The Senate is expected soon to consider , the Treasury and postal appropriations bill, which
includes funding for the White House Office of Management and
Budget (OMB). On July 23, the Senate Appropriations Committee
adopted an amendment -- Section 645, offered by Senator Ted Stevens
(R-AK) -- requiring OMB to prepare an accounting statement that
estimates the cumulative costs and benefits of federal regulatory
programs. OMB already is responsible for reviewing regulatory
actions to ensure that they are consistent with the
Administration's regulatory principles and agenda.
While there is much debate about federal taxes, spending, and
the need to balance the budget, considerably less is known and
understood about the benefits and burdens of regulation. Unlike
federal tax and spending programs, no comprehensive cost accounting
system exists for regulation. But regulatory costs -- $677 billion
in 1996 -- are nearly one-half the cost of direct taxation. And the
economic impact is significant; according to one estimate, federal
regulations cause $1.3 trillion in U.S. economic activity to be
lost each year. Just as the annual federal budget allows
policymakers and the public to debate and decide what programs to
support and which ones to scale back and eliminate, information on
regulatory costs and benefits would help them to determine what
regulations do the most good for the money spent, set regulatory
priorities accordingly, and minimize the burden on the economy.
A Good First Step
Under the Stevens proposal, OMB would be required to submit to
Congress by September 30, 1997, a report on the cumulative costs
and benefits of federal regulatory programs. OMB also must report
on the effect of federal rules, both on the private sector and on
the federal government, and provide estimates of the costs and
benefits of rules costing more than $100 million annually. The
public would have an opportunity to comment on the OMB report
before it is submitted to Congress. OMB also would have to offer
recommendations to Congress and the President about how to reform
regulatory programs that are not a "sound use of national
resources." This is a sensible first step toward improving
oversight and promoting greater efficiency throughout the federal
regulatory system.
This proposal will be criticized by federal regulators and
politicians. Regulation is one of the most politically convenient
ways to carry out public policy because it typically does not
require substantial, direct taxation or government spending. This
is particularly appealing in an era of federal budgetary restraint.
The Clinton Administration has put at least 10,000 new pages of
federal rules on the books since 1993. But how much has this cost,
and what did the American people get for their money? Because
regulators gain power by regulating as much as possible, with
little to stop them from regulating as if it cost nothing,
opponents will use the same misleading rhetoric against this
proposal that they used to defeat a far more comprehensive
regulatory reform bill in 1995. The following three myths are
typical:
MYTH #1: It is doubtful that reliable
estimates of costs and benefits can be developed.
REALITY:
There is no dearth of methodological tools available for
estimating the costs and benefits of federal regulations. The
Department of Commerce regularly surveys business establishments to
collect information on expenditures caused by particular regulatory
programs. Since 1981, every President has required federal agencies
to consider costs and benefits in their regulatory decisionmaking.
To assist them, OMB developed guidelines for such analysis. Even
though federal agencies try to avoid any effort to measure the
costs and benefits of their actions, dozens of these analyses have
been done over the last 15 years. Between 1990 and 1995, for
example, EPA did at least 70 rule-specific cost-benefit analyses.
Ironically, in 1993, the Clinton Administration removed hundreds of
rules from OMB review, de-emphasizing the need for cost-benefit
analysis.
MYTH #2: Any attempt to measure the
costs and benefits of regulations will consume a significant amount
of new resources.
REALITY:
With more than 130,000 federal regulators spending more than
$14 billion annually to develop and enforce regulations, how can
more be needed? The Clinton Administration itself recognizes that
federal agencies -- which have been required to consider costs and
benefits of regulatory actions since 1981 -- "are the repositories
of significant substantive expertise and experience...." In
addition, OMB's Office of Information and Regulatory Affairs, which
reviews rules before they are issued, has a fiscal 1996 budget of
more than $5 million and a staff of about 30 analysts and
economists with years of experience reviewing and evaluating agency
cost-benefit analyses. During the Bush Administration, OMB reported
on the aggregate costs of regulations in a publication that later
was stopped by the Clinton Administration; no such information has
been published since then.2 OMB already
is in an excellent position to work with other agencies to prepare
this statement, but Congress must demand that it be done and that
it be made available to the public.
MYTH #3: This is just the first step
in an effort to justify a "roll back" of important public health,
safety, and environmental protections.
REALITY:
The opposite would be true. Strengthening the use of cost-benefit
analysis in regulatory decisionmaking would mean higher levels of
protection. A recent Harvard study estimated that current
regulation of health risks is so inefficient that for the same
investment of resources, we could save an additional 636,000 years
of life--60,200 premature deaths every year-- simply by changing
our priorities.
Conclusion
The Clinton Administration and its allies in Congress already
are on record as supporting regulatory cost accounting as part of
more comprehensive regulatory reform legislation in 1995. In
addition, President Clinton's Executive Order 12866 on Regulatory
Planning and Review requires federal agencies to "assess the costs
and benefits" of regulations. The Stevens amendment simply suggests
that the numbers should be added up so the American people can have
some idea of the kinds of regulatory decisions their government is
making and how good a job federal regulators are doing.
This is a good first step, and Congress must go further and
implement a regulatory budget like the one proposed in by Representative Lamar Smith (R-TX). A regulatory
budget would force federal regulators to operate within limits,
much as an agency's fiscal budget does. Both Congress and the
President would be accountable to the public for making sure that
economic resources are allocated in a manner that produces the
greatest benefit to society.
Endnotes
- The author was an Assistant Branch Chief at OMB from 1989 to
1993.
- See Executive Office of the President,
Office of Management and Budget, Regulatory Program of the U.S.
Government, April 1, 1991-March 31, 1992, p. 5.