Regulatory Reform: Comments on S. 981--The Regulatory Improvement Act of
1998 (Statement/Record, 02/24/98, GAO/T-GGD/RCED-98-95).
GAO discussed its work on the Regulatory Improvement Act of 1998,
focusing on federal agencies' implementation of: (1) the transparency
requirements in Executive Order 12866; (2) title II of the Unfunded
Mandates Reform Act (UMRA) of 1995; (3) the public notification in
section 610 of the Regulatory Flexibility Act (RFA) of 1980; and (4)
Office of Management and Budget's (OMB) best practices guide for
economic analyses used in rulemaking.
GAO noted that: (1) GAO reviewed four major rulemaking agencies' public
dockets and concluded that it was usually very difficult to locate the
documentation that the executive order required; (2) in many cases, the
dockets contained some evidence of changes made during or because of the
Office of Information and Regulatory Affairs (OIRA) review, but GAO
could not be sure that all such changes had been documented; (3) in
other cases, the files contained no evidence of OIRA changes, and GAO
could not tell if there had been no such changes to the rule or whether
the changes were just not documented; (4) UMRA's title II requirements
had little effect on agencies' rulemaking actions because those
requirements: (a) did not apply to many large rulemaking actions; (b)
permitted agencies not to take certain actions if the agencies
determined they were duplicative or unfeasible; and (c) required
agencies to take actions that they were already required to take; (5)
the new version of S. 981 contains one set of requirements that was not
in the bill introduced last year--that agencies develop a plan for the
periodic review of rules issued by the agency that have or will have a
significant economic impact on a substantial number of small entities;
(6) each agency is also required to publish in the Federal Register a
list of rules that will be reviewed under the plan in the succeeding
fiscal year; (7) although the Unified Agenda is a convenient and
efficient mechanism by which agencies can satisfy the notice
requirements in section 610 of the RFA, agencies can print those notices
in any part of the Federal Register; (8) GAO believes that the
reaffirmation and refinement of the section 610 rule review process in
S. 981 can serve to underscore Congress' commitment to periodic review
of agencies' rules and the public's involvement in that process; (9)
another critical element of S. 981 is its emphasis on cost-benefit
analysis for major rules in the rulemaking process; (10) GAO has been
examining 20 economic analyses at 5 agencies to determine the extent to
which those analyses contain the best practices elements recommended in
OMB's January 1996 guidance for conducting cost-benefit analyses; (11)
the 20 economic analyses varied significantly in the extent to which
they contained the elements that OMB recommended; and (12) agency
officials stated that the variations in the degree to which the economic
analyses followed OMB guidance and the limited use of the economic
analyses were primarily caused by the limited degree of discretion that
the underlying statutes permitted.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-GGD/RCED-98-95
TITLE: Regulatory Reform: Comments on S. 981--The Regulatory
Improvement Act of 1998
DATE: 02/24/98
SUBJECT: Proposed legislation
Executive orders
Cost effectiveness analysis
Federal regulations
Agency proceedings
Economic analysis
Government publications
Regulatory agencies
Government information dissemination
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Cover
================================================================ COVER
Before the Committee on Governmental Affairs
U.S. Senate
Not to Be Released
Before 3:00 p.m. EST
Tuesday
February 24, 1998
REGULATORY REFORM - COMMENTS ON S.
981--
THE REGULATORY
IMPROVEMENT ACT OF 1998
Statement for the Record of L. Nye Stevens
Director, Federal Management and Workforce Issues
General Government Division
GAO/T-GGD/RCED-98-95
GAO/GGD/RCED-98-95T
(410296/160435)
Abbreviations
=============================================================== ABBREV
REGULATORY REFORM: COMMENTS ON S.
981--THE REGULATORY IMPROVEMENT
ACT OF 1998
==================================================== Chapter STATEMENT
Mr. Chairman and Members of the Committee:
I am pleased to assist in your consideration of S. 981, the
"Regulatory Improvement Act of 1998." As I said in my testimony last
September on an earlier version of S. 981, we believe that the bill
thoughtfully addresses many issues in regulatory management that have
long been the subject of controversy.\1 We have issued reports and
have ongoing assignments on a number of those issues.
Based on our previous work, last September I commented on several
specific provisions in the bill, two of which were reviews of
existing rules and peer review. I will not repeat my testimony on
these provisions other than to reaffirm that enactment of S. 981 can
provide a sound statutory basis for periodic examinations of existing
rules, and that systematic peer review can improve the quality of
agencies' cost-benefit analyses.
My statement today focuses on our work since last September in four
areas of relevance to the bill--agencies' implementation of (1) the
transparency requirements in Executive Order 12866, (2) title II of
the Unfunded Mandates Reform Act of 1995, (3) the public notification
requirements in section 610 of the Regulatory Flexibility Act of
1980, and (4) OMB's "best practices" guide for economic analyses used
in rulemaking.
--------------------
\1 Regulatory Reform: Comments on S. 981--The Regulatory
Improvement Act of 1997 (GAO/T-GGD/RCED-97-250, Sept. 12, 1997).
OMB COMMENTS ON TRANSPARENCY
RECOMMENDATIONS SUGGEST NEED
FOR CONGRESSIONAL SPECIFICITY
-------------------------------------------------- Chapter STATEMENT:1
Mr. Chairman, last month we issued a report that you and Senator
Glenn requested assessing the implementation of the regulatory review
transparency requirements in Executive Order 12866.\2
Those requirements, which are similar to the public disclosure
requirements in section 643(b) of S. 981, state that agencies must
identify for the public the substantive changes made during the
period that rules are being reviewed by OMB's Office of Information
and Regulatory Affairs (OIRA) as well as the changes made to rules at
the suggestion or recommendation of OIRA. We reviewed four major
rulemaking agencies' public dockets and concluded that it was usually
very difficult to locate the documentation that the executive order
required. In many cases, the dockets contained some evidence of
changes made during or because of OIRA's review, but we could not be
sure that all such changes had been documented. In other cases, the
files contained no evidence of OIRA changes, and we could not tell if
that meant that there had been no such changes to the rules or
whether the changes were just not documented. Also, the information
in the dockets for some of the rules was quite voluminous, and many
did not have indexes to help the public find the required documents.
Therefore, we recommended that the OIRA Administrator issue guidance
to the agencies on how to implement the executive order's
transparency requirements and how to organize their rulemaking
dockets to best facilitate public access and disclosure.
The OIRA Administrator's comments in reaction to our recommendations
appeared at odds with the requirements and intent of the executive
order. Her comments may also signal a need for ongoing congressional
oversight and, in some cases, greater specificity as Congress
codifies agencies' public disclosure responsibilities and OIRA's role
in the regulatory review process. For example, in response to our
recommendation that OIRA issue guidance to agencies on how to improve
the accessibility of rulemaking dockets, the Administrator said that
"it is not the role of OMB to advise other agencies on general
matters of administrative practice." However, section 2(b) of the
executive order states that "[t]o the extent permitted by law, OMB
shall provide guidance to agencies...," and that OIRA "is the
repository of expertise concerning regulatory issues, including
methodologies and procedures that affect more than one agency...." We
believe that OIRA has a clear responsibility under the executive
order to exercise leadership and provide the agencies with guidance
on such crosscutting regulatory issues, so we retained our
recommendation.
The OIRA Administrator also indicated in her comments that she
believed the executive order did not require agencies to document
changes made at OIRA's suggestion before a rule is formally submitted
to OIRA. However, the Administrator also said that OIRA can become
deeply involved in important agency rules well before they are
submitted to OIRA for formal review. Therefore, adherence to her
interpretation of the order would result in agencies' failing to
document OIRA's early involvement in the rulemaking process. These
transparency requirements were put in place because of earlier
congressional concerns regarding how rules were changed during the
regulatory review process. Congress was clearly interested in making
OIRA's role in that process as transparent as possible. In response
to the Administrator's comments, we retained our original
recommendation but specified that OIRA's guidance should require
agencies to document changes made at OIRA's suggestion whenever they
occur.
Finally, the OIRA Administrator said that "an interested individual"
could identify changes made to a draft rule by comparing drafts of
the rule. This position seems to change the focus of responsibility
in Executive Order 12866. The order requires agencies to identify
for the public changes made to draft rules. It does not place the
responsibility on the public to identify changes made to agency
rules. Also, comparison of a draft rule submitted for review with
the draft on which OIRA concluded review would not indicate which of
the changes were made at OIRA's suggestion, which is a specific
requirement of the order.
We believe that enactment of the public disclosure requirements in S.
981 would provide a statutory foundation for the public's right to
regulatory review information. In particular, the bill's requirement
that these rule changes be described in a single document would make
it easier for the public to understand how rules change during the
review process. We are also pleased to see that the new version of
S. 981 requires agencies to document when no changes are suggested
or recommended by OIRA. As I said earlier, the absence of
documentation could indicate that either no changes were made to the
rule or that the changes were not documented.
Additional refinements to the bill may be needed in light of the OIRA
Administrator's comments responding to our report. For example, S.
981 may need to state more specifically that agencies must document
the changes made to rules at the suggestion or recommendation of OIRA
whenever they occur, not just the changes made during the period of
OIRA's formal review. Similarly, if Congress wants OIRA to issue
guidance on how agencies can structure rulemaking dockets to
facilitate public access, S. 981 may need to specifically instruct
the agency to do so.
--------------------
\2 Regulatory Reform: Changes Made to Agencies' Rules Are Not Always
Clearly Documented (GAO/GGD-98-31, Jan. 8, 1998).
UNFUNDED MANDATES REFORM ACT
HAD LITTLE EFFECT ON AGENCIES'
RULEMAKING ACTIONS
-------------------------------------------------- Chapter STATEMENT:2
During last September's hearing on S. 981, one of the witnesses
indicated that Congress should determine the effectiveness of
previously enacted regulatory reforms before enacting additional
reforms. We recently completed a broad review of one of the most
recent such reform efforts--title II of the Unfunded Mandates Reform
Act of 1995 (UMRA).\3 Title II of UMRA is similar to S. 981 in that
it requires agencies to take a number of analytical and procedural
steps during the rulemaking process. Therefore, analysis of UMRA's
implementation may prove valuable in determining both the need for
further reform and how agency requirements should be crafted.
We concluded that UMRA's title II requirements had little effect on
agencies' rulemaking actions because those requirements (1) did not
apply to many large rulemaking actions, (2) permitted agencies not to
take certain actions if the agencies determined they were duplicative
or unfeasible, and (3) required agencies to take actions that they
were already required to take.
For example, title II of UMRA requires agencies to prepare "written
statements" containing information on regulatory costs, benefits, and
other matters for any rule (1) for which a proposed rule was
published, (2) that includes a federal mandate, and (3) that may
result in the expenditure of $100 million or more in any 1 year by
state, local, or tribal governments, in the aggregate, or the private
sector. We examined the 110 economically significant rules that were
promulgated during the first 2 years of UMRA (March 22, 1995, until
March 22, 1997) by agencies covered by the Act and concluded that
UMRA's written statement requirements did not apply to 78 of these
110 rules. Some of the rules had no associated proposed rule.
Others were not technically "mandates"--i.e., "enforceable duties"
unrelated to a voluntary program or federal financial assistance.
Some rules were "economically significant" in that they would have a
$100 million effect on the economy, but did not require
"expenditures" by state, local, or tribal governments or the private
sector of $100 million in any 1 year.
Certain sections of UMRA permitted agencies to decide what actions to
take. For example, subsection 202(a)(3) says agencies' written
statements must contain estimates of future compliance costs and any
disproportionate budgetary effects "if and to the extent that the
agency determines that accurate estimates are reasonably feasible."
UMRA also permitted agencies to prepare the written statement as part
of any other statement or analysis. Because the agencies' rules
commonly contain the information required in the written statements
(e.g., the provision of federal law under which the rule is being
promulgated), the agencies only rarely prepared a separate UMRA
written statement.
Other parts of UMRA repeated requirements that were already in place.
For example, section 202 of the Act requires agencies to conduct
cost-benefit analyses for all covered rules. However, Executive
Order 12866 had required such analyses for more than a year before
UMRA was enacted, and for a broader set of rules than UMRA covered.
Section 204 of the Act requires agencies to develop an effective
process to permit elected officers of state, local, and tribal
governments to provide input in the development of regulatory
proposals containing significant federal intergovernmental mandates.
However, Executive Order 12875 required almost exactly the same sort
of process when it was issued in 1993.
Like UMRA, S. 981 contains some of the same requirements contained
in Executive Orders 12866 and 12875, and in previous legislation.
However, the requirements in the bill are also different from
existing requirements in many respects. For example, S. 981 appears
to cover all of the economically significant rules that UMRA did not
cover, as well as rules by many independent regulatory agencies that
were not covered by the executive orders. S. 981 would also address
a number of topics that are not addressed by either UMRA or the
executive orders, including risk assessments and peer review. These
requirements could have the effect of improving the quality of the
cost-benefit analyses that agencies are currently required to perform
under Executive Order 12866.
--------------------
\3 Unfunded Mandates: Reform Act Has Had Little Effect on Agencies'
Rulemaking Actions (GAO/GGD-98-30, Feb. 4, 1998).
AGENCIES' SECTION 610 REVIEW
NOTICES IN UNIFIED AGENDA OFTEN
DID NOT SATISFY STATUTORY
REQUIREMENTS
-------------------------------------------------- Chapter STATEMENT:3
The new version of S. 981 contains one set of requirements that was
not in the bill introduced last year--that agencies develop a plan
for the periodic review of rules issued by the agency that have or
will have a significant economic impact on a substantial number of
small entities. Each agency is also required to publish in the
Federal Register a list of rules that will be reviewed under the plan
in the succeeding fiscal year.
In one sense, these requirements are not really "new." They are a
refinement and underscoring of requirements originally put in place
by section 610 of the Regulatory Flexibility Act (RFA) of 1980. Our
recent work related to the RFA suggests that at least some of the
RFA's requirements are not being properly implemented. In 1997, we
reported that only three agencies identified regulations that they
planned to review within the next year in the November 1996 edition
of the Unified Agenda of Federal Regulatory and Deregulatory
Action.\4 Of the 21 entries in that edition of the Unified Agenda
that these 3 agencies listed, none met the requirements in the RFA.
For example, although section 610 requires agencies to notify the
public about an upcoming review of an existing rule to determine
whether and, if so, what changes to make, many of the "section 610"
entries in the Agenda announced regulatory actions that the agencies
had taken or planned to take.
Earlier this month we updated our 1997 report by reviewing agencies'
use of the October 1997 Unified Agenda.\5 We reported that seven
agencies had used the Agenda to identify regulations that they said
they planned to review. However, of the 34 such entries in that
edition of the Agenda, only 3 met the requirements of the statute.
Although the Unified Agenda is a convenient and efficient mechanism
by which agencies can satisfy the notice requirements in section 610
of the RFA, agencies can print those notices in any part of the
Federal Register. We did an electronic search of the 1997 Federal
Register to determine whether it contained any other references to a
"section 610 review." We found no such references.
There is no way to know with certainty how many regulations in the
Code of Federal Regulations have a "significant economic impact on a
substantial number of small entities," or how many of those
regulations the issuing agencies have reviewed pursuant to section
610. Agencies differ in their interpretation of this phrase, and we
have recommended that a governmentwide definition be developed.\6
Nevertheless, the relatively small number of section 610 notices in
the Unified Agendas, combined with the fact that nearly all of those
notices did not meet the requirements of the statute, suggests that
agencies may not be conducting the required section 610 rule reviews.
Although many federal agencies reviewed all of their regulations as
part of the administration's "page-by-page review" effort to
eliminate and revise regulations,\7 those reviews would not meet the
requirements of section 610 unless the agencies utilized the steps
delineated in that section of the RFA that were designed to allow the
public to be part of the review process. Therefore, we believe that
the reaffirmation and refinement of the section 610 rule review
process in S. 981 can serve to underscore Congress' commitment to
periodic review of agencies' rules and the public's involvement in
that process.
--------------------
\4 Regulatory Flexibility Act: Agencies' Use of the November 1996
Unified Agenda Did Not Satisfy Notification Requirements
(GAO/GGD/OGC-97-77R, Apr. 22, 1997).
\5 Regulatory Flexibility Act: Agencies' Use of the October 1997
Unified Agenda Often Did Not Satisfy Notification Requirements
(GAO/GGD-97-61R, Feb. 12, 1998).
\6 Regulatory Flexibility Act: Status of Agencies' Compliance
(GAO/GGD-94-105, Apr. 27, 1994).
\7 For an analysis of this effort, see Regulatory Reform: Agencies'
Efforts to Eliminate and Revise Rules Yield Mixed Results
(GAO/GGD-98-3, Oct. 2, 1997).
REGULATORY IMPACT ANALYSES DO
NOT ALWAYS ADHERE TO "BEST
PRACTICES"
-------------------------------------------------- Chapter STATEMENT:4
Another critical element of S. 981 is its emphasis on cost-benefit
analysis for major rules in the rulemaking process. Mr. Chairman,
at your and Senator Glenn's request, we have been examining 20
economic analyses at 5 agencies to determine the extent to which
those analyses contain the "best practices" elements recommended in
OMB's January 1996 guidance for conducting cost-benefit analyses. We
are also attempting to determine the extent to which the analyses are
used in the agencies' decisionmaking processes. Although our review
is continuing, we have some tentative results that are relevant to
this Committee's consideration of S. 981.
The 20 economic analyses varied significantly in the extent to which
they contained the elements that OMB recommended. For example,
although the guidance encourages agencies to monetize the costs and
benefits of a broad range of regulatory alternatives, about half of
the analyses did not monetize the costs of all alternatives and about
two-thirds did not monetize the benefits. Several of the analyses
did not discuss any alternatives other than the proposed regulatory
action. The OMB guidance also stresses the importance of explicitly
presenting the assumptions, limitations, and uncertainties in
economic analyses. However, the 20 analyses that we reviewed
frequently did not explain why certain assumptions or values were
used, such as the discount rates used to determine the present-value
of costs and benefits and the values assigned to a human life. Also,
about a third of the analyses did not address the uncertainties
associated with the analyses.
For the most part, the analyses played a somewhat limited role in the
agencies' decisionmaking process--examining the cost-effectiveness of
various approaches an agency could use within a relatively narrow
range of alternatives, or helping the agency define the regulations'
coverage or implementation date. The analyses did not fundamentally
affect agencies' decisions on whether or not to regulate, nor did
they cause the agencies to select significantly different regulatory
alternatives than the ones that had been originally considered.
Agency officials told us that the variations in the degree to which
the economic analyses followed OMB guidance and the limited use of
the economic analyses were primarily caused by the limited degree of
discretion that the underlying statutes permitted. They said that
authorizing statutes limited their ability to consider a large range
of regulatory alternatives and limited the role of the analyses in
the decisionmaking process. The agency officials also said that
another factor that limited the analyses' adherence to the guidance
and their use in decisionmaking was the need to issue the regulations
quickly due to emergencies, statutory deadlines, and court orders.
Enactment of the analytical transparency and executive summary
requirements in S. 981 would extend and underscore Congress'
previous statutory requirements that agencies identify how regulatory
decisions are made. We believe that Congress and the public have a
right to know what alternatives the agencies considered and what
assumptions they made in deciding how to regulate. Although those
assumptions may legitimately vary from one analysis to another, the
agencies should explain those variations.
CONCLUSIONS
-------------------------------------------------- Chapter STATEMENT:5
Mr. Chairman, S. 981 contains a number of provisions designed to
improve regulatory management. These provisions strive to make the
regulatory process more intelligible and accessible to the public,
more effective, and better managed. Passage of S. 981 would provide
a statutory foundation for such principles as openness,
accountability, and sound science in rulemaking.
This Committee has been diligent in its oversight of the federal
regulatory process. However, our reviews of current regulatory
requirements suggest that, even if S. 981 is enacted into law,
Congress will need to carefully oversee its implementation to ensure
that the principles embodied in the bill are faithfully implemented.
*** End of document. ***