe way to provide electrical energy to buildings.
A number of companies also said that they believed the costs
associated with compliance with certain regulations outweighed any
regulatory benefits. Many companies said they found it difficult to
see any benefits associated with the regulations they mentioned,
either to themselves or to society in general. Other companies said
they did not mind spending money to comply with federal regulations,
but not when costs exceeded the benefits. For example, some
companies said that although they had substantially met the goals set
in particular regulations, total compliance would be extremely costly
and would far outweigh any marginal benefits provided by those
increased costs. In other cases, two companies mentioned having to
retrofit machinery and/or train more employees than necessary to
satisfy certain regulatory requirements--expenditures that they said
were unnecessary and yielded no apparent benefits.
Agencies responding to these concerns frequently said that the
companies did not recognize the benefits that the regulations
provided and/or that they overstated the costs. Another common
agency response was that the company had misstated or misinterpreted
the regulatory requirement. In several instances, the agencies said
that the particular regulatory procedure mentioned by the company was
required by law. For example, one company said that the
nondiscrimination test IRS requires in the administration of the
company's 401(k) thrift savings plan was costly, and that the IRS
requirement for a separate audit of the plan was an unnecessary
expense. However, IRS said that both of these requirements were
imposed by statute. In other cases, though, the agencies agreed with
the companies' cost concerns and said they had taken or were taking
action to make regulatory compliance less costly.
Examples 1 through 4 in appendix II illustrate companies' concerns
and agencies' responses relating to cost and cost-benefit issues.
COMPANIES SAID REGULATORY
COSTS AFFECTED
COMPETITIVENESS
-------------------------------------------------------- Chapter 4:1.2
Nine companies indicated that the costs associated with compliance
with certain regulations were a disincentive to their investment or
expansion decisions, or otherwise affected the companies'
competitiveness in the marketplace. Some of the companies said that
particular regulations prevented them from expanding their operations
because their compliance costs would increase disproportionately to
the profits they expected to generate from the expansion. Other
companies said that compliance costs imposed a potential liability
that discouraged investment. Still other company concerns were that
some regulations applied to only certain types of businesses, thereby
giving a competitive advantage to similar businesses that were exempt
from those regulations.
In response, the agencies often acknowledged that regulatory
compliance costs could affect companies' competitiveness and/or
flexibility of decisionmaking. However, they frequently said that
the requirements in question were statutorily mandated. Several
agencies also indicated that the regulations in question were
necessary and yielded benefits that the companies did not mention.
In several cases, the agencies said they were working to improve the
operation of the regulations the companies cited as inhibiting
competition, making them more consistent, flexible, or less
burdensome. For example, one company said it would not purchase
property that had previously been the site of industrial operations
because of the potential cleanup liability under the Comprehensive
Environmental Response, Compensation, and Liability Act. Thus, the
company felt that its options for choosing new sites were restricted
at a time when it needed property for business expansion. EPA
responded to this concern by indicating that it has initiatives under
way to encourage economic redevelopment through environmental
cleanup. Also, EPA said it has encouraged redevelopment of these
sites by reassuring prospective new owners that they may not have to
face Superfund liability.
Also, some agencies' responses indicated that the way in which
companies chose to comply with the regulations could have affected
their costs. For example, Bank C said that it had to create 15 new
forms as a result of a regulatory requirement, but FRB said that
there was no requirement that bank personnel had to complete forms to
accomplish the goal of the regulation.
Examples 5 and 6 in appendix II illustrate two of the companies'
concerns and agencies' responses relating to the effect of regulatory
costs on competitiveness.
COMPANIES SAID REGULATIONS
WERE UNREASONABLE
-------------------------------------------------------- Chapter 4:1.3
Twelve of the 15 companies said that certain regulations they dealt
with were unreasonable because they were either (1) not based on
sound scientific research, (2) outdated, (3) unlikely to achieve
their intended goals, or (4) unreasonable for some other reason. For
example, officials of the paper company objected to a DOT requirement
that each of the company's several hundred locations submit drivers'
logs and other documents to the company's headquarters to help DOT's
review. The company thought it was impractical and unnecessary to
maintain all of the drivers' logs in one place. In another example,
the paper company alleged that title V of CAA requires the regulation
of extremely low levels of emissions, and that the company was
required to obtain a permit for methanol emissions at the company's
fence line that are no more concentrated than in a person's breath.
The regulatory agencies frequently disagreed with the companies'
characterization of their regulations as unreasonable. In about half
of these areas of disagreement, the agencies said that the
regulations did, in fact, have a rational basis and/or provided
benefits the companies did not acknowledge. For example, EPA
officials said that the paper company's concern creates the
misleading impression that paper mills are subject to title V only
for low levels of methanol emissions when, in fact, large emissions
of other pollutants would easily justify the need for a title V
permit even if the mill had no methanol emissions.
In the other half of these cases, the agencies said that the
companies had mischaracterized the regulation or the incident
involved. For example, hospital officials questioned the
reasonableness of what they described as a revised Federal Aviation
Administration (FAA) rule that shortened the shift lengths of
helicopter pilots. However, FAA said that the shift length rules had
not recently changed. In several other instances, the regulatory
agencies said that the regulatory provisions the companies
characterized as unreasonable were required by law. For example, HUD
officials said that disclosure requirements that bank officials said
were unreasonable were established by Congress in specific provisions
of the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et
seq). However, in some cases the agencies agreed with the companies'
concerns about the reasonableness of regulations, and said that they
or Congress had taken or were taking steps to minimize the problems
the companies had experienced.
Examples 7 through 10 in appendix II illustrate companies' concerns
and agencies' responses relating to the reasonableness of regulatory
requirements.
COMPANIES SAID REGULATORY
REQUIREMENTS WERE DIFFICULT
TO UNDERSTAND
-------------------------------------------------------- Chapter 4:1.4
Most companies said they did not understand certain regulatory
requirements because they were vague or complex. As a result, the
companies said they had difficulty determining whether regulations
applied to them and, if so, what they needed to do to be in
compliance. Some companies cited confusing, ambiguous, or
conflicting terminology used in the regulations themselves or on the
required forms. Some companies said they were not able to obtain
clarification of the regulations' requirements from agency staff.
Other companies said they had to hire outside consultants to explain
the requirements or complete the forms, but even those experts are
sometimes not able to help them. For example, paper company
officials said OSHA regulations require their paper machines to have
mechanisms that will stop the machines "quickly," but the rule does
not define what "quickly" means, and experts do not agree on a single
definition.
In many instances, the regulatory agencies agreed with the companies
that the regulations cited in their concerns were vague and/or
complex. The agencies often said that some kind of action had been
taken or was being taken to clarify the regulations and make them
less complex. For example, regulators frequently cited direct
compliance assistance, written guidance, simplified processes,
toll-free telephone numbers, computerized bulletin boards, and
presentation of examples within the regulations themselves as ways
that they have tried to make the requirements more understandable.
In several instances, the regulators said the complexity of the
regulations in question--particularly IRS regulations--was a function
of the law or actions taken by Congress. In other cases, the
regulators indicated that the regulations were complex because of the
inherent complexity of the subject matter being regulated.
Companies also said they did not understand regulatory requirements
because of frequent changes to the regulations, thereby making it
difficult to stay up to date and know what was required to be in
compliance. For example, officials from the hospital said that it
was difficult to keep pace with the frequently changing Medicare and
Medicaid billing rules, which caused the hospital's computer
programmers to spend numerous hours attempting to update the
automated patient billing system.
In virtually every case where a company complained about frequent
regulatory changes, the agencies said that the changes were caused by
congressional, not agency, action. For example, in response to bank
officials' concerns about frequent changes in the tax code,
Department of the Treasury officials indicated that the changes were
initiated by Congress. Treasury officials said they had urged
Congress to stabilize the tax code so that taxpayers and their
advisers could understand its requirements. FDIC officials said that
the number of changes and the level of detail in their call reports
were driven in part by statutory requirements.
Examples 11 through 13 in appendix II illustrate companies' concerns
about regulations that were vague, complex, and/or frequently
changing and agencies' responses to those concerns.
COMPANIES SAID REGULATIONS
WERE INFLEXIBLE
-------------------------------------------------------- Chapter 4:1.5
Many companies said some federal regulations that they have to comply
with were unnecessarily inflexible or rigid. The companies expressed
frustration with the same standards or regulations being applied to
all companies, locations, or situations without any consideration to
other factors that they believed should be taken into consideration.
Some companies felt that in certain regulatory situations, a variety
of factors should be considered in determining whether a company
should have to comply with that regulation. Examples of the factors
the companies believed should be considered included the number of
employees in a company, the extent to which a company uses a
particular chemical, and the amount of pollutant discharged as the
result of a company's process.
For the most part, the agencies disagreed that the regulations or the
situations the companies cited were examples of unnecessary
inflexibility. In some of the situations the companies described,
the agencies said that the requirements were justifiable regardless
of other factors that the companies believed should be taken into
consideration. In other cases, the agencies said that the
regulations the companies cited already had some flexibility built in
or that the companies had misunderstood the process or the regulation
cited. In some cases, the regulators said that there was no need for
the regulations to be more flexible because the standards the company
cited were not even applicable to the situation the company
described.
Examples 14 and 15 in appendix II illustrate companies' concerns and
agencies' responses about regulations that are considered to be
inflexible.
COMPANIES SAID PAPERWORK AND
PROCESS REQUIREMENTS WERE
EXCESSIVE OR COSTLY
-------------------------------------------------------- Chapter 4:1.6
Officials from 14 of the 15 companies said certain regulations'
paperwork or other procedural requirements were excessive. The
paperwork that company officials cited as problematic included (1)
forms or reports that had to be periodically submitted to federal
agencies and/or kept for their own records and (2) permit
applications that had to be submitted to an agency to obtain approval
for certain company activities.
Most of the paperwork or process costs the companies mentioned
related to labor costs associated with having their employees
complete the required forms or reports. For example, the hospital
said it had to hire a consultant for $50,000 to help complete the
annual Medicare cost report. Two of the companies indicated that
they would not mind bearing the expense of preparing regulatory
reports if they felt the reports were actually used by federal
agencies. For example, Bank B considered the reporting requirements
under the Bank Secrecy Act to be of negligible value to law
enforcement agencies. Bank officials said they had seen little
evidence of law enforcement agencies' using the information and few
prosecutions resulting from information in these reports. Other
companies' concerns focused on the costs associated with having to
prepare similar reports for regulators at the federal, state, and/or
local levels.
Agencies responding to these concerns most frequently said they
agreed that the paperwork or procedural requirements could be
expensive. They also said their agencies had taken or were taking
action to address the companies' concerns. In several other
instances, the agencies said that the costly paperwork or procedures
were required by law. For example, in response to the hospital's
concern about the annual Medicare cost report being a burden to
prepare, HHS officials said that the Social Security Act requires the
agency to maintain a system of cost-reporting for prospective payment
system hospitals, including annual information to settle costs
associated with health care services rendered to Medicare
beneficiaries. In about half of the other responses, the agencies
said that the companies had misinterpreted or misstated the paperwork
or procedural requirements; therefore, they were incurring
unnecessary expenses. For example, although one company complained
that they had to keep certain employee safety training records
"forever," OSHA said that no such employee training records were
required and, therefore, no retention requirement existed.
Examples 16 through 19 in appendix II illustrate companies' concerns
and agencies' responses relating to paperwork and process issues.
COMPANIES SAID REGULATORY
PENALTIES WERE TOO SEVERE
-------------------------------------------------------- Chapter 4:1.7
Many companies expressed concerns that the penalties imposed on them
for noncompliance with regulations or their requirements were too
severe. For example, the glass company said sizable penalties had
been imposed on them for procedural "mistakes," such as not filing
pension-related paperwork on time. Another company said it was fined
several hundred thousand dollars for not obtaining a federal
wastewater discharge permit. The company thought the penalty for
this offense was too severe given that the company had a state permit
that it believed was sufficient. In addition, a Metro Machine
Corporation official said OSHA currently holds companies, rather than
individual employees, accountable for violations caused by employee
negligence or willful removal of company-installed safety devices.
He said OSHA should differentiate between corporate negligence and
employee responsibility.
In response to these concerns, the agencies most frequently said that
the penalties the companies cited would be imposed only in the most
egregious circumstances. For example, in response to the Metro
Machine Corporation concern, OSHA said that when it conducts an
inspection and determines that a company's management is attempting
all reasonable steps to comply and get employees to comply but the
employees are systematically refusing to comply with safety and
health standards or rules, OSHA will excuse the employer from a
violation. OSHA officials added that the Occupational Safety and
Health Act does not permit citing employees for violations. In
another response, EPA said two companies' concerns about possible
imprisonment of company officials for failing to disclose certain
information would be imposed only in instances where those officials
had knowingly falsified information or willfully failed to provide
the required public notice of the release of a hazardous substance.
Agencies also said that the penalties the companies complained about
were established in the underlying statutes and, in other cases, that
the agency had taken or would take action to address these concerns
about the severity of certain regulatory penalties.
Examples 20 and 21 in appendix II illustrate companies' concerns and
agencies' responses to penalty issues.
COMPANIES SAID REGULATORS
HAD A "GOTCHA" ENFORCEMENT
APPROACH
-------------------------------------------------------- Chapter 4:1.8
Officials from more than half of the companies cited incidents in
which regulators evidenced a "gotcha" manner or were more interested
in finding companies in noncompliance with regulatory requirements
than helping companies comply with the regulations. For example, one
company said an IRS official unexpectedly visited its facility and,
in a "nasty" manner, threatened to close the company down if the
company did not immediately remit taxes that were reportedly unpaid.
In another instance, a company said that EPA could initiate
enforcement actions even when companies self-report deficiencies.
Company officials also cited examples in which regulators were more
focused on procedural or administrative issues (e.g., filing timely
reports) than on whether the objective of the regulation was being
achieved (e.g., less air or water pollution from their manufacturing
processes).
The agencies responded to the companies' comments in a variety of
ways. The agencies often said that (1) their enforcement approaches
were reasonable and consistent with their policies, (2) the companies
had mischaracterized the incidents or the rules involved, or (3) they
have or will take action to minimize these problems. For example,
OSHA said that it had used citations and penalties as workforce
performance measures in the past, but said it has now "put a stop to
that practice." EPA said that in 1995, it revised its policy to
generally reduce or eliminate penalties when violations are
self-disclosed and corrected. In response to the company's concern
about the IRS employee's demand for immediate payment, IRS said it
did not approve of employees who do not follow IRS procedures that
require employees to do their jobs in a professional, ethical, and
fair manner.
Examples 22 and 23 in appendix II illustrate the types of concerns
companies had about how agencies enforce their regulations and the
agencies' responses to those concerns.
COMPANIES SAID REGULATORS
WERE NOT ALWAYS HELPFUL OR
KNOWLEDGEABLE
-------------------------------------------------------- Chapter 4:1.9
Some companies said regulators were uninformed about the regulations
they enforced and did not understand the business practices of the
companies they regulate. For example, one company said IRS auditors
who conducted an audit of their company in 1994 were not
knowledgeable about business accounting practices or IRS rules.
Also, some companies said regulators were not very helpful when the
companies sought assistance. For example, although the tank car
company repeatedly tried to obtain clarification from EPA about the
meaning of the term "approaching atmospheric," the company said it
was unable to get any assistance from EPA. In another case,
officials from the fish farm said they had difficulties getting
assistance from DOL on how to interpret the Family and Medical Leave
Act (FMLA) regulations when an employee is on leave under FMLA and
does not intend to work after the leave period.
Relatedly, officials from some companies said agencies do not always
provide companies with sufficient opportunities for input into the
rulemaking process or adequately consider the comments they receive
during that process. For example, Bank B said that although the bank
provided comments on Regulation C and Regulation DD, it did not
believe the Federal Reserve addressed its concerns before finalizing
the two regulations.
Agencies responded in various ways to the companies' concerns about
regulators' lack of knowledge and assistance. In a few cases, the
agencies indicated efforts were under way to improve their staffs'
knowledge of the industries they regulate. For example, IRS said it
was working to develop a highly skilled frontline workforce that is
more knowledgeable about different industries. In a response to a
concern about lack of assistance, OSHA said it has implemented a
number of information-dissemination projects and plans to undertake
new initiatives to improve the availability of safety and health data
to the public.
In response to the rulemaking concerns, agencies said companies
usually get the opportunity to provide comments as a rule is being
developed. Also, one agency said that while all comments received
are considered, these comments cannot always be incorporated in the
final regulation. For example, OSHA said it had been working with
stakeholders to identify the most pressing new priorities for agency
action and had stepped up its efforts to involve business and labor
in the entire regulatory process.
Examples 24 and 25 in appendix II illustrate companies' concerns and
agencies' responses about regulators' level of knowledge, the
rulemaking process, and the availability of assistance from
regulators.
COMPANIES SAID REGULATIONS
WERE DUPLICATIVE AND POORLY
COORDINATED
------------------------------------------------------- Chapter 4:1.10
Some of the companies described what they believed were conflicting
regulatory requirements from different federal agencies or, in some
cases, from the same agency. For example, officials from the paper
company claimed that sections of OSHA's pulp and paper standards (29
C.F.R. 1910.261) conflicted with other OSHA regulations, leaving
company officials confused about what to do. Officials from this
company also said DOT and OSHA had different and conflicting
standards for defining corrosive materials. We also heard concerns
about overlapping and duplicative regulations between federal and
state or local agencies. Multiplex said that EPA required the local
sewer district to test the company's sewer effluent--the cost of
which was charged to the company--and then the local sewer district
required Multiplex to perform the same tests.
In response to the companies' concerns about coordination and
duplication issues, several of the agencies' responses indicated that
action has been or will be taken to remedy any further or potential
confusion about regulatory requirements. For example, OSHA said it
had been working closely with EPA to develop uniform process safety
management standards to protect workers from accidental chemical
releases. Also, some agencies indicated that the companies had
mischaracterized the regulations or other factors in the companies'
concerns. In response to a company's concerns about the overlap
between FMLA and the ADA, DOL said the laws contain differing
employee protections that serve distinctly different purposes.
However, OSHA officials also said that on July 22, 1996, OSHA
published proposed regulations to eliminate duplicate or redundant
standards from its rules.
Examples 26 through 29 in appendix II illustrate the companies'
concerns and agencies' responses about coordination and duplication
issues.
COMPANIES SUGGESTED WAYS TO
ADDRESS REGULATORY PROBLEMS AND
IMPROVE RELATIONS WITH
REGULATORS
---------------------------------------------------------- Chapter 4:2
We also asked companies for suggestions on what government and
businesses can do to address their regulatory concerns. Although
most of the companies' proposals focused on actions that they
believed regulatory agencies and/or Congress should take, they also
suggested some steps businesses could take to make federal
regulations less problematic.
COMPANIES WANTED FEWER
REGULATIONS
-------------------------------------------------------- Chapter 4:2.1
Some of the companies said they simply want fewer regulations, or at
least a halt in the growth of regulatory requirements. They
suggested that the federal government could accomplish these goals by
taking the following actions:
-- eliminate one old regulation for every new regulation issued,
-- review existing regulations for their relevance, and
-- eliminate paperwork and other regulatory requirements that are
not related to the intent of the underlying statute.
COMPANIES WANTED ASSURANCE
THAT COSTS JUSTIFY BENEFITS
-------------------------------------------------------- Chapter 4:2.2
Officials from some of the companies said that if the federal
government cannot reduce the total number of regulations, at a
minimum, they wanted an assurance that the benefits of compliance
justify the costs. To do this, officials suggested that regulators
do cost-benefit analyses before issuing regulations. Another
official said cost-benefit analyses could address the issue of "bad
science" underlying some regulations, and could result in agencies'
implementing only regulations that have proven benefits. However,
another company official said he had difficulty envisioning how a
sound cost-benefit analysis could work. He suggested that each
regulation should have a sunset date and, before reauthorization, the
responsible agency should determine whether the regulation was
achieving its original intent.
COMPANIES WANTED FLEXIBILITY
TO DETERMINE HOW TO COMPLY
WITH REGULATIONS
-------------------------------------------------------- Chapter 4:2.3
Some company officials said that regulations should focus more on
outcomes than on the processes of achieving the outcomes. According
to these officials, one way to achieve this would be to give
individual companies the flexibility to determine the best processes
to achieve the desired goals. For example, an official from the
petrochemical company said:
". . . government should move away from the current
'specification based' regulatory process and toward a new
approach in which government and business jointly establish
performance-based environmental, health, and safety standards.
Government and business should both be accountable for achieving
measurable, quantifiable objectives. Goals would be
accomplished in a stepwise fashion, improving cost effectiveness
by allowing parties to learn from what works. Government and
business should work cooperatively and share the burden for
obtaining information and demonstrating results. A peer review
procedure could be used to maintain the quality and integrity of
the process. Over time, the process would force industry and
regulators toward low-cost, high impact solutions with proven
effectiveness. Market-based incentives could be widely used, as
there are currently few incentives for business to remedy the
environmental impact of its operations. The new paradigm would
allow those closest to a problem to solve it in the most
cost-effective manner . . . ."
Officials from another company agreed with this assessment, adding
that the federal regulatory process could be improved if laws were
developed that address general goals and objectives and were of long
duration. The officials suggested developing long-term strategies
that make laws less susceptible to short-term political whims.
Another company official said Congress' tendency to be prescriptive
and specific in writing legislation is driven even further by
lobbyists on both sides of the issues. The official said that
agencies would do a better job of writing sensible regulations if the
legislation were less constraining.
COMPANIES WANTED MORE
ASSISTANCE AND SUPPORT FROM
REGULATORS
-------------------------------------------------------- Chapter 4:2.4
Many of the company officials said that regulators should offer
companies more assistance as they try to comply with federal
regulations. Specifically, the officials said that regulators could
-- adopt a partnership approach with companies to help them to
comply with regulations,
-- serve as consultants to companies,
-- provide companies with compliance training,
-- support companies that make reasonable attempts to comply with
regulations,
-- give companies a chance to correct regulatory violations before
being penalized,
-- hire credible and technically competent staff, and
-- use review commissions to assist businesses in compliance with
regulations.
COMPANIES SUGGESTED WAYS
THEY COULD IMPROVE THE
REGULATORY ENVIRONMENT
-------------------------------------------------------- Chapter 4:2.5
Although officials of several companies clearly believed that the
federal government could make changes to improve the regulatory
environment, some officials also believed that companies had a role
to play in that regard. They suggested several actions that
businesses could take to make regulations less problematic, including
the following:
-- devote more time to commenting on proposed regulations during
the rulemaking process;
-- devote sufficient resources to becoming more knowledgeable about
regulatory issues;
-- ensure that company management and employees are trained to
properly administer regulations;
-- participate in trade and professional organizations that
interact with Congress and federal agencies;
-- ensure that top management supports a regulatory compliance
strategy;
-- modernize and make better use of information processing systems;
and
-- increase their employees' awareness of the seriousness of
complying with federal regulations, the potential for problems
related to noncompliance (e.g., an increase in job-related
injuries), and the fines that could be imposed on them or the
company for failure to comply.
Many of the suggestions from the companies were consistent with the
agencies' regulatory improvement goals. For example, several of the
agencies said they have, or were planning to implement, active
outreach programs that disseminate information to the companies
through written communications, seminars, toll-free telephone
numbers, and computer bulletin boards. In addition, several agency
officials said they are in the process of systematically eliminating
outdated and impractical regulations. Two agencies said they were
shifting to a results-oriented focus because in the past their
agencies focused too heavily on processes and activity. DOL
officials said they intend to make greater use of negotiated
rulemaking--a process in which representatives of the government and
all interested parties, including employers, actually draft the
proposed rule for public comment.
CONCLUSIONS
---------------------------------------------------------- Chapter 4:3
The 15 participating companies provided us with a lengthy and varied
list of regulatory concerns, the most common of which involved the
cost of regulatory compliance. The companies also frequently said
that federal regulations were unreasonable or inflexible, paperwork
was excessive, regulatory requirements were difficult to understand,
and regulators had a "gotcha" enforcement approach.
Many of the regulatory agencies indicated that they were aware of the
companies' concerns and, in a number of cases, the agencies said that
they were taking or had already taken action to alleviate the
problems. In several other cases, the agencies said that the
companies' concerns were a function of the statutes underlying the
regulatory requirement. However, in many instances, the agencies
disagreed with the companies' comments, frequently saying that the
companies did not recognize the benefits of the regulations or the
companies mischaracterized, misstated, or misinterpreted the
regulations involved.
The companies' concerns and the agencies' responses indicate that
communications between the companies and the agencies are not always
effective. Companies do not seem to have enough information about
their regulatory responsibilities, and they may be reluctant to seek
that information from regulatory agencies. Agencies, on the other
hand, have an array of information about their regulatory
requirements; however, they do not appear to be getting the
information to companies in such a way that the companies understand
what regulations are applicable to them and how to comply with those
regulations.
The companies and the agencies had several suggestions to alleviate
this communication gap and improve relations between them. Some of
these suggestions were consistent with agencies' regulatory
improvement goals. For example, the companies indicated they wanted
more information made available to them about regulatory compliance.
Meanwhile, the agencies said they were using or were planning to
implement a number of outreach programs, including seminars, computer
bulletin boards, and toll-free telephone numbers. However, the
degree to which these various informational mechanisms will improve
the flow of communication will depend to at least some extent on
whether they are integrated, easy to use, and provided in a manner
that businesses are willing to use them.
OVERVIEW AND CONCLUSIONS
============================================================ Chapter 5
Government regulation, particularly at the federal level, has long
been the subject of public debate. At times, that debate has been
extremely contentious, with opponents and defenders of federal
regulatory policy staking out very different positions. Opponents
contend that some federal regulations are not needed and those that
are needed often have become too burdensome. Therefore, opponents
believe agencies' regulatory authority should be limited and closely
scrutinized. Those defending federal regulations do not want to
unnecessarily impose burdens but contend that federal regulatory
standards are needed to provide certain societal benefits, such as
safer transportation, cleaner air and water, greater workplace
safety, and protection for some individuals and groups.
Nevertheless, a consensus has emerged within government that the
federal regulatory process needs reexamination. Both Congress and
the executive branch have initiated efforts to improve that process.
A number of legislative proposals have been introduced in the 104th
Congress to change the federal regulatory process. Several of those
changes have been enacted, including new paperwork reduction goals
and new judicial review processes. Congress has even made itself
part of the regulatory review process by instituting an expedited
process to reject agency rules that it finds objectionable. The
administration's regulatory reform efforts have addressed a number of
areas as well, including eliminating and revising existing
regulations; changing the performance measures of agencies and
regulators to focus on results, not process and punishment; and
working with the regulated community in the development of new
regulations.
A great deal of the debate about federal regulation has centered on
whether the burdens associated with federal regulations outweigh the
benefits that those regulations are intended to provide. A number of
attempts have been made to measure the burden of federal regulations.
Some of these measures are only indirect indicators of regulatory
burden (e.g., the number of regulators and the number of pages in the
CFR). Other, more direct measures are of questionable validity
(e.g., paperwork burden-hour estimates). For example, one study of
the direct cost of federal regulations estimated that their cost to
the economy would be $607 billion in 1995. However, the validity of
this estimate has been questioned by economists and others.\1 Other
studies of regulatory costs within particular sectors of the economy
have been similarly criticized.\2 The benefits of federal regulations
are generally regarded as even more difficult to measure than
regulatory burdens, so measures of those benefits may also be of
questionable validity.
In this review, we did not try to measure the overall burdens or
benefits of federal regulations. We focused our analysis on a
limited number of businesses so that we could better understand the
issues and the variables involved in the federal regulatory process.
Specifically, we attempted to develop information on the impact of
federal regulations on selected businesses by determining (1) which
federal regulations the businesses participating in our review and
relevant federal agencies believed were applicable to those
businesses, (2) the impact (particularly cost but also other effects)
the businesses believed those regulations had on them, and (3) the
regulations those businesses considered were most problematic and
relevant federal agencies' responses to those concerns.
Although our objectives were modest in comparison to those of many
previous studies of regulations, we experienced a number of
difficulties in conducting this review. First, most of the interest
groups we contacted--both critics and defenders of federal
regulations--did not provide the names of businesses with whom we
could discuss these issues. Some of these groups cited concerns
about confidentiality or the priority of other business as the
reasons why they would not provide nominees. Second, most of the 51
businesses that we were able to identify and contact through other
means refused to participate in our study, frequently citing time and
resource constraints. Some of these businesses had publicly
criticized federal regulations or regulatory processes. Third, many
of the 15 businesses we contacted, which had agreed to participate in
the review, did not provide information that they initially indicated
that they would be able to provide. For example, although nearly all
of the businesses said they could develop a list of applicable
federal regulations, none of the businesses provided a complete
listing. None could provide comprehensive data on the incremental
costs of regulations.
Our experience and the information we were able to collect led us to
several conclusions. First, we believe that comprehensive,
empirically based data about the cost of federal regulations to
individual businesses do not readily exist and could not be developed
without a great deal of time and effort on the part of both the
regulators and the regulated community. Without such data, the cost
of regulations to a business or the economy as a whole can only be
roughly estimated. Second, the agencies also said that they are
reexamining at least some of the federal regulations and processes
that businesses found most problematic. If so, the businesses may
feel some reduction in the burden associated with those regulations
in the future. Third, we believe that communication between
businesses and federal regulators about which regulations are
applicable to particular businesses and how to comply with specific
regulatory requirements is not always effective. Finally, although
the agencies frequently said that problematic regulations were
statutorily driven, some Members of Congress believe agencies
sometimes establish regulations that go beyond the intent of
Congress. This suggests that an opportunity exists for improved
communication between Congress and federal regulators--communication
that may occur through recently enacted congressional regulatory
review procedures.
--------------------
\1 GAO/PEMD-95-18BR.
\2 GAO/GGD-94-28.
COST OF REGULATIONS IS
DIFFICULT TO DETERMINE
---------------------------------------------------------- Chapter 5:1
As previously noted, the burden associated with federal regulations
is generally considered to be easier to measure than the benefits of
regulations. Within the burden category, direct regulatory costs are
generally regarded as easier to measure than other types of burden
(e.g., negative effects on competitiveness or productivity).
Conceptually and logistically, it would seem to be easier to
calculate regulatory costs with regard to a single business than for
an entire industry or the economy as a whole. However, our work
suggests that it is extremely difficult to develop a comprehensive,
data-based measure of direct incremental regulatory costs, even for
an individual business.
The first step in determining the cost of federal regulations to a
business is to identify all of the regulations applicable to that
business. Any comprehensive tally of a business' regulatory costs
will only be as complete as its list of applicable regulations.
Although nearly all of the businesses we contacted said they could
develop a complete list of applicable federal regulations, none did
so. As we discussed in chapter 2, development of such a list is very
difficult, requiring a sophisticated understanding of the
circumstances in which federal regulations apply as well as a
detailed understanding of a company's business processes and
products. The businesses we contacted generally did not have
prepared lists of applicable regulations, and most found it difficult
to distinguish between federal, state, and local regulations or said
they did not have the time or resources to develop such a list.
Although it may seem logical to assume that regulatory agencies would
be able to easily develop a list of applicable regulations, in many
cases the agencies would have to gather detailed information about
the companies' business processes and products to determine
regulatory applicability.
Another step in determining the cost of regulations to a business is
to obtain data on its expenditures that are directly traceable to
federal regulatory requirements and estimate its incremental
regulatory costs. Because most businesses would have incurred some
expenses related to regulatory goals, such as a safe workplace or the
prevention of environmental damage, even if no regulations existed,
the incremental measure is the most appropriate gauge of a company's
regulatory costs. To identify their incremental regulatory costs,
businesses must subtract expenses they would have incurred in the
absence of regulatory requirements from their total expenditures in
such areas as worker safety or environmental protection. However,
the businesses we contacted did not collect or retain data on their
incremental regulatory compliance costs, probably because there is no
business reason for them to do so. The businesses also indicated
that they could not develop incremental cost data because they could
not say what actions they would have taken or what expenses they
would have incurred in the absence of regulatory requirements.
In summary, determining the actual cost of federal regulations to a
single company or the economy as a whole requires data--data that the
companies we visited did not have and that our work showed would be
extremely difficult for them to obtain or develop. The universe of
regulations for which cost data should be gathered was difficult for
the companies to identify and incremental cost data could at best be
roughly estimated because the businesses could not determine what
expenses they would have incurred if current federal regulations did
not exist. We believe that these problems are unlikely to be unique
to the companies we visited. Therefore, unless the breadth of
companies' regulatory responsibilities is made clear and the
incremental costs of regulations can be accurately gauged, measures
of the cost of regulations to a company or the economy as a whole
should be viewed as estimates, not precise measures of regulatory
burden. The more these estimates rely on empirical data and sound
assumptions, the greater value they hold for decisionmakers. Public
policymakers should use regulatory cost estimates only with a clear
understanding of their underlying conceptual and methodological
bases.
AGENCIES SAID MANY REGULATORY
CONCERNS ARE BEING ADDRESSED
---------------------------------------------------------- Chapter 5:2
The agencies' responses to the companies' regulatory concerns also
indicated that many of the regulations or regulatory processes
underlying those concerns were being reviewed or had recently been
changed. Listed below are some agencies' responses to companies'
concerns.
-- EPA said it had proposed allowing oil recovered from collocated
and/or commonly owned organic chemical plants to be exempt from
its RCRA hazardous waste regulations.
-- Treasury officials said their agency was issuing a proposed
regulation that would dramatically reduce the reporting
obligations of banks under the Bank Secrecy Act.\3
-- DOL, IRS, and PBGC said that they had made a number of
regulatory changes to make it easier for businesses to establish
pension plans. They also said that new pension simplification
proposals announced by the President in June 1995 would, if
enacted, simplify the rules even further.\4
-- EPA said it was reexamining its data needs and ways to improve
its data gathering systems for the RCRA hazardous waste
management program. The agency also said that, for certain
companies, it had completed a number of actions that
significantly reduced the reporting burden associated with the
EPCRA Form R report, thereby reducing companies' reporting
requirements from nine pages to two pages.
-- EPA said it has published guidelines for reducing or eliminating
penalties when violations are self-disclosed and corrected. EPA
also said that its policy is to generally provide penalty
reductions for such matters as good faith efforts to comply,
ability to pay, and other factors.
The number of times that the agencies indicated that they were taking
action or had already taken action regarding areas of concern to the
companies suggests that a variety of regulatory reform initiatives
are under way within the federal government. As noted in chapter 1,
every president in recent years has attempted to reform the
regulatory process, and both the Clinton administration and Congress
have recently taken a number of reform actions. The administration's
National Performance Review and other initiatives in this area, such
as those aimed at eliminating certain reporting requirements and
reducing penalties for self-disclosed violations of certain
regulations, are part of this larger effort. Also, Congress' recent
assumption of a role in the review of proposed regulations also
presages possible modification of regulations that Congress concludes
are uneconomic or otherwise objectionable.
We have not examined the initiatives the agencies described to
determine whether they have been implemented or whether they will
actually afford the businesses we talked with in this study the kind
of regulatory relief they sought. If the changes the agencies
described are made, the businesses may see a reduction in at least
some of the regulatory burden that they viewed as most problematic.
--------------------
\3 Treasury officials later said that Treasury (1) issued an interim
regulation on April 24, 1996, that eliminates the requirement that
banks report all transactions in excess of $10,000 between banks and
certain classes of exempt persons and (2) estimated the change would
reduce filings by up to 2 million forms annually.
\4 IRS officials later noted that many of these proposals were
enacted in the Small Business Job Protection Act of 1996.
COMMUNICATION BETWEEN
BUSINESSES, REGULATORY
AGENCIES, AND CONGRESS IS NOT
ALWAYS EFFECTIVE
---------------------------------------------------------- Chapter 5:3
The information that we collected regarding applicable federal
regulations and what the businesses viewed as their most problematic
regulations strongly indicated that communication between businesses
and federal regulatory agencies has not always been adequate to meet
their respective needs. Both businesses and agencies need
information to determine which regulations are applicable to
particular companies--information that both parties said would
require substantial time and resources to obtain. However, agencies
have the information that businesses need, and vice versa; what seems
to be lacking is an effective exchange of that information. Poor
communication can also lead to businesses' misunderstanding
regulatory requirements, which can in turn lead to compliance
problems or unnecessary expenditures. Finally, opportunities appear
to exist for improved communication between Congress and federal
regulatory agencies regarding the consistency of regulations with
their statutory underpinnings. Recently enacted regulatory review
procedures may provide the vehicle for that communication.
DETERMINING APPLICABILITY OF
REGULATIONS DIFFICULT
WITHOUT COMMUNICATION
-------------------------------------------------------- Chapter 5:3.1
The information that we obtained from federal regulatory agencies on
the factors that determine the coverage of their regulations and on
the regulatory compliance responsibilities of two of the companies in
this review--Minco and Zaclon--clearly indicated that different
businesses can have substantially different compliance
responsibilities. Most of the agencies said that companies'
compliance responsibilities are highly situational, dependent on such
factors as the companies' size, location, and decisions they make in
the course of conducting their business (e.g., whether to have an
underground storage tank or to have a qualified retirement plan). As
a result, most of the regulatory agencies we contacted said they
needed a great deal of information about a business to identify the
regulations applicable to that business. Businesses also need a
great deal of information about the factors that trigger regulatory
coverage to identify their own regulatory compliance
responsibilities. However, both the agencies and the businesses told
us they could not devote the time and resources needed to develop the
information they need to make those determinations.
Interestingly, each party in the regulatory process already has the
information the other party needs. Agencies know about their
regulations and what characteristics of companies can determine the
applicability of those regulations, but are unfamiliar with
individual companies' operations and, therefore, would need to expend
substantial amounts of time and energy learning about them to provide
regulatory counsel. Businesses know how their organizations are
configured regarding relevant regulatory determinants, but they do
not always understand those determinants and, therefore, may not know
about all of their regulatory compliance responsibilities. More
effective communications could help bridge the informational gap
between businesses and federal regulatory agencies and, as a result,
could help achieve the agencies' regulatory goals.
POOR COMMUNICATION CAN LEAD
TO A MISUNDERSTANDING OF
REGULATORY REQUIREMENTS
-------------------------------------------------------- Chapter 5:3.2
Federal agencies' comments regarding the companies' most problematic
regulations reinforced our conclusion regarding the adequacy of
communication between those agencies and companies about regulations.
In a number of cases, the agencies said that the companies had
misstated or misinterpreted the statute or regulatory requirement
involved. In some of those cases, the agencies said the companies
were incurring unnecessary expenses because they had misconstrued the
requirements or had taken steps that the regulations did not
necessarily require. Listed below are examples of inadequate
communication between the agencies and companies.
-- Officials from Bank B said that some regulations required banks
(but not investment firms) to disclose the risks that consumers
face regarding certain investment products, and that about a
quarter of the advertising time Bank B purchased was used to
publicize these risks. However, FDIC officials said there is no
regulation requiring the disclosure of investment risks when
advertising nondeposit investment products.
-- Hospital officials complained about a "costly rule change" that
limits helicopter pilots to 12-hour schedules during a 24-hour
period, thereby forcing the hospital to hire two additional
pilots at a cost of $100,000 per year. However, FAA officials
said that the duty time rules had not recently changed and that
no 12-hour shift limit existed.
-- Officials from the paper company said OSHA lead exposure
standards require even routine maintenance workers to put on
personal protective equipment and be "fit tested," a process the
company said was extremely expensive. However, OSHA said the
regulations the company cited did not apply to the type of
routine maintenance activities the company described.
-- Bank B officials said that BSA requires banks to complete a
report on cash transactions of $10,000 or more while the
depositor is still in the bank. However, Treasury officials
said that once the bank has verified certain basic information
about a customer, it can rely on this information in the future
and need not require the customer to remain on-site each time a
reportable transaction is conducted.
-- Bank A officials complained about an FDIC requirement that all
banks--even small ones--should have a detailed contingency plan.
However, FDIC officials said the bank was referring to a policy
statement by the Federal Financial Institutions Examination
Council, not a statutory or regulatory requirement. The FDIC
officials said the policy statement sets forth areas for
management to consider when developing a contingency plan but
sets no requirements.
Therefore, communication problems in the regulatory arena can result
in misunderstandings of responsibilities and, ultimately, compliance
problems and unnecessary costs.
One of the reasons that government regulators and businesses have not
always communicated effectively may be the nature of agencies'
regulatory informational mechanisms. A business' regulatory
compliance responsibilities can originate from any of the several
dozen federal regulatory agencies, each of which separately provides
information about its own regulatory programs. Therefore, although
the agencies have a dizzying array of brochures, toll-free numbers,
and other methods to inform businesses of their regulatory
requirements, a business attempting to determine its governmentwide
compliance responsibilities may have to contact each agency to obtain
this information. In some cases, multiple agencies have
responsibility for implementing a single statute, with each agency
specifying its own functions and requirements.
Regulatory compliance responsibilities may also differ within a
particular agency. For example, EPA regulatory requirements
originate from several different program units within the agency (Air
and Radiation; Water; Solid Waste and Emergency Response; and
Prevention, Pesticides, and Toxic Substances). Each of these units
has its own informational mechanisms. EPA has established an Office
of the Small Business Ombudsman and compliance assistance centers for
certain industry sectors for the purpose of consolidating information
from these different program offices. However, we did not evaluate
the effectiveness of the Office or centers to determine whether they
eliminate the need for a small business or a company within a covered
industry to contact the program units directly. Also, these offices
by definition do not cover large businesses or companies in
industries not covered by the centers.
We have not thoroughly analyzed agencies' regulatory informational
mechanisms. However, the information that we obtained in this review
suggests that the federal government's overall approach to the
dissemination of regulatory information is fragmented and may be
contributing to ineffective communication between regulatory agencies
and the business community. We recognize that there is a natural
tension that exists between regulators and those in the regulated
community and that no amount of information or communication will
completely eliminate disagreements and compliance problems. However,
a better understanding of which regulations are applicable to a
business and the requirements those regulations impose on the
business is fundamental to an improved relationship between these
parties.
Agencies have recently taken steps to make information about their
regulations more centralized and accessible to businesses. For
example, the U.S. Business Advisor and the Asbestos Advisor programs
are designed to make it easier for businesses to determine their
federal regulatory compliance responsibilities. Other steps agencies
have taken to be more "user friendly" include (1) the previously
mentioned EPA Office of the Small Business Ombudsman and EPA's
compliance assistance centers and (2) OSHA's consultation program,
which offers free, on-site expert assistance to small employers in
all 50 states. Congress has also attempted to make information more
available to businesses. The Small Business Regulatory Enforcement
Fairness Act requires agencies to, among other things, publish "small
entity compliance guides," explaining the actions a small business is
required to take to comply with a rule or group of rules. These
kinds of efforts may help improve communication between federal
regulatory agencies and regulated businesses.
COMMUNICATION BETWEEN
CONGRESS AND AGENCIES CAN
HELP ADDRESS REGULATORY
CONCERNS
-------------------------------------------------------- Chapter 5:3.3
Although virtually all regulations have some kind of statutory basis,
the extent to which particular regulatory requirements are driven by
the underlying statutes varies. Some statutes grant agencies the
authority to issue rules within broad parameters whereas other
statutes provide agencies with little discretion regarding what
should be regulated and how the regulations should be developed and
implemented. The federal regulatory agencies responding to the
businesses' concerns about problematic regulations frequently said
that the specific requirements the businesses were concerned about
were statutorily driven. Listed below are examples of statutorily
driven business concerns.
-- IRS officials said that the requirements (1) to conduct a
nondiscrimination test in the administration of a 401(k) thrift
savings plan and (2) to audit the plan were required by statute
rather than by IRS regulations.\5
-- HCFA officials said that the frequent changes in Medicare and
Medicaid billing rules were, in a number of situations, "due to
enhancements or changes made by Congress."
-- FDIC officials said that the level of detail and the number of
changes in its call reports were driven by, among other things,
statutory requirements.
-- EEOC officials said that its record retention requirements vary
because they are tied to the different discrimination complaint
filing periods established in each civil rights statute.
We did not review the regulations and statutes that the agencies
cited to determine whether the regulatory provisions of concern to
the companies are required by the underlying statutes. If those
provisions are required by the statutes, agencies will not be able to
revise them significantly without changes in the underlying
legislation. As previously noted, several agencies said they were
recommending statutory changes to address some of the companies'
concerns. In doing so, agencies can communicate to Congress the
degree to which their regulations are required by the statutory
language that Congress enacted.
However, some Members of Congress clearly perceive that federal
regulatory agencies have sometimes established regulatory
requirements that go beyond the intent of Congress when it passed the
underlying statutes. This perception in part led to the
establishment of expedited congressional regulatory review procedures
through the Small Business Regulatory Enforcement Fairness Act of
1996. If the regulatory provisions that are of concern to companies
are, in fact, not required by the statutes, the agencies have a
responsibility to address those concerns on their own and not shift
the responsibility to Congress. If congressional committees of
jurisdiction or individual Members of those committees believe that
an agency's regulations do not reflect the intent of the underlying
statute or its legislative history, those committees or Members can
communicate their concerns to the agencies informally. If Congress
as a whole believes an agency's regulation is inconsistent with the
intent of the underlying statute, Congress can amend the statute to
reflect current congressional intent and, in effect, require the
agency to amend its regulation.
The expedited congressional regulatory review procedures in the Small
Business Regulatory Enforcement Fairness Act may also serve as a
vehicle for that communication--at least for new or revised
regulations. If Congress believes a new or revised regulation is
inconsistent with the intent of the underlying statute, it can pass a
resolution disapproving the rule. On the other hand, Congress can
allow regulations to take effect if it believes that a rule is in
keeping with statutory intent. Although no substitute for
straightforward discussions between agencies and Congress, the
congressional review procedures in the act have the potential to lead
to a better understanding between major players in the federal
rulemaking process.
(See figure in printed edition.)Appendix I
--------------------
\5 IRS officials later noted that the recently enacted Small Business
Job Protection Act of 1996 contains pension simplification proposals
similar to those announced by the President in June 1995 that include
new design-based safe harbors methods that employers will be able to
adopt in lieu of having to conduct the nondiscrimination test.
BUSINESS INTERVIEW GUIDE:
INSTRUCTIONS AND DATA COLLECTION
INSTRUMENT
============================================================ Chapter 5
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
COMPANIES' CONCERNS ABOUT
REGULATORY ISSUES AND AGENCIES'
RESPONSES
========================================================== Appendix II
We asked each of the 15 companies participating in our review to
identify which federal regulations they regarded as most problematic.
The companies provided us with more than 100 examples of regulatory
concerns. We grouped those concerns into the following 10 broad
themes:
(1) Compliance with a regulation was costly and/or those costs
outweighed the benefits provided by the regulation.
(2) The compliance costs associated with a regulation affected the
companies' competitiveness.
(3) The regulation at issue was unreasonable (e.g., it was not
scientifically based).
(4) The requirements associated with a regulation were difficult to
understand, either because of the technical language involved or
because the requirements keep changing.
(5) Certain regulatory requirements were unnecessarily rigid or
inflexible.
(6) The paperwork or process requirements associated with a
regulation were excessive and costly.
(7) The penalties imposed on companies for noncompliance were too
severe.
(8) Regulators were overly deficiency-oriented or had a "gotcha"
enforcement approach.
(9) Regulators lacked knowledge of industries and provided little
assistance to businesses trying to comply with the regulations.
(10)Regulations from different agencies or levels of government were
poorly coordinated or duplicative.
We asked the agencies responsible for the regulations mentioned in
the companies' concerns to respond to each one. The agencies'
responses to the concerns varied greatly.
This appendix highlights many of the examples from the companies and
agencies.
COSTLY COMPLIANCE AND
COST-BENEFIT ISSUES
-------------------------------------------------------- Appendix II:1
This section includes examples of (1) companies' concerns about
regulatory compliance being too costly and costs not always
justifying the benefits and (2) agencies' responses to these
concerns.
COMPANY EXAMPLE 1
------------------------------------------------------ Appendix II:1.1
Officials from a petrochemical company said that the benzene
emissions standards under the National Emissions Standards for
Hazardous Air Pollutants (NESHAP) impose substantial costs on
businesses. However, these officials said that the relatively small
benefits the standards produce are outweighed by unintended
consequences. The officials said the Environmental Protection Agency
(EPA) estimated that employers' compliance costs would be $200 to
$300 million, but they said petroleum refiners alone have spent $2
billion during the compliance period from August 1991 through
December 1994. They said the petrochemical company incurred
significant capital expenditures to enclose refinery sewer and
treatment systems, and the standard requires a tremendous amount of
ongoing maintenance, inspection, and recordkeeping. Regarding
benefits, the officials said that a conservative EPA risk model
showed in 1989 that less than one case of leukemia would be prevented
annually due to controls on refineries and chemical plants. However,
they said that the danger of enclosing flammable mixtures of
hydrocarbon gases has been shown to pose a greater risk than the
calculated reduction in cancer risk. The petrochemical officials
said EPA's revised model reportedly shows no justification for the
rule to exist.
AGENCY RESPONSE 1
------------------------------------------------------ Appendix II:1.2
First, EPA officials said they disagreed with the petrochemical
company's portrayal of the costs and benefits associated with this
regulation. According to the officials, EPA's Regulatory Impact
Analysis for the benzene waste air regulation estimated the
nationwide capital cost for the rule to be $250 million, with total
annual compliance costs estimated at $87 million. The officials said
the petroleum refiners' compliance cost estimate of $2 billion was
made before EPA's amendment of the benzene waste rule in 1993, and so
is not relevant to the rule currently in force. Furthermore, they
said the industry estimate of $2 billion greatly overstated costs
attributable to the prior rule because (1) it was based on an
extrapolation from a few facilities and (2) it improperly assumed the
need to control many units that were already in compliance.
EPA officials said many companies incurred higher costs than the
agency estimated because some companies coordinated compliance with
this rule with requirements under two other environmental laws--the
Resource Conservation and Recovery Act (RCRA) and the Clean Water Act
(CWA). The officials said the cost of these coordinated actions
substantially exceeded the cost attributable to the benzene waste
rule alone.
Second, EPA officials said the 1989 EPA risk estimate referred to in
this example was based on the limited data that were available during
development of the benzene waste regulation. They said subsequent
sampling by industry found much more benzene in waste emissions than
EPA had estimated in 1989, substantially increasing risk reduction
under the rule. Moreover, EPA officials said controlling benzene
emissions provides additional benefits. For example, they said
controlling benzene emissions significantly reduces emissions of at
least nine other hazardous air pollutants, as well as volatile
organic compounds that are a key component of ground-level ozone.
EPA officials said ground-level ozone, commonly known as smog, causes
respiratory and other problems in people living in many American
cities. They said that since many facilities use multimedia
compliance approaches, additional benefits will also accrue from
reducing pollutant emissions to other media.
Third, with regard to the explosion hazard issue, EPA officials
disagreed with the company's comments that the benzene waste rule
increases risk. The officials said the rule would have the opposite
effect. For example, they said before the rule was implemented many
systems were open to the atmosphere, a condition that renders
flammable the mixtures of hydrocarbon gases in the vicinity. The
officials also said the rule now requires companies to enclose waste
management operations so that air, a key component of flammable
mixtures, is kept out of the system, thereby reducing the danger.
Finally, EPA officials disagreed that there is no justification for
the rule. They said that although industry modeling with EPA's
revised Human Exposure Model and the 1989 data show the risk of
benzene exposure to be less than EPA estimates, it is not
sufficiently different to affect a decision about whether the rule is
justified. They said this is particularly so in light of the more
recent data (previously discussed) from industry sampling showing
higher benzene content in waste.
COMPANY EXAMPLE 2
------------------------------------------------------ Appendix II:1.3
Representatives of the fish farm said that the Internal Revenue
Service's (IRS) rules on how to account for the capital costs of
company construction projects done by the firm's employees are
complex and costly. They said before a 1986 change in the tax code,
indirect costs (e.g., telephone costs associated with the
construction project) could be treated as a business expense and,
therefore, could be deducted from that year's taxes. They also said
that after 1986, indirect costs were required to be included as a
capital expense, and could only be deducted over a long period of
time. The fish farm representatives said identification of indirect
expenses associated with such construction projects is time consuming
and expensive. In the end, they said, the company had to pay higher
taxes because their deductions decreased and taxable income
increased.
AGENCY RESPONSE 2
------------------------------------------------------ Appendix II:1.4
IRS officials agreed that capitalizing indirect costs under section
263A of the Uniform Capitalization Rules is time consuming and
expensive. However, they said that Congress imposed this requirement
in the Tax Reform Act of 1986. The officials said section 263A of
the act (1) provides a series of rules for manufacturers,
construction contractors, and taxpayers who produce property for
their own use and (2) minimizes differences in tax treatment of costs
for purchased and self-constructed assets. They said Congress
clearly intended that the effect of this requirement would be a
decrease in the taxpayer's current deductions and a corresponding
increase in taxable income.
IRS officials said the Service has taken steps to minimize the burden
of complying with these rules. For example, they said some taxpayers
may use a simplified method to determine the additional costs under
section 263A that must be allocated to certain self-constructed
assets used in the taxpayer's business and not held for sale to
customers. IRS officials said the fish farm representatives should
carefully assess the applicability of this regulation to the company.
COMPANY EXAMPLE 3
------------------------------------------------------ Appendix II:1.5
The paper company's officials said that compliance with the
Occupational Safety and Health Administration's (OSHA) guarding\1
provisions for their machinery is very expensive, and that
retrofitting their existing machines will cost between $250,000 and
$300,000 per machine. The officials also said that the time and
attention spent on guards is far out-of-proportion to the benefits
gained. For example, they said their injury logs indicate that fewer
than 1 percent of all injuries involve the lack of guards. The
officials also said that instead of spending money on guards for the
existing process, which does virtually nothing to improve employee
safety, it would be better to invest in developing ways to keep
people out of the paper-threading process entirely.
--------------------
\1 Machine guards are devices put on machines to prevent injury to
the machine operators.
AGENCY RESPONSE 3
------------------------------------------------------ Appendix II:1.6
OSHA officials said it is unclear why this company would need to
retrofit existing equipment to meet safety and health standards that
have been in effect for more than 20 years. They said the pulp and
paper industry standards (29 C.F.R. 1910.261) were originally
established by the pulp and paper industry in 1969; they became OSHA
rules in 1971. Therefore, they said that only companies that have
been out of compliance with the standard for years would need to
retrofit their equipment at this point.
OSHA officials disagree with the company's assertions that the cost
of the machine guards is out of proportion to the benefits. They
said machine guards have been consistently proven to provide
essential safety protections to workers and substantially reduce the
risk of serious injuries. While they acknowledged the company's
suggestion that removing workers entirely from the paper-threading
process may reduce the likelihood of injuries, the officials pointed
out that the proposal would not protect workers who perform
maintenance and servicing duties from being injured by unguarded
machinery.
OSHA officials said they recognize the need to update the pulp and
paper industry's standards to address new technology and ensure
consistency with more recent OSHA standards. However, until the
standards are updated, the officials said employers in the paper
industry have the option to comply with certain provisions of the
machine-guarding standards (29 C.F.R. 1910, Subpart O) and
lockout/tagout standards (29 C.F.R. 1910.147) in lieu of the
outdated provisions addressing similar hazards in 29 C.F.R.
1910.261. They also said that OSHA's variance process allows firms
to develop and implement alternative methods of protecting employees
if they can show that the alternative provides as much protection as
required by the standards.
COMPANY EXAMPLE 4
------------------------------------------------------ Appendix II:1.7
The hospital's officials said the Federal Aviation Administration
(FAA) instituted a costly rule change involving the shift lengths of
helicopter pilots. After several helicopter crashes raised safety
concerns, the hospital said FAA limited pilots' shift length to 12
hours during a 24-hour period. They said that prior to this rule
change, pilots had been able to work 24-hour shifts as long as they
had a minimum of 8 hours of rest during the 24-hour shift. The
officials said that, as a result of this rule change, the hospital
had to hire two additional pilots at a cost of $100,000 per year.
The officials questioned the net safety gains of this policy change
and the basis, if any, for the policy change.
AGENCY RESPONSE 4
------------------------------------------------------ Appendix II:1.8
According to FAA officials, the duty-time rules for hospital
emergency medical evacuation service pilots as described in the
regulation have not changed, and the hospital is not required to
limit pilots to 12-hour shifts. The officials said an evacuation
service pilot must receive at least 8 hours of rest during any
consecutive 24-hour period, and the assignment may not exceed 72
consecutive hours at a hospital. They said on completion of a
hospital emergency medical evacuation service assignment, the pilot
must be given a rest period of at least 12 consecutive hours for an
assignment of less than 48 hours and at least 16 hours for an
assignment of more than 48 hours.
COMPANIES' CONCERNS ABOUT THE
EFFECT OF COMPLIANCE COSTS ON
COMPETITIVENESS
-------------------------------------------------------- Appendix II:2
This section includes examples of the companies' concerns about the
effect of regulatory compliance on (1) companies' competitiveness and
(2) companies' decisions about their future expansion efforts. The
agencies' responses to each concern follow immediately after the
concern.
COMPANY EXAMPLE 5
------------------------------------------------------ Appendix II:2.1
Officials from a packaging manufacturer said that the Clean Air Act's
regulations are the most problematic for the company, with
incremental costs of over $100,000 incurred in 1994. The officials
said that these costs have caused the company to shift resources away
from revenue-producing activities and toward regulatory compliance
functions that have little or no productive value and constrain
company growth.
AGENCY RESPONSE 5
------------------------------------------------------ Appendix II:2.2
According to EPA officials, packaging manufacturers can be major
emitters of volatile organic compounds, a principal component of
ground-level ozone and the cause of a variety of health problems.
The officials said if the packaging manufacturer was located in an
area that was not meeting the national air quality standards for
ground-level ozone, it would be subject to limitations on its
emissions of volatile organic compounds. They also said the company
would have options for limiting these emissions (e.g., it could add a
control device to its process or use less-polluting raw materials in
its process). The officials said EPA could not comment on the costs
incurred by this particular company without more information.
However, EPA officials disagreed with the company's comments about
control measures being unproductive, particularly since reduced
emissions improve air quality and protect the health of many people.
The officials said that although the cost of these measures may not
generate revenue, many firms have found that process improvements to
prevent pollution can yield efficiencies that reduce the cost of
clean air compliance.
COMPANY EXAMPLE 6
------------------------------------------------------ Appendix II:2.3
Bank B officials said some bank regulations give nonbanks (e.g.,
investment brokerage firms) an unfair competitive edge in the
marketplace. For example, the officials said that one regulation
requires banks to disclose the risks faced by consumers with certain
investment products, but investment firms are not required to make
similar disclosures. The bank officials said about a quarter of the
airtime they recently bought for advertising their investment
products had to be used to publicize regulatory issues, such as rates
and term disclosures. They said a nonbank could have spent the same
advertising time simply selling their products and services.
AGENCY RESPONSE 6
------------------------------------------------------ Appendix II:2.4
Officials from the Federal Reserve Board (FRB), Federal Deposit
Insurance Corporation (FDIC), and Office of the Comptroller of the
Currency (OCC) responded to Bank B's concern. Both FRB and FDIC
officials said there is no regulation requiring the disclosure of
investment risk. They said this provision is included in an
interagency policy statement on retail sales of nondeposit investment
products that was adopted jointly by the three regulators and the
Office of Thrift Supervision. They also said the policy statement
notes that customers should be informed that nondeposit investment
products are not insured by FDIC; are not deposits or other
obligations of the institution and, therefore, are not guaranteed by
the institution; and are subject to investment risks, including
possible loss of principal.
FRB officials said this policy is intended to ensure that potential
customers are aware that not all products they purchase in a bank are
insured or obligations of the depository institution. For example,
they said investment products, such as mutual funds, are not insured
and are not obligations of the depository institution. They said
these disclosures should be included during a bank's sales
presentations, when an investment account is opened, and in any
advertising and promotional materials. FRB officials said
brokers/dealers are not required to make similar disclosures because
their customers are unlikely to confuse products sold by those
broker/dealers with insured deposits.
According to FDIC officials, they agree with Bank B that FDIC member
institutions have a substantial competitive advantage over financial
firms whose products do not have a federal guarantee. However, they
said that this competitive advantage is mitigated somewhat by certain
responsibilities borne by FDIC-insured depository institutions and
not by nonbanks or nonmember banks. For example, FDIC officials said
only FDIC member banks must comply with FDIC regulations, advertise
their insured status, and keep customers informed about which of
their products are insured by FDIC.
According to OCC officials, since banks and nonbanks operate under
different statutes, there is competitive inequality between them.
The officials said they support statutory changes that would level
the playing field among financial service providers. To address
other inequalities between banks and nonbanks, they said OCC is
evaluating how nonbanks are regulated. Also, the officials said OCC
is working with the Securities and Exchange Commission (SEC) to
obtain more consistent regulation among all providers of financial
services. For example, they said OCC is working with SEC to set
appropriate disclosure standards for banks and nonbanks offering
mutual funds to the public.
COMPANIES' CONCERNS ABOUT
UNREASONABLE REGULATIONS
-------------------------------------------------------- Appendix II:3
This section includes examples of companies' concerns about
regulations they viewed as unreasonable (e.g., a regulation or a
process was not scientifically based or the regulators did not
understand the industry they regulated) and the agencies' responses
to these concerns.
COMPANY EXAMPLE 7
------------------------------------------------------ Appendix II:3.1
A Bank A official said the Equal Employment Opportunity Commission
(EEOC) record retention standard is inconsistent with how EEOC
pursues cases. He said EEOC requires that former employees'
personnel files be retained for only 1 year after leaving a company,
but on several occasions, EEOC staff have questioned bank officials
about employees who left several years ago. The official said that,
if the bank had followed the EEOC guidelines and only kept employees'
files for 1 year, it would have had a "major problem." He said EEOC
is likely to rule in a former employee's favor by default if the
employer does not have the documentation to support its position.
AGENCY RESPONSE 7
------------------------------------------------------ Appendix II:3.2
According to EEOC officials, the specific requirements for
maintaining personnel records are tied to the filing periods of each
statute. The officials said title VII of the Americans with
Disabilities Act's (ADA) regulations require personnel records to
generally be kept for 1 year, as correctly stated by the Bank A
official, since charges can be filed up to 300 days after the alleged
discrimination. Equal Pay Act lawsuits must be filed within either 2
or 3 years of the alleged discrimination; the act's recordkeeping
requirements contain 2- and 3-year record retention periods.\2 Also,
the Age Discrimination in Employment Act (ADEA) has 1- and 3-year
retention requirements. EEOC officials said their record retention
standards establish a floor. They said employers, if they believe it
is good business practice, may keep the records for longer periods.
When there is a pending discrimination charge, EEOC officials said
all of the statutes require employers to preserve all relevant
personnel records until final disposition of a charge. They said if
the bank has complied with these requirements and there is no pending
charge of discrimination, destruction of records during the normal
course of business would not violate the law or give rise to an
adverse inference.
--------------------
\2 29 C.F.R. 1620.32.
COMPANY EXAMPLE 8
------------------------------------------------------ Appendix II:3.3
Officials from the petrochemical company said EPA recently finalized
rules that unnecessarily restrict how refineries manage oil recovered
from their refining operations. They said these rules treat oil
returned to the refinery from associated chemical plants as waste
that cannot be reused. According to company officials, before the
rules, companies used recovered oil as a raw material input into the
refining process and produced products from the oil. Company
officials believe refineries should be free to use recovered oil to
produce petroleum products without interference from EPA.
AGENCY RESPONSE 8
------------------------------------------------------ Appendix II:3.4
According to EPA officials, as of July 1994, the recovered-oil rule
excludes from RCRA hazardous waste regulations any recovered oil that
is generated by normal petroleum refining operations and reinserted
into the refining process. They said this exclusion does not apply
where recovered oil was generated from organic chemical industry
operations, except where petrochemical and petroleum refining
operations share a common wastewater treatment system. (This
stipulation is based on the concern that additional toxic
constituents (e.g., chlorinated compounds) may be present in
petrochemical processing residuals that are not found in residual
hydrocarbons from petroleum refining.) However, EPA officials said in
the Petroleum Refining Hazardous Waste Listing Determination, signed
in October 1995, it proposed an approach to expand the recovered oil
exclusion for petroleum refining operations to include recovered oil
from collocated and/or commonly owned organic chemical plants.
COMPANY EXAMPLE 9
------------------------------------------------------ Appendix II:3.5
Bank B officials considered the reporting requirements under the Bank
Secrecy Act (BSA) time consuming, of negligible value to law
enforcement, and of no value to banks. Under BSA, the officials said
banks are required to report financial activity by individuals who
daily deposit $10,000 or more in cash. In many cases, they said, the
reports track legitimate transactions involving businesses that
handle large amounts of cash on a daily basis (e.g., gas stations)
rather than identifying any potential criminal activity. The
officials said that the reports are time consuming to prepare and
require about 60 lines of information. They said that for single
cash transactions of $10,000 or more, BSA requires the bank to
complete the report while the depositor is still in the bank.
Furthermore, the officials said BSA requires that the bank review its
total deposits for the day and report individuals with multiple
transactions totaling $10,000 or more. They said the latter
situation requires the bank to review transactions from all of its
branches and follow up with the customer to complete the report.
While the intent of BSA was to identify criminal activity, bank
officials said they have seen little evidence of the federal
government's or law enforcement agencies' using the information the
bank provided on these forms. They said few prosecutions have
occurred as a result of the bank's reporting these transactions.
Bank officials said the reporting requirement should be changed,
requiring banks to report only suspicious activity rather than all
daily $10,000 cash transactions.
AGENCY RESPONSE 9
------------------------------------------------------ Appendix II:3.6
Department of the Treasury officials said they disagreed with some
aspects of Bank B's comments about BSA. First, the officials said
once a financial institution has verified certain basic
identification information about a customer, the institution can rely
on this information in the future rather than requiring the customer
to remain on-site each time a reportable transaction is conducted.
Also, they said most banks use computer programs that link the
responsibility of completion of the Currency Transaction Report with
other functions of the bank's automated information systems. Second,
the officials said BSA regulations do not require banks to aggregate
multiple transactions under $10,000. They said multiple transactions
must be reported only if the bank has knowledge that a customer's
aggregate currency transactions exceed $10,000 in a day.
Treasury officials also disagreed with Bank B officials' assertions
that BSA reporting requirements are of negligible value to law
enforcement. They said that Treasury believes that recent efforts to
streamline the regulatory reporting process more than adequately
address previous industry concerns of complexity and burdensome
reporting. In addition, Treasury officials said Bank B's fear that
BSA data are insufficiently used is unfounded. Currently, the data
financial institutions report are reviewed by Artificial Intelligence
Systems at Treasury and IRS. The officials said there are over 90
million records of financial information in its financial database
and, in 1994 alone, the database was queried over 1.9 million times
by federal, state, and local law enforcement agencies. The officials
also said the information reported to Treasury under BSA creates an
invaluable paper trail for investigators to follow as they track
criminals and their assets. In addition, they said the information
is used as a critical tool in criminal, tax, and regulatory
proceedings for building investigative leads, identifying individuals
and organizations involved in illicit financial activity, and
disclosing unreported income.
Treasury officials agreed in part with Bank B's comments that the
most effective way to combat financial crime is to reduce routine
regulatory burdens and jointly develop programs with the financial
community to look at all facets of financial activity vulnerable to
money laundering. The officials said Treasury issued an interim
regulation on April 24, 1996, that dramatically reduces the reporting
obligations of banks. For example, they said provisions of the
interim regulation eliminate some of the routine currency reporting
that Bank B mentioned.\3 In addition, the officials said Treasury
will issue new guidance to financial institutions about which types
of activity to report, when the activity should be reported, and to
whom to make the report.
--------------------
\3 Treasury officials said that the interim regulation eliminates the
requirement that banks report all transactions in excess of $10,000
between banks and certain classes of exempt persons. They estimated
the change would reduce filings by up to 2 million forms annually.
COMPANY EXAMPLE 10
------------------------------------------------------ Appendix II:3.7
An official of a tank car company said the Department of
Transportation's (DOT) requirement that all of the company's
employees receive hazardous materials training is unreasonable
because only 1 percent of their employees actually deals with
hazardous materials. He also said the training is required every 2
years and costs the company approximately $40,000--an expense he said
the company would not incur were it not for the requirement. The
official said new employees must also receive the training, which
costs the company an additional $10,000. He also questioned the
value of the training because it is primarily about how to complete
shipping papers to meet DOT requirements.
AGENCY RESPONSE 10
------------------------------------------------------ Appendix II:3.8
According to DOT officials, the allegation that "hazmat training is
primarily about how to complete shipping papers to meet DOT
requirements" is incorrect. The officials said hazmat employee
training must include the following three categories: (1) general
awareness/familiarization training to raise a hazmat employee's
awareness of hazardous materials regulations and awareness of the
purpose and meaning of hazard communication requirements, (2) safety
training to provide information concerning the hazards presented by
hazardous materials and procedures to protect the trainee and the
public, and (3) function-specific training to provide job-specific
training suitable for the function performed by the hazmat employee.
For example, DOT officials said a hazmat employee who fills, marks,
and labels packages of hazardous materials for transportation must
receive specific training in that function, but the employee need not
be trained in the preparation of shipping papers if he or she does
not perform that function.
CONCERNS ABOUT COMPANIES NOT
UNDERSTANDING REGULATORY
REQUIREMENTS
-------------------------------------------------------- Appendix II:4
This section includes examples of companies' concerns about the
difficulties associated with understanding regulatory requirements
(e.g., the language is very technical or the requirements keep
changing) and agencies' responses to the concerns.
COMPANY EXAMPLE 11
------------------------------------------------------ Appendix II:4.1
According to the hospital's officials, it is very difficult to keep
pace with frequently changing Medicare and Medicaid billing rules.
Although the hospital's computer programmers have spent many hours
(approximately 1,500 during fiscal year 1994) trying to keep their
automated patient billing system up to date, the hospital officials
said it is like "chasing a moving target." They said approximately 40
percent of the hospital's billings are Medicare- or Medicaid-related.
AGENCY RESPONSE 11
------------------------------------------------------ Appendix II:4.2
Officials from the Department of Health and Human Service's Health
Care Financing Administration (HCFA) said a number of changes to
hospital billing procedures are due to enhancements or changes made
by Congress. The officials said HCFA is aware of the burden that
frequent changes have on hospitals and is working on efforts to
minimize the burden. For example, they said HCFA tries to give
hospitals 90 days to make system changes to accommodate Medicare
legislative changes. However, HCFA officials also said that
legislative mandates do not always provide the amount of lead time
HCFA would normally afford providers to make changes.
COMPANY EXAMPLE 12
------------------------------------------------------ Appendix II:4.3
Roadway Services, Inc., officials said that many labor and employment
regulations overlap or have conflicting elements. They also said
that the regulations are often either very vague or very detailed,
not generally comprehensible. The officials said the regulations
implementing Executive Order 11246\4 are a classic example of unclear
federal requirements that frustrate many companies.
--------------------
\4 Executive Order 11246, as amended, prohibits discrimination in
employment on the basis of race, color, religion, sex, or national
origin by federal contractors and subcontractors.
AGENCY RESPONSE 12
------------------------------------------------------ Appendix II:4.4
According to officials of the Department of Labor's (DOL) Employment
Standards Administration (ESA), Roadway's officials expressed the
company's general discontent with DOL's regulations and only
specifically cited Executive Order 11246 (Affirmative Action) as
problematic. The officials said the regional and district offices of
DOL/Office of Federal Contract Compliance Programs (OFCCP) (1)
regularly give seminars explaining the technical aspects of the
regulations that implement affirmative action plans and (2) provide
any technical assistance on an as needed basis. Additionally, since
complaints filed against an employer are covered by both ADA and
affirmative action regulations, the officials said it was imperative
that the regulations be consistent and DOL has efforts under way to
improve the consistency of the regulations.
COMPANY EXAMPLE 13
------------------------------------------------------ Appendix II:4.5
A Minco Technologies Lab, Inc., official said developing an
affirmative action plan is time consuming and complex due to numerous
and changing regulatory requirements. The official said the
affirmative action plan requirements in Executive Order 11246,
administered by DOL/OFCCP, are the most problematic human resources
regulations the company faces. She said one problem is that it is
difficult for businesses to stay aware of the changes in regulatory
requirements; they cannot ask the "enforcers" for information without
potentially calling their actions into question.
AGENCY RESPONSE 13
------------------------------------------------------ Appendix II:4.6
According to DOL/ESA officials, the agency does not seek reprisal
against companies that ask the agency for information on developing a
plan. The officials said OFCCP continuously provides free technical
assistance to all segments of the public from its national, regional,
and district offices. They said OFCCP is currently developing supply
and service and construction technical assistance guides to further
help federal contractors (such as Minco) develop an affirmative
action plan and understand the regulatory requirements. OFCCP
officials said they expect both guides to be available before the end
of 1996. OFCCP officials also said that OFCCP offices hold "grass
roots meetings" with contractor representatives to discuss a variety
of topics with which they are concerned. The OFCCP offices also hold
technical assistance seminars and industry liaison conferences to
assist contractors to fulfill their nondiscrimination and affirmative
action obligations.
COMPANIES' CONCERNS ABOUT RIGID
AND INFLEXIBLE REGULATIONS
-------------------------------------------------------- Appendix II:5
This section includes examples of companies' concerns about
regulatory requirements that they consider to be unnecessarily rigid
or inflexible and agencies' responses to these concerns.
COMPANY EXAMPLE 14
------------------------------------------------------ Appendix II:5.1
Bank A officials said that although they believed the FDIC
requirement to have a contingency plan for their information
processing systems is a worthwhile goal, the guidelines for the
development of such a plan, as they relate to small banks, make it
difficult to prepare. The officials said the guidelines are
excessively detailed, requiring detailed testing, and appear
unreasonable for a small bank such as Bank A.
AGENCY RESPONSE 14
------------------------------------------------------ Appendix II:5.2
According to FDIC officials, the company's assertion that a bank's
board of directors must develop a contingency plan for information
processing is incorrect. They said the Federal Financial
Institutions Examination Council adopted a policy statement on a
contingency plan. The officials said the plan is not mandated by a
statute or regulation. They said the implementation of a contingency
plan is intended to ensure that a financial institution is able to
recover from a disruption to its operations or a break in service
from its data-processing server. FDIC officials said the listing of
items and factors in the policy statement is intended as a flexible
tool for management to use in developing its own unique contingency
plan. Without such a plan in place, they said a natural or other
disaster could cause devastating disruptions to the institution's
operations and customer services, resulting in unrecoverable losses,
both financial and reputational.
COMPANY EXAMPLE 15
------------------------------------------------------ Appendix II:5.3
Officials from the paper company said OSHA's lead exposure
standards\5 are highly prescriptive and expensive. They said any
maintenance person working on a valve who scrapes away any paint
containing lead, regardless of the amount of lead it contains (e.g.,
lead-intensive paint versus those paints with only 0.0001 percent of
lead) must first put on a respirator and other personal protective
equipment. However, before doing so, the officials said the employee
must first obtain a doctor's permission and be "fit tested." The
officials said that this process costs the company about $1.25
million per year.
--------------------
\5 29 C.F.R. 1926.
AGENCY RESPONSE 15
------------------------------------------------------ Appendix II:5.4
OSHA officials said the Lead Standards for Construction\6 do not
apply to routine maintenance activities not associated with
construction work. They said the General Industry Standard\7
would apply in these situations. In addition, they said neither of
the standards requires workers to wear respirators or other personal
protection equipment while performing the task cited by the paper
company, unless exposures are above the permissible exposure limit.
According to the officials, medical clearances are not required under
these standards unless an employee demonstrates difficulty breathing
when using a respirator.
--------------------
\6 29 C.F.R. 1926.62.
\7 29 C.F.R. 1910.1025.
COMPANIES' CONCERNS ABOUT
PAPERWORK AND PROCESS ISSUES
-------------------------------------------------------- Appendix II:6
This section includes examples of companies' concerns about
regulatory paperwork/process being excessive and too costly and
agencies' responses to the concerns.
COMPANY EXAMPLE 16
------------------------------------------------------ Appendix II:6.1
The fish farm officials said they want to start a pension plan for
their employees, but have not done so because the Employee Retirement
Income Security Act's (ERISA) numerous and detailed reporting and
recordkeeping requirements make the plan cost prohibitive.
AGENCY RESPONSE 16
------------------------------------------------------ Appendix II:6.2
DOL, IRS, and the Pension Benefit Guaranty Corporation (PBGC)
mentioned several pension plan simplification proposals that were
announced in June 1995. The agencies' officials said these
proposals, if enacted, would simplify several rules currently
governing pension plans and permit small employers to establish
pension plans that would be both simpler and less expensive for small
employers to administer.\8
To reduce the burden of complying with ERISA paperwork requirements,
the three agencies indicated that they jointly developed the Form
5500 Series to enable plan administrators to satisfy their reporting
obligations under titles I, II, and IV of ERISA with a single annual
report form. IRS officials said the Service, along with PBGC and
DOL, is in the process of significantly simplifying and shortening
the Form 5500 and developing software that will allow plans to file
the form automatically by using a self-editing program. IRS
officials also said when there are changes in the law or regulations,
IRS publishes model plan amendments and streamlined application
procedures to lessen the costs of amending plans. IRS officials said
when employers have made minor plan amendments, they may apply for an
IRS review of the amendments using a simplified application form.
--------------------
\8 IRS officials later noted that many of these proposals were
enacted in the Small Business Job Protection Act of 1996.
COMPANY EXAMPLE 17
------------------------------------------------------ Appendix II:6.3
A Bank C official said the Truth in Savings Act (Regulation DD)
requires that every fee charged to a customer's account must be
separately described on their statement, resulting in the bank's
creating 15 new forms for tellers to complete. In addition, an
official said that when Regulation DD was first implemented, all of
the bank's computer systems had to be reprogrammed to produce savings
yield information and new account statements, costing the bank an
estimated $3.8 million in its home state operations alone.
AGENCY RESPONSE 17
------------------------------------------------------ Appendix II:6.4
According to FRB officials, Regulation DD requires institutions to
disclose the annual percentage yield earned, any fees imposed, and
certain other information on the periodic statements to consumers.
As a result, the officials said banks must separately disclose on
periodic statements any account-related fees that are assessed.
However, they said there is no requirement that bank personnel
complete forms to accomplish this purpose.
The officials said FRB is aware of the costs involved in implementing
Regulation DD. They said shortly after Regulation DD's enactment,
FRB conducted a survey of institutions' start-up costs to implement
the regulation. According to FRB officials, the survey revealed that
data-processing and systems changes were indeed the most expensive
compliance costs for institutions, accounting for approximately 40
percent of the total start-up compliance costs. When Regulation DD
was finalized, the officials said FRB implemented several changes on
the basis of comments from industry to help minimize costs,
particularly those related to periodic statements. For example, they
said that information sent in connection with time accounts and
passbook savings accounts is exempt from the periodic statement
rules.
COMPANY EXAMPLE 18
------------------------------------------------------ Appendix II:6.5
The official from the tank car company said the Hazardous Waste
Shipment and Waste Minimization reports required by RCRA duplicate
other information and are costly to produce (more than $3,000 in
1994). The official said EPA requires the reports to be filed
biennially with the EPA Regional Administrator even though almost all
of the information is already available to EPA on the shipment
manifests for hazardous wastes, which each company is required to
keep. He said the only piece of information that the report requests
that currently is not on the manifest could be incorporated into the
manifest without a problem.
AGENCY RESPONSE 18
------------------------------------------------------ Appendix II:6.6
EPA officials said they appreciate the company's concern about
redundancy of data required on the biennial report and manifest, and
they are working to reduce the reporting burden and improve the
usefulness of collected data. According to the officials, the Office
of Solid Waste is working with states to revise the manifest system
and to revise or replace the biennial report, with the objective of
eliminating duplicative and overlapping reporting burdens. They said
EPA is considering a certification option that would reduce the need
for the detailed reporting on waste minimization.
COMPANY EXAMPLE 19
------------------------------------------------------ Appendix II:6.7
Multiplex, Inc., officials said EPA paperwork and reporting
requirements on the company's use of hazardous materials are in some
cases duplicative. For example, under the Emergency Planning and
Community Right-to-Know Act (EPCRA), the company has to submit Form R
reports to EPA. The officials said the Form R report contains the
same information that they submit to the state environmental agency
in a "Tier II" report.
AGENCY RESPONSE 19
------------------------------------------------------ Appendix II:6.8
According to EPA officials, Multiplex could reduce its EPCRA section
313 reporting burden. The officials said that beginning with
reporting year 1995, the EPCRA reporting criteria were changed to
enable facilities that had less than 500 pounds of an annual
reportable amount of a listed toxic chemical to submit a
certification statement in lieu of a Form R, thereby reducing the
reporting elements from nine to two pages. They said the data on
Multiplex's Form R for the 1993 reporting year indicate that the
company could take advantage of this streamlined reporting process.
In addition, the officials said EPA is looking at ways to consolidate
environmental reports. They said EPA is particularly looking at
replacing a multitude of reporting forms currently required for all
the different types of pollution discharged from a single facility
with a "one-stop" reporting system. They believed such a
comprehensive approach to information collection and management would
help to eliminate duplicative reporting while providing an approach
that would be more efficient for EPA and its state partners.
CONCERNS ABOUT SEVERE PENALTIES
IMPOSED ON BUSINESSES
-------------------------------------------------------- Appendix II:7
This section includes examples of companies' concerns about the
severity of penalties imposed on them for noncompliance with federal
regulations and agencies' responses to the concerns.
COMPANY EXAMPLE 20
------------------------------------------------------ Appendix II:7.1
An official from the tank car company said EPA regulatory
requirements that make managers personally responsible for their
companies' compliance with environmental standards are unreasonable.
The official said that EPA's regulations for emergency planning and
notification under the Comprehensive Environmental Response,
Compensation, and Liability Act state that a manager who fails to
provide local officials with the required notice regarding a release
of hazardous substances can be fined up to $25,000 or imprisoned for
up to 2 years or both. He said that if these personal responsibility
requirements are continued or expanded, it will be difficult to find
anyone willing to manage such companies.
AGENCY RESPONSE 20
------------------------------------------------------ Appendix II:7.2
According to EPA officials, the tank car company's statements
regarding personal liability of the managers are inaccurate. The
officials said managers are not held personally responsible for their
companies' compliance with environmental standards. They said it is
EPA's policy to issue civil administrative complaints to the owners
of firms (e.g., partnerships or corporations), rather than to the
individuals who operate firms.
However, EPA officials said managers, like all other individuals, are
held personally responsible for their own violations when there is a
criminal element to the action. They said that under EPCRA, the
responsibility to inform a community about an environmental release
of a hazardous substance is a fundamental duty to protect public
safety. EPA officials said any person who knowingly and willfully
fails to provide the required notice may be imprisoned for no more
than 2 years and fined up to $250,000. Similarly, under the
Comprehensive Environmental Response, Compensation, and Liability
Act, any person in charge of a vessel or facility who fails to give
notice to the National Response Center of the release of a reportable
quantity of a hazardous substance as soon as he/she has knowledge of
such release, may be imprisoned for no more than 3 years and fined up
to $250,000. This notice requirement is necessary to ensure that
risk from the hazardous substance to the public health and the
environment are minimized.
COMPANY EXAMPLE 21
------------------------------------------------------ Appendix II:7.3
Zaclon, Inc., officials said the company is appealing an $81,000 fine
for failure to respond on time to an EPA request for information
related to RCRA. Company officials said a letter EPA sent to the
company requesting the information was mistakenly filed away by a
former company employee. They said the letter was not discovered
until EPA imposed the fine 18 months later without any follow-up or
other communication regarding the original request. The officials
said they are also disturbed that the fine was imposed on them
because of a procedural matter (failing to report information), not
for noncompliance with something that had a real environmental
impact.
AGENCY RESPONSE 21
------------------------------------------------------ Appendix II:7.4
According to EPA officials, some aspects of Zaclon's concern in this
example are inaccurate. First, the officials said Zaclon is not
appealing an $81,000 fine. They said that although EPA initially
proposed that Zaclon pay a penalty of $81,000, the proposed penalty
was reduced to $37,600 after discussions with the company.\9 In
addition, EPA officials said the violation at issue did not involve
an information request. They said Zaclon was sent a notification of
its regulatory obligation to either file a RCRA permit application
for a hazardous waste pile at a facility the company had acquired or
submit a demonstration of equivalency, indicating that the waste pile
had been "clean closed" (closed in an environmentally protective
manner as required in the hazardous waste regulations\10 ). EPA
officials said the company's obligation to either obtain a permit or
demonstrate environmentally protective closure of a hazardous waste
pile is not a "procedural matter." They said this obligation is a
substantive requirement necessary to ensure that hazardous waste
management units are designed and operated so as to prevent releases
of hazardous constituents into the environment.
The officials agreed that there was no communication between EPA and
the company on this matter after the agency sent the initial letter
to the company about its obligation and EPA's filing of the
enforcement action. They also said the agency sent the company a
certified letter, which the company acknowledges receiving, to
initially notify them of their obligation. EPA officials said RCRA
is a "strict liability" statute; companies have a positive obligation
to comply even if EPA does not issue reminders of their
responsibility. The officials said issues of good faith are
important factors in such situations, but they are appropriately
considered in the penalty calculation and do not affect liability for
a violation.
EPA officials said although the company might have wanted EPA to
initiate additional contact before taking any enforcement action, the
agency has limited resources to do so, and the pressure of other work
sometimes precludes this opportunity. In addition, the officials
said some companies have a record of being resistant to compliance
with environmental matters, which would make additional efforts by
EPA unproductive.
--------------------
\9 A hearing was conducted in the fall of 1994 and an Initial
Decision by the Administrative Law Judge is pending.
\10 40 C.F.R. part 264.110-115.
COMPANIES' CONCERNS ABOUT
REGULATORS' "GOTCHA"
ENFORCEMENT APPROACH
-------------------------------------------------------- Appendix II:8
This section includes examples of companies' concerns about
regulators' "gotcha" approach to enforcing federal regulations and
agencies' responses to these concerns.
COMPANY EXAMPLE 22
------------------------------------------------------ Appendix II:8.1
Officials from the petrochemical company said that EPA's enforcement
of environmental regulations is unnecessarily harsh. They said
enforcement actions can be initiated even when companies self-report
deficiencies found through internal auditing practices. They also
said that a minute deviation from a stringent emission level can
subject a facility to enforcement action, even if the facility is in
compliance 99.9 percent of the time and no degradation of public
health or the environment exists.
AGENCY RESPONSE 22
------------------------------------------------------ Appendix II:8.2
EPA officials said they needed additional information about the
company to fully respond to this concern. However, the officials
said EPA recognizes the importance of internal auditing and has taken
steps to encourage such auditing. They said EPA's policies generally
provide penalty reductions for such matters as good faith efforts to
comply, ability to pay, and other factors. The officials said EPA
published on December 22, 1995, Self-Policing Incentives: Discovery,
Disclosure, Correction and Prevention of Violations, which sets forth
guidelines to reduce or eliminate the "gravity" component of a
penalty when (1) the self-disclosure meets certain conditions and (2)
no criminal conduct or imminent and substantial endangerment is
involved. However, they said to ensure a "level field" for those
companies that comply, no penalty reduction is appropriate when the
violations involve significant economic benefit to the violator.
EPA officials said they consider noncompliance with environmental
reporting and monitoring mechanisms to be significant. They said
since it would be prohibitively expensive for regulators to inspect
all facilities on a regular basis, EPA relies on company-maintained
records, reports, and notifications as the only realistic mechanisms
to ensure compliance.
COMPANY EXAMPLE 23
------------------------------------------------------ Appendix II:8.3
A Multiplex official suggested that OSHA's policy of immediately
imposing fines for violations places an emphasis on finding
violations to justify enforcement actions, rather than on working
with the company to encourage compliance. He said many OSHA
inspectors focus on finding something wrong because citing violations
demonstrates what OSHA views as good job performance. The official
recommended that OSHA notify a company of any violations identified
during an inspection and allow 30 days for the company to come into
compliance before assessing a fine.
AGENCY RESPONSE 23
------------------------------------------------------ Appendix II:8.4
According to OSHA officials, the Occupational Safety and Health Act
provides for monetary penalties to be levied as an incentive for
employers to comply voluntarily with OSHA standards; OSHA penalties
are not intended to serve a punitive purpose. They said OSHA is
aware of employers' concerns about OSHA inspectors' seeming to care
less about worker safety than about meeting perceived "quotas" for
citations and penalties. They said OSHA never used quotas but in the
past had used citations and penalties as performance measures.
However, they said this practice was stopped and performance will be
measured by OSHA's success in making safety and health improvements.
The officials said OSHA is making several changes in its enforcement
efforts. For example, they said OSHA is changing its fundamental
operating model from one of command-and-control to one that provides
employers with a real choice between cooperative partnerships and a
traditional enforcement relationship. In another example, they said
OSHA is expanding its "quick fix" program. They said this program
provides an incentive for employers to abate hazards quickly by
allowing the employers to receive a penalty reduction if they abate
hazards immediately and permanently during the inspection. They said
employees benefit under this program by getting more employee
protection, and OSHA employees are freed from follow-up abatement
inspections and paperwork.
COMPANIES' CONCERNS ABOUT
REGULATORS' LACK OF KNOWLEDGE
AND ASSISTANCE
-------------------------------------------------------- Appendix II:9
This section includes examples of companies' concerns about
regulators who (1) lack knowledge about the industries they regulate
and (2) provide little compliance assistance to companies. Following
each of the examples are the agencies' responses.
COMPANY EXAMPLE 24
------------------------------------------------------ Appendix II:9.1
Officials from the hospital said that, in many instances, OSHA
regulators do not sufficiently inform companies about upcoming
regulatory changes and how to comply with them. They believe that
OSHA's consulting function should be energized, which would
concurrently move the agency posture into more of a collaborative
mode (i.e., away from a "policing" posture that presumes violations
until they are disproved by the company).
AGENCY RESPONSE 24
------------------------------------------------------ Appendix II:9.2
According to OSHA officials, OSHA is increasing emphasis on
interactions with stakeholders and expects this emphasis to enable
the agency to successfully streamline and rationalize the existing
body of regulations and to build a set of common-sense regulations.
Also, OSHA officials said they are committed to simplifying access to
workplace safety and health regulations and increasing efforts to
provide compliance assistance to employers. They said employers,
particularly small businesses, are encouraged to use the free
consultation service (available through state governments) to help
them identify potential hazards at their workplace and improve their
safety management systems. The program, offered free of charge in
all states, is completely separate from the enforcement program, and
participants cannot be cited during the consultation visit.
To help businesses recognize and protect workers from workplace
hazards, the officials said that OSHA has implemented a number of
information-dissemination projects and plans to undertake new
initiatives to improve the availability of safety and health data to
the public, such as using computer technology to assist employers and
placing the text of rules on the Internet.
COMPANY EXAMPLE 25
------------------------------------------------------ Appendix II:9.3
The fish farm officials said those involved in the federal
policymaking process sometimes do not address the underlying cause of
the problem. For example, they said Congress established the Aquatic
Nuisance Species Task Force after the accidental introduction of
nonindigenous zebra mussels into the Great Lakes when a ship dumped
bilge water. According to the officials, the task force
recommendations suggested numerous actions businesses should be
required to do to reduce the problems caused by aquatic nuisance
species. The officials also said they spent significant time and
resources reviewing the task force's draft reports and providing
comments, but the task force virtually ignored the comments they
received from industry until the final draft.
AGENCY RESPONSE 25
------------------------------------------------------ Appendix II:9.4
According to officials in the Department of the Interior's Fish and
Wildlife Service, the fish farm is misinformed about the Service's
activities under the Nonindigenous Aquatic Nuisance Prevention and
Control Act of 1990. They said the company's concern is related to
section 1207 of the act. The only regulatory authority in the entire
act is over ballast water control and implementation of the Aquatic
Nuisance Species Program. In addition, the act requires the task
force to recommend in a report to Congress (Intentional Introductions
Policy Review) ways to reduce the risk of adverse consequences of
future intentional introductions.
Fish and Wildlife Service officials said public review was an
integral part of the development of the task force's report. They
said an interagency committee conducted the review and prepared the
report to Congress. The officials said the review was done in
consultation with state fish and wildlife agencies; other regional,
state, and local entities; potentially affected industries; and other
interested parties. They said meetings were open to the public and
public comments were always accepted. The officials said, during the
public review and comment period (August 1993 through late October
1993), they received 145 written comments from many sources,
including tropical fish businesses and state and Federal agencies.
They said all of the comments brought a fresh perspective to the task
force and were thoroughly considered and incorporated, as
appropriate, into the final report.
The Service's officials said that, without knowing the name of the
company that made these comments, it is impossible for them to
provide a specific response to their concern. However, the officials
said the final comments of the company seem to indicate that the
company's concerns were eventually satisfied.
COMPANIES' CONCERNS ABOUT
REGULATORY COORDINATION AND
DUPLICATION
------------------------------------------------------- Appendix II:10
This section includes examples of companies' concerns about
duplication and a lack of coordination of regulations among federal
agencies and between federal and state or local levels of government.
Agencies' responses immediately follow each example.
COMPANY EXAMPLE 26
----------------------------------------------------- Appendix II:10.1
A Minco official said the Family and Medical Leave Act (FMLA)
requires employees to submit medical documentation to employers that
may conflict with privacy protection requirements under the ADA. For
example, he said employees are required to provide employers with
medical documentation to support FMLA leave requests. However,
according to the official, that documentation may reveal information
about a specific medical condition that the ADA requires be kept from
employers.
AGENCY RESPONSE 26
----------------------------------------------------- Appendix II:10.2
Both EEOC and DOL officials disagree with Minco's statement about a
conflict between FMLA and ADA regulations. EEOC officials said the
FMLA provision allowing employers to ask for certification that an
employee has a serious health condition does not conflict with ADA
restrictions on disability-related inquiries of employees.
According to DOL officials, the purpose of FMLA's medical
certification provisions (29 U.S.C. 2613) is to allow employers to
obtain information from a health care provider to verify that an
employee or an employee's family member has a serious health
condition and the likely periods of absence by the employee. The
officials said the regulatory medical certification provisions were
developed in consultation with EEOC to ensure consistency with the
ADA's provisions. They said that for privacy reasons, and to be
consistent with the ADA, all information on the form is generally
limited to the medical facts of the medical condition (of the
employee or family member) for which the employee is taking FMLA
leave. They said employers must maintain the same level of
confidentiality for medical documents under FMLA and the ADA.
COMPANY EXAMPLE 27
----------------------------------------------------- Appendix II:10.3
Officials from the glass company said one of their major regulatory
problems is state regulations (issued either independently or at the
urging of federal agencies, such as EPA) that vary from one state to
another. They said it is far more costly to track and comply with 50
different regulations than with a single federal regulation in a
given area. They said the lack of uniformity among the various
states in which the company operates creates a real burden on the
company. The officials said the company must devote significant
resources (labor hours, computer systems, and consultant costs) to
dealing with differing rules, regulations, and reporting requirements
in the various state departments of revenue/taxation, state insurance
commissions, state unemployment departments, and state health
departments. For example, they said one state in which they operate
requires warning labels on all products shipped to that state that
"expose" citizens to any of over 300 chemicals, regardless of how
trivial the alleged exposure. As a result, the officials said a
company must either have special labels for that state or must change
all of its product labels to meet that state's standard.
AGENCY RESPONSE 27
----------------------------------------------------- Appendix II:10.4
According to EPA officials, the right for states to establish their
own laws has philosophic and legal underpinnings embodied in the
Constitution. The officials said although Congress has specifically
debated whether federal environmental requirements should supersede
any state requirements or whether they should be the "minimum floor"
or "maximum ceiling," in most cases, the prevailing position is that
states should be allowed to establish equivalent or stronger
requirements.
The officials said EPA has taken strides toward harmonizing
requirements between states and the federal level and often
encourages states to coordinate requirements or practice reciprocity
among themselves. For example, the officials said EPA has a number
of pesticide programs designed to harmonize state laws and
regulations for pesticide manufacturing, sales, and use. Also, in
response to complaints from transporters of hazardous waste about the
multiplicity of individual state requirements, the officials said EPA
sponsored a Regulatory Negotiation to develop a uniform national
manifest that will meet not only federal information requirements,
but also those of every state through which a shipment of hazardous
waste might pass.
COMPANY EXAMPLE 28
----------------------------------------------------- Appendix II:10.5
An official from the tank car company said the manufacturer did not
understand why EPA required a federal National Pollutant Discharge
Elimination System (NPDES) permit that duplicated information they
filed with a state agency to obtain their state NPDES permit. He
said the failure of EPA to honor a state permit, which required the
same stringent standards, caused duplication of effort and of data
submission. After 2 years of debate and the issuance of an EPA
Administrative Order, EPA reportedly fined the company several
hundred thousand dollars for not obtaining a federal permit. The
company official also said EPA would not work with the company
regarding this issue or consider the state permit as evidence of good
faith. According to the company official, the company decided to
"cut its losses" and just pay the fine, rather than pay for
litigation.
AGENCY RESPONSE 28
----------------------------------------------------- Appendix II:10.6
EPA said the tank car company has a facility operating in one of the
few states that is not authorized to administer EPA's NPDES program.
According to the officials, although a state may choose to separately
regulate discharges to surface waters, the state cannot issue CWA
permits unless it is authorized by EPA to operate an NPDES program.
They said in states without this authorization, a company must obtain
a federal NPDES permit in addition to any requirements under a
similar state permit program. Thus, contrary to the company's
statement, the EPA officials said this state does not have a permit
system equivalent to the NPDES program. They acknowledged that the
state issued a wastewater discharge permit to the facility. However,
they said the permit did not accurately reflect the nature of the
discharge or the actual operations on-site; therefore, the permit was
neither legally nor practically the equivalent of an NPDES permit.
COMPANY EXAMPLE 29
----------------------------------------------------- Appendix II:10.7
Officials from the paper company said the DOT and OSHA regulations
that define corrosive materials conflict. They said DOT defines
�corrosive� material by using a patch test on the skin of albino
rabbits, whereas OSHA defines a material as corrosive by using a
chemical pH test (an easier and more accurate test). They said that
different agencies' using different standards is confusing, making it
difficult to know which standard to follow.
AGENCY RESPONSES 29
----------------------------------------------------- Appendix II:10.8
Both DOT and OSHA officials said their definitions of corrosive
materials do not conflict. They said materials are considered to be
corrosive when a chemical causes visible destruction or irreversible
alterations to human skin tissue at the site of contact.
For example, according to OSHA officials, the Hazard Communication
Standard also defines a chemical as corrosive if, when tested on the
intact skin of albino rabbits by the method described by DOT in
Appendix A to 49 C.F.R. part 173, it destroys or irreversibly
changes the structure of the tissue at the site of contact after 4
hours of exposure. The officials said OSHA does not require pH
testing to determine corrosivity or preclude its use. Instead, they
said the Hazard Communication Standard requires only that "available
scientific evidence" be used to identify chemical hazards; such
evidence may include results of manufacturers' tests or results of
any published human, animal, or in vitro studies.
DOT officials said the use of pH testing in determining whether a
material is corrosive is only useful for aqueous materials (those
containing water). They said the definition of a corrosive material
was recently revised to adopt the Organization for Economic
Cooperation and Development's guidelines for determining corrosion.
According to this rule, DOT officials said a material in an aqueous
solution with a pH of 2 or less or 12 or more may be considered
corrosive.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III
GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C.
------------------------------------------------------- Appendix III:1
Curtis Copeland, Assistant Director, (202) 512-8101
Don Allison, Evaluator-in-Charge
Ellen Wineholt, Senior Evaluator
Dion Anderson, Evaluator
Kathy Cunningham, Evaluator
Scott Derrick, Evaluator
Kiki Theodoropoulos, Evaluator (Communications Analyst)
Thomas Beall, Technical Advisor
NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C.
------------------------------------------------------- Appendix III:2
Cheryl Goodman, Senior Evaluator
Thomas Melito, Senior Economist
RELATED GAO PRODUCTS
============================================================ Chapter 1
Regulatory Reform: Implementation of the Regulatory Review Executive
Order (GAO/T-GGD-96-207, Sept. 25, 1996).
Paperwork Reduction: Burden Reduction Goal Unlikely To Be Met
(GAO/T-GGD/RCED-96-186, June 5, 1996).
Approaches for Environmental Regulations (GAO/RCED-96-135R, Apr. 25,
1996).
Tax System Burden: A Perspective on the Compliance Burden of the
U.S. Tax System (GAO/T-RCED-96-100, Apr. 4, 1996).
Regulatory Compliance for NIH Grantees (GAO/HEHS-96-90R, Mar. 25,
1996).
Regulatory Reform: How Can Congress Assess the Administration's
Initiatives? (GAO/T-GGD-95-206, July 18, 1995).
Costs of Regulation (GAO/PEMD-95-24R, June 15, 1995).
EPA and the States' Environmental Challenges Require Better Working
Relationship (GAO/RCED-95-64, Apr. 3, 1995).
Regulatory Reform: Information on Costs, Cost-Effectiveness, and
Mandated Deadlines for Regulations (GAO/PEMD-95-18BR, Mar. 8, 1995).
Clean Air Rulemaking: Tracking System Would Help Measure Progress of
Streamlining Initiatives (GAO/RCED-95-70, Mar. 2, 1995).
Tax System Burden: Tax Compliance Burden Faced by Business Taxpayers
(GAO/T-GGD-95-42, Dec. 9, 1994).
Tax Administration: Compliance Measures and Audits of Large
Corporations Need Improvement (GAO/GGD-94-70, Sept. 1, 1994).
Environmental Regulation: Differences Remain Between EPA and OMB
Over Paperwork Requirements (GAO/RCED-94-254, Aug. 23, 1994).
Workplace Regulation: Information on Selected Employer and Union
Experiences (GAO/HEHS-94-138, June 30, 1994).
Paperwork Reduction Act: Opportunity to Strengthen Government's
Management of Information Technology (GAO/T-AIMD/GGD-94-126, May 19,
1994).
Regulatory Flexibility Act: Status of Agencies' Compliance
(GAO/GGD-94-105, Apr. 27, 1994).
Regulatory Burden: Recent Studies, Industry Issues, and Agency
Initiatives (GAO/GGD-94-28, Dec. 13, 1993).
Paperwork Reduction: Reported Burden Hour Increases Reflect New
Estimates, Not Actual Changes (GAO/PEMD-94-3, Dec. 6, 1993).
Paperwork Reduction: Agency Responses to Recent Court Decisions
(GAO/PEMD-93-5, Feb. 3, 1993).
Risk-Risk Analysis: OMB's Review of a Proposed OSHA Rule
(GAO/PEMD-92-33, July 2, 1992).
Environmental Protection: Meeting Public Expectations With Limited
Resources (GAO/RCED-91-97, June 18, 1991).
*** End of document. ***