Comments to the Office of Management and Budget
FR Doc E9-4080
Delivered on March 16, 2009
History and
Background
The President's Memorandum
on Regulatory Review begins by observing that the Office of Information and
Regulatory Affairs has reviewed Federal regulations for "well over two
decades."[1] While OIRA
regulatory review began in 1981, the need for White House staff review of
agency actions was recognized by President Roosevelt's "Brownlow
Commission," in 1936. The Brownlow Report recommended creation of the
Executive Office of the President (EOP) specifically to assist the
President in dealing with administrative agencies.[2] Congress agreed and authorized the EOP in
1939.[3] Based on the recommendations of a second
Roosevelt study [4] and a Senate review,[5] Congress granted the predecessor of OMB
authority to regulate information collection efforts by executive agencies
in 1942.[6] Further
centralization of authority in the EOP was accomplished by President Truman
on the basis or recommendations of the bi-partisan Hoover Commission.[7]
The first formal OMB
regulatory review process was established in 1971, referred to initially as
"Quality of Life Review."[8] The Quality of Life Review process
required a statement including objectives of the regulation, alternatives
and "a comparison of the expected benefits or accomplishments and the
costs" of the proposed regulation. A similar process was followed by
the Ford Administration under the auspices of the Council on Wage and Price
Stability.[9] President Carter
regularized and expanded the Nixon-Ford regulatory review process. Carter
required agencies to publish semi-annual regulatory agendas and required
agencies to develop economic analyses of proposed major including an
analysis of alternatives and a comparison of economic consequences.[10] President Reagan transferred the
regulatory review responsibility to OIRA in 1981.[11]
Congress has endorsed or
required prospective OMB review of agency action, including cost-benefit
analysis, in at least eight major statutes, including the Paperwork
Reduction Act, the Regulatory Flexibility Act,[12] the Unfunded Mandates Reform Act,[13] Small Business Regulatory Enforcement
Fairness Act,[14] The Congressional
Review Act,[15] the Regulatory
Right to Know Act,[16] the Truth in Regulating Act,[17] and the Information Quality Act.[18]
Thus, the need for EOP
oversight of agency action has been recognized for seventy years, and
specific processes for prospective regulatory review, including some form
of cost-benefit analysis, have existed for nearly four decades. These
mechanisms have been developed and improved in Administrations and
Congresses controlled by both parties over this entire period. OMB should
make specific recommendations for changes in the regulatory review process
with this extensive history and the compelling reasons for a strong
centralized administrative review process in mind.
Relationship
between OIRA and the agencies
The American Presidency is
not a collective executive. [19] The President alone has the
responsibility to "take care that the laws be faithfully
executed."[20] The purpose of a
regulatory review function is to assist the President in this task. As my
colleague James Gattuso has noted,
a strong, system of
centralized regulatory review, anchored in presidential authority, does not
necessarily imply either more or less regulation. It simply means that the
president's priorities—whatever they are—will be more accurately
represented in decision making.[21]
As the D.C.
Circuit has observed:
Our form of government
simply could not function effectively or rationally if key executive
policymakers were isolated from each other and from the Chief Executive.
Single mission agencies do not always have the answers to complex
regulatory problems. An overworked administrator exposed on a 24-hour basis
to a dedicated but zealous staff needs to know the arguments and ideas of
policymakers in other agencies as well as the White House.[22]
The relationship between
OIRA and agencies must be shaped with an understanding of the purpose of
regulatory review and of the necessary supremacy of the President within
the executive branch. This does not mean that the President, or OIRA, is
above the law. Further, in the vast majority of cases discretionary
decisions will be made by agencies rather than by the President or the EOP.
When there are disputes, however, it is the President (or the Vice
President)[23] who decides.
Within this context, OIRA
and executive agencies should certainly strive to establish collegial and
cooperative relationships. One of the most important means of improving
those relationships would be to expand the size of the OIRA staff. There
are nearly 5,000 regulatory agency staffers per OIRA staffer.[24] Even if OIRA's role was limited to a
merely advisory function,[25] giving OIRA more resources would
facilitate a deeper and fuller cooperation with regulatory agencies.
Relationships with agencies
could be improved through earlier informal consultation on major
rulemakings. If the first contact between an agency and OIRA on a major
regulation is after the agency has already decided to initiate a rulemaking
in the context of a sixty day review of a preliminary cost-benefit
analysis, relations are bound to be prone to strain. As discussed further
below, agencies and OIRA should be communicating about cost benefit
analysis and its elements from the time a proposed regulation appears in
the semi-annual regulatory agenda. Further, regulatory agencies' internal
cost-benefit analysis capabilities should be strengthened. The executive
order should require each agency to establish a regulatory review function,
separate from policy offices, and designate an official or office with
specific responsibility for regulatory review.[26] In the ideal rulemaking, the agency CBA
will be so convincing that OIRA will have no comments. Steps towards this
ideal can be taken from both sides by earlier OIRA involvement in
identifying cost and benefit issues an agency should explore and by
strengthening agencies' abilities to do so.
Disclosure and
transparency
OIRA practices are a model
of transparency that should be emulated by other executive agencies. A
publicly-available Web site discloses both the fact and timing of OIRA
review, details of meetings,[27] and the substance of its comments.[28] Neither the semi-annual regulatory
agenda nor the individual Web pages of most agencies provide this level of
detail, specificity and timeliness. The Executive Order should urge
agencies to more complete and timely information on the progress of
rulemakings, including detailed and regularly updated schedules for action.
Providing fuller information would also encourage public participation in
rulemakings.
Encouraging
public participation
The order should recognize
that public participation in rulemakings will generally be through
organized interests. While occasional rulemakings will generate broad
public attention, the vast majority of rulemakings will be too technical or
too specialized to generate lay interest or helpful lay input. In this
regard, there should be no discrimination between economic and ideological
interests. A self-description as representing "public" or "consumer"
interests should not confer special status: it is the agency itself that is
ultimately charged with determining and protecting the public interest.
A focus on organized public
input does not mean agencies should reduce emphasis on Web-based or other
disclosure tools. Rather, agencies should be encouraged to provide richer
and deeper disclosures, or detailed data sets and studies for instance.
Organized interests will frequently be capable of analyzing and
intelligently commenting on highly specialized data, and should be allowed
to do so.
Agencies should also be
encouraged to incorporate public input by using measures of public
preferences, such as willingness to pay (WTP), and incorporating informed
public assessments of risks and relative valuations.[29] The administration should also encourage
Congress, which is more responsive to public perception that agencies, to
provide input on relative risks and priorities[30] perhaps by encouraging Congress to
consider or approve its annual regulatory plan.
The executive order can
assure public responsiveness by retaining the "presumption against
command and control regulation," and preference for economic
incentives, informational remedies and performance standards included in EO
12866.[31]
The Role of
Cost Benefit Analysis (CBA)
CBA is required by statute
for certain economically significant or major rules.[32] For other rules, CBA is an important
tool to clarify regulatory choices and consequences. Only rarely will CBA
result in a conclusion that absolutely no regulatory action should be
taken. It is important, however, to probe even this question because every
action by the government, as by private actors, has opportunity costs. The
regulatory capacity of the government itself is limited, even if it is
presumed that the regulatory costs that can be imposed on the private
sector are not. Thus, wise regulatory choices include assessing costs,
including opportunity costs.Doing so will insure that government and
private resources save more rather than fewer lives.[33]
The order also should
require agencies to identify incremental costs and benefits.[34] Many rules are complex and have multiple
elements. If 90% of the benefits of a particular rule are derived from one
element or increment and 80% of the costs are imposed by a different element
or increment, a waste of resources may result. Agencies should be required
to identify costs and benefits from elements or increments of a rule in
order to provide decision makers and the public with a clearer picture of
the choices involved.
In the normal case, as
discussed further in the next section, CBA will simply better define the
choices regulators must make in any case. CBA may be most valuable in
deciding among regulatory alternatives, rather than in deciding whether or
not regulation is necessary or appropriate. Advocates of better regulation
should support this result as insuring that necessarily limited regulatory
resources produce the greatest benefits. Though he did not refer
specifically to CBA, the president's recent guidance on appliance energy
efficiency standards mandates that in exercising is discretion the
Department of Energy should promulgate standards producing the greatest
energy savings first.[35] While this guidance is fundamental
common sense, the Department will have difficulty in determining which
standards will produce the greatest energy savings without some form of
CBA. The President's directions in this regard are a clear example of
opportunity costs and a greatest net benefit standard. The executive order
on regulatory review should incorporate these principles more generally.
Agencies should continue to
use a statistical value for life (VSL) in order to assess the relative
benefits of regulatory proposals. The point of placing a statistical value
on life is not to express a social judgment that lives are worth
"only" a selected amount, but to provide a means of understanding
what sort of actions (including no action) are more likely to preserve or
improve lives. Agencies currently use varying VSL figures. OMB should
consider whether the statistical value varies depending on factors such as
the individual characteristics of protected persons and the particular
risks involved. OIRA should establish a research program to gather more
information on whether VSL differs across different risks.[36]
Independent agencies should
be required to prepare cost-benefit analyses and submit them to OIRA for
comment.[37] While the
independent status of agencies may justify separate treatment for certain
purposes, most independent agencies submit their regulatory agendas as part
of the semi-annual regulatory agenda, and there would be no threat to
agency independence to require sound procedural rulemaking. This is
especially important given the increasing role economic regulatory
agencies, most of which are independent, will play in the course and wake
of the current economic crisis.
Distributional,
fairness and future considerations
Distributional
considerations can be addressed adequately only through sound CBA. The
Analysis must identify not only the aggregate and elements of costs and
benefits for a regulation and alternatives, but must disaggregate costs and
benefits and identify who bears the costs and who reaps benefits.[38] Such an analysis may even provide a
basis for choosing a higher total cost alternative if, for instance, a
lower cost alternative imposed significantly greater burdens on low income
persons. If a regulation has the effect of producing a significant transfer
of wealth (net benefits) from one sector or group to another or to the
general public, agencies should consider alternatives with more balanced
burdens or steps to ameliorate burdens imposed on discrete groups for the
benefit of other groups or of the public at large.
Future considerations
should also be considered by incorporating them explicitly into CBA. If
obligations to the future demand action, they demand the most
resource-efficient choices. Specific regulatory proposals involving long
term impacts or benefits should be evaluated using a market-based discount
rate. Failing to discount may cause agencies to select proposals with lower
net benefits, wasting resources that could improve future outcomes.[39]
Avoiding undue
delay in regulatory review
As discussed above, the
best way to avoid delay in regulatory review is by better planning and
earlier and more robust contact between OIRA and agencies. This process
logically starts with the annual Regulatory Plan. Agencies should
understand, and OIRA should ensure, that the plan incorporates the
administration's goals and priorities, not merely an agency wish list.
Where the President has special regulatory priorities,[40] those should be fully reflected in
individual agency priorities and, if sufficiently important in the plan
introduction. Where Presidential goals are cross-cutting in nature, such as
an emphasis on science,[41] OIRA should communicate those goals in
time for agencies to incorporate them in agency plans.
As soon as it appears that
a contemplated regulatory action may require cost benefit analysis or OIRA
review pursuant to statutes or the executive order, OIRA and the agency
should begin identifying major elements of costs and benefits, means of
assessing them, and alternatives that should be considered. Fully
incorporating CBA from the outset in an agency's plan will not only avoid
delay at the review stage, it will produce better analysis and better
regulations.
·The role of behavioral sciences in
formulating regulatory policy
·Nudge[42] should be
required reading for every regulator.
·Best tools for achieving public
goals through the regulatory process
As discussed in the
"public participation" section, market-based mechanisms,
including choice structures, incentives and performance standards are
preferable to command and control regulation because market mechanisms
allow agencies to achieve public goals in the most resource-effective
manner.[43]
The
executive order should require agencies to prepare means of measuring
regulatory performance retrospectively. Retrospective reviews are required
by statute,[44] but results have
been disappointing, in part because means to assess regulatory performance
are lacking.[45] A proper
cost-benefit analysis can provide the basis for a retrospective review to
determine whether projected costs and benefits were achieved, indicating
whether revisions to the regulation may be in order at some future date.
New regulations should be accompanied by specific, measurable outcome
expectations. Such goals should be defined and measurable, and should be
subject to regular review akin to the GPRA process of overall agency
performance.[46]
