The Regulatory Improvement Act of 1999 (S. 746) is
a "comprehensive" regulatory reform bill that would: 1) require
agencies to perform cost-benefit analyses for major rules;15 2) require agencies to follow
risk assessment principles; 3) require agencies to subject to peer
review any rules with an annual economic effect of $500 million or
more; 4) provide for judicial review; 5) develop new guidelines for
a cost-benefit analysis; 6) arrange for a study of comparative
risk; and 6) require new executive branch oversight
requirements.
S. 746 is very similar to another "comprehensive"
reform bill, the Regulatory Improvement Act (S. 981) considered
during the 105th Congress. After the White House demanded several
changes to weaken S. 981, Senators Levin and Thompson agreed in
hope of assuring Senate passage and avoiding a presidential veto.
The 105th Congress ended without Senate action on S. 981.
This year, S. 981 was reintroduced as S. 746. In
testimony before the Senate Governmental Affairs Committee on April
21, 1999, the White House indicated its willingness to sign S. 746
if it was passed in its current form. The bill was subsequently
reported out of the committee on May 20, 1999 by a vote of 11 to 5,
with only one minor amendment.16 The bill has bipartisan support,
including that of Senate Minority Leader Tom Daschle (D-SD).
Nevertheless, many environmental and consumer groups continue to
oppose the legislation this year because of a belief that it will
endanger important regulatory protections.
How S. 746 Veers Off Track
The Regulatory Improvement Act of 1999 focuses on
establishing the analytical criteria, such as risk assessment and
benefit-cost methods, that agencies should use as a guide for
making decisions. The bill's sponsors claim the bill will "increase
the accountability and quality of government,"17 although it will do neither of
these things. S. 746 simply puts into place a series of
decisionmaking requirements that agencies will view as little more
than hoops to jump through, because agencies are not held
accountable in any real way for compliance with the standards.
History has shown that agencies will devote considerable time and
legal resources (paid for by taxpayers) to determine ways to get
around statutory requirements that are imposed on them.
The Regulatory Improvement Act makes sure that the
regulators will succeed in a number of different ways.
1. It applies to a small set of rules.
The benefit-cost and risk
assessment requirements apply only to major rules [Sections 621(7),
623, 624]. As shown in Table 1, between April 1, 1996, and
September 30, 1999, the federal government issued 15,280 final
rules. Of these, 222--less than 2 percent--were major final rules
with an annual economic impact of more than $100 million.
Although the vast
majority of rules are not major, they still impose costs. For
example, the bill would not cover a rule that the agency determines
imposes $90 million in costs plus other costs that are not
"reasonably quantifiable."18 By focusing only on major rules,
agencies will have strong incentives to break apart their
rulemaking activities into smaller rulemakings to get around the
statutory threshold. And the lack of oversight, both within the
executive branch and Congress,19 suggests agencies will get away
with it. OMB has the discretion to designate a rule as major only
if it adversely affects the economy, but OMB should also be able to
designate rules (including deregulatory actions) as major if they
have a positive impact on the economy.
2. It exempts too many rules.
Section 621(10) of the
bill would exempt a broad range of rules for which there is no
clear justification for such exclusion. These include:
-
Rules related to the
securities or commodities futures markets (issued by the Securities
and Exchange Commission (SEC) and Commodities Futures Trading
Corporation, respectively) and the telecommunications rules issued
by the Federal Communications Commission;
-
Rules that must be
promulgated at least annually regardless of their content or
significance. There are many health care financing rules issued by
the Health Care Financing Administration (HCFA) and agriculture
marketing orders issued by the Department of Agriculture (USDA)
that have significant budgetary and programmatic impacts which
would not be covered;
-
Tax rules or wage
rules; and
-
Rules or agency actions that authorize or bar the
introduction into or removal from commerce; or recognize or cancel
recognition of the marketable status of a product, which includes
pesticide rules issued by EPA or food and drug rules issued by the
Food and Drug Administration (FDA). Many of these presumably are
based on some scientific justification that will not be subject to
the risk assessment and disclosure requirements of S. 746.
During the first three
years of final rules issued under the Congressional Review Act, the
FCC, SEC, HCFA, and USDA issued a significant number of these types
of major rules that would now be considered exempt.20 Indeed, as Chart 1 suggests, a
significant number of the major rules issued by agencies are likely
to be exempt under S. 746 in the future. The consequences will be
that very few rules will be subject to the reforms of S. 74621 and there will be little change
in the regulatory output of agencies over the long term.
3. It affirms broad agency rulemaking
discretion.
Unfortunately, S. 746
affirms an agency's broad discretion to interpret a statute and
justify its consideration of a limited set of regulatory options.
Section 621(6) contains a very important qualification in the
definition of "flexible regulatory options." Only options that
"achieve the objectives of the statute" would qualify for
consideration. The agency would not have to consider options that
may not have been contemplated in the underlying organic statute
but that could, in fact, be beneficial. This constraint also
appears to be further narrowed by excluding any option that
"achieves the objectives of the statute" but fails to do so in a
manner "addressed by the rulemaking." Unfortunately, the Senate
Governmental Affairs Committee report does not speak to these
important words nor does it suggest any alternative interpretation
or intent.22 And ambiguous
statutory language is a delegation of the power to interpret.
Section 623(b)(2)(A)(iv)
leaves a significant amount of flexibility for agencies to
determine what constitutes "a reasonable number of regulatory
alternatives reflecting the range of regulatory options." The
definition of "flexible regulatory option" already gives an agency
tremendous discretion, and the added vagueness reflected in
"reasonable number" appears to give an agency considerable latitude
to select whatever alternatives it wants and, with relative ease,
dispense with the responsibility of being accountable to the public
for addressing a wide range of other available options.
Regulators are often
accused of interpreting laws passed by Congress in ways that
Congress never intended. In the D.C. circuit court decision in
American Trucking Association v. EPA, the court concluded that
under the non-delegation doctrine, EPA cannot so loosely interpret
a statute that it becomes an unconstitutional delegation of
legislative power. Unfortunately, the vague qualifications in S.
746 more formally create the means by which an agency can justify
its own interpretation of a statute and its choice of regulatory
option. Indeed, if S. 746 had been in effect at the time EPA was
developing its 1997 tighter air quality standards for particulate
matter and ozone, the D.C. circuit court may not have struck them
down. At best, the Regulatory Improvement Act would have joined the
list of other regulatory accountability statutes like UMRA and
SBREFA that were ineffective tools in stopping them.
4. It lacks effective decision criteria.
The bill's standard for
an agency's decision is: As long as the agency explains it, it can
do it. As the U.S. General Accounting Office (GAO) notes, "the
centerpiece of S. 746 is its emphasis on cost-benefit analysis for
major rules."23 S. 746
establishes detailed procedures for reporting the benefit-cost
analysis and alternatives (keep in mind the potentially narrow set
of alternatives or options the bill allows agencies the discretion
to include) considered during a rulemaking process. However,
agencies are not bound in any way to follow specific decision
criteria; the bill only requires that an agency do a better job of
explaining the reasoning for making a decision and the options
considered, and to make the determination explicit. There is
nothing to prevent an agency from issuing a final rule that is "not
likely to provide benefits that justify the costs" or to select the
option that would fail to "substantially achieve the rulemaking
objective in a more cost-effective manner, or with greater net
benefits" than other alternatives it considers. Section 623(d)(2)
simply requires an agency to include for the record a review and
explanation of the alternatives (and their benefit-costs estimates)
not considered and why they were not adopted, e.g., for statutory
or other constraints.
5. It creates loopholes to avoid analysis
requirements.
Section 623(f)(1) allows
an agency to adopt a major rule without doing the required
cost-benefit analysis if the agency finds "good cause" that
"conducting the regulatory analysis...before the rule becomes
effective is impracticable or contrary to an important public
interest," and publishes a notice in the Federal Register. If a
major rule is adopted without the analysis completed in advance,
Section 623(f)(2) states the "agency shall comply...as promptly as
possible unless the Director [of OMB] determines that compliance
would be clearly unreasonable." As GAO notes,23 of 122 final rules that were
considered "major" under the SBREFA (which includes the
Congressional Review Act) and published between March 29, 1996, and
March 29, 1998, were issued without previous Notices of Proposed
Rulemaking (NPRMs).24 Thus,
it is possible that as much as one-fifth of the final major
rules--approximately 10 major rules a year--will never be subject
to the initial or final analytical requirements in S. 746.
As GAO concludes,
"Congress may want to review the implementation of this part to
ensure that the initial regulatory analysis requirements apply to
all the rules that it anticipated."25
6. It falls short on risk assessment
transparency.
Section 624, Principles
for Risk Assessments, is perhaps the strongest and best part of S.
746, although it is important to keep in mind how few rules will be
covered by its requirements. Section 624(a)(1)(B) states:
Risk
assessments conducted...shall be conducted in a manner that
promotes rational and informed risk management decisions and
informed public input into and understanding of the process of
making agency decisions.
However, there are some
important ways in which the risk analysis requirements can be
improved consistent with this stated purpose. For example:
The
agency shall inform the public when the agency is conducting a risk
assessment subject to this section and, to the extent practicable,
shall solicit relevant and reliable data from the public. The
agency shall consider such data in conducting the risk
assessment.
This language does not
suggest a particular point in the risk assessment development
process for when the public will be informed, how it would be
informed, and whether the agency will disclose to the public
sufficient information so that the public can determine what data
make most sense to bring to the agency's attention. Agencies should
not only ask the public for data, but also provide the public with
information about all the relevant data it possesses and intends to
rely upon at the time it provides notice to the public. The earlier
in the risk assessment process this occurs, the better. Although
the Senate Governmental Affairs Committee report notes that this
language is to "make the process more transparent and accountable"
and reflects the belief that public involvement should occur at all
stages of risk management,26 it is not clear that this
information stage must occur earlier than the proposed rule stage
when the agency provides the risk assessment as required in initial
regulatory analysis outlined in Section 623(b)(2).
-
Substitution
Risks.
Unfortunately, Section 621(11) excludes from the definition of
risk any "risks attributable to the effect of an option on the
income of individuals." The effect of this exclusion is to prevent
the use of "health-wealth" analysis. Such analysis seeks to
estimate the extent to which a regulatory action may affect health
due to income effects triggered by changes in the relative price of
a good that is affected by the regulation.27 For example, if EPA bans a
pesticide for use on fruits and vegetables and consumers must then
pay higher prices for these items because producers are forced to
use higher priced substitutes, consumers may ultimately eat fewer
fruits and vegetables, and that will have a negative health effect.
S. 746 should allow for consideration of risks triggered by the
reduction of income.
-
Comparative Risk Analysis.
Section 624(g) asks agencies to perform comparative risk analysis
"when scientific information that permits relevant comparisons of
risk is reasonably available." A comparative risk analysis is very
valuable to help the public understand how its government allocates
resources to address risks and whether an agency is "focusing its
efforts on the right problems."28 However, this section does not
establish any trigger to ensure that these types of comparative
risk analyses are indeed performed by agencies.
7. It leaves peer review discretion with the
agency.
Section 625 requires peer
review for benefit-cost analysis for rules that cost more than $500
million annually, resulting in an even smaller portion of an
already tiny set of rules to be subject to this requirement.
Although S. 746 does include a requirement that agencies conduct
"independent" peer review for required cost-benefit and risk
assessments, the way the bill language is crafted allows agencies
to determine what kind of review--whether formal or informal--is
warranted. In addition, such peer review would not be necessary if
the agency and OMB already determined that the rule has been
subjected to "adequate" peer review. In the case of EPA's 1997 air
standards, both EPA and the White House took the position that the
standard had undergone more than adequate peer review; based on the
scientific evidence, many in Congress and elsewhere strongly
disagreed.
As written, S. 746
appears to do little to prevent such situations from happening in
the future and might actually strengthen an agency's position by
allowing it to designate a variety of procedures, for reviewing the
science that serves as the basis of a rulemaking, as "peer
review."
S. 746 also allows peer
reviewers to include those individuals who are under contract or
receive federal funds from the agency issuing the rule it is
reviewing, raising conflict of interest concerns. There is also no
requirement in S. 746 that the rule necessarily highlight or
discuss the peer review process, or its conclusions, in a way that
is easily accessible and understandable to the public. An agency is
simply required to make it "available to the public."
8. It allows each agency to adopt its own
analytical guidelines.
Section 628 requires
agencies to develop their own guidelines, consistent with
guidelines first issued by OMB, for risk assessment and
benefit-cost analysis. Each agency can develop its own benefit-cost
guidelines and White House offices, such as OMB, the Office of
Science and Technology Policy, and the Council of Economic
Advisers, must evaluate these guidelines and work with the agencies
to improve them and make them consistent with, although not the
same as, OMB's own guidelines. In January 1996, OMB issued a set of
"Best Practices" guidelines for preparing an economic
analysis--after a two-year review by an interagency group.
A 1998 GAO study examined
20 regulations issued by 5 agencies, between July 1996 and March
1997, to determine the extent to which those analyses contained
best-practices elements recommended by OMB.29 GAO found that agencies could
improve the development, documentation, and clarity of their
regulatory economic analyses. For example, 6 out of the 20 rules
did not assign dollar values to benefits, 6 out of the 20
identified net benefits, and 5 out of 20 did not discuss
alternatives to the proposed regulatory action.30 In a 1997 GAO study, 8 of 23 EPA
rulemakings examined did not discuss or explain key economic
assumptions.31
Instead of bringing
consistency and clarity to regulatory economic analyses, methods,
and reporting by agencies--which could be done by requiring
agencies to follow OMB's existing "Best Practices" guidelines--S.
746 would only make the differences across agencies more likely as
each agency developed its own guidelines "consistent" with another
set of guidelines prepared by OMB. And, if agencies are not using
consistent methodologies, their results will not be comparable.
This principle is very important if any meaningful form of
regulatory accounting is to be conducted or estimates of benefits
applied across regulations and agencies for comparable risk.32
9. It allows ineffective judicial
review.
The judicial review
language in Section 627 is extremely weak and represents the lowest
level of preemptive effect. S. 746 reinforces the fact that it
would defer to any underlying organic statute. In addition, if any
agency fails to perform the required analysis, a court may, "giving
due regard to prejudicial error," remand or invalidate the rule.
This language weakens the provision, because it now says that there
has to be evidence that the error would have resulted in a
different rule all together. Agencies, not surprisingly, would
suggest that the error was harmless and a different rule would not
have been issued absent the error. In addition, the bill's good
cause exemption now allows the OMB Director to determine that it
would simply be "unreasonable" to go back and do the required
analysis after a rule has been issued. The court, for example,
could point to this determination as the basis for concluding that
the error would not have resulted in a different rule.
Finally, the provision as
modified makes it clear that a rule could not be remanded or
invalidated by the court because the underlying analyses were weak.
The court would need to determine that the entire rulemaking was
arbitrary and capricious. If the benefit-cost analysis was poorly
done or some important scientific data were excluded in developing
a rule, a court would not conclude that the agency violated S. 746
and, thus, the rule could still stand.33
10. It establishes a transparency double
standard.
Section 633 imposes
disclosure requirements on communications between the White House
Office of Management and Budget and agencies. As the Senate
Governmental Affairs Committee report notes, "this has been an area
of particular concern to the Committee for almost 20 years...many
in Congress were concerned about guaranteeing the openness of the
regulatory review process to instill public confidence and equal
access in such review."34
OMB must disclose to the
public information regarding the status of rules under review,
changes made to rules, and communications related to the substance
of a rule or contact with anyone not employed within the executive
branch of the federal government. The law also would generally
require OMB to release rules within 90 days, although the Director
of OMB can extend that review time. These requirements might be
considered to be an impermissible intrusion by Congress into the
prerogatives of the executive branch, notably the ability of the
President to communicate with agencies. At a minimum, these
transparency requirements reflect a double standard because neither
the agencies nor Congress are subject to similar requirements. Why
should agencies not have to disclose their communications with
anyone not employed by the executive branch of the federal
government? If OMB is subject to these rules, Congress and the
agencies also should be subject to them.
11. It fails to act affirmatively to expand the
public's right to know about regulations.
Too often, agencies
maintain public dockets in Washington to which few people, other
than those who can pay to have attorneys pour through the files,
have access to see how major decisions are made--most notably, the
benefit-cost and risk assessments that represent the major elements
of S. 746. The bill would do little to change this process or force
agencies to develop other ways to communicate information about
rulemakings as early and as much as possible.
What S. 746 does do is
require agencies to include executive summaries in their proposed
and final rules that explain the analysis behind the decision.
However, as history suggests and the GAO has noted, such summaries
will probably meet the minimum requirements of the law, but lack
clarity and thoroughness, and, ultimately, will not be much help
when they appear only in the little known, and little read, Federal
Register. S. 746 could do a lot more to enhance public
accountability and transparency if it took steps to require
agencies to take affirmative action to broaden the disseminating
information, such as better use of the Internet and through
improved and expanded use of the Federal Register, to the public
and potentially regulated entities.
S. 746 is Fatally Flawed
Together, these flaws in the Regulatory Improvement
Act simply put in place a series of requirements that agencies will
view as easy hoops they must jump through. The ambiguous language,
loopholes, and exemptions only affirm an agency's broad discretion
to regulate as it deems necessary. Sadly, then, this bill would
simply continue the legacy of "reform" from 1994 that, as the D.C.
Circuit Court of Appeals noted in the American Trucking Association
v. EPA, will do little to affect the regulatory decisionmaking
process and its outcomes. Agencies will devote considerable time
and legal resources (at taxpayer expense) to determine ways to get
around the statutory requirements imposed on them. And Congress and
the public remain ill-equipped to stop them.
Much more is still needed before this bill will
work to improve regulatory decisionmaking and lead to better
outcomes that save more lives. The lack of accountability of
agencies today will not be effectively addressed by simply
codifying more rules that they can easily avoid. The solution
ultimately lies in correcting the inherent disadvantage of Congress
and the public with respect to making regulatory decisions.
Congress and the public have as much a right to debate regulatory
priorities and spending as they do the annual federal budget. One
way to ensure this happens is to put back effective checks and
balances between Congress and the agencies. A good way to start to
do this is to refuse to allow the regulators to be evasive,
elusive, and secretive about how they make their decisions.
ALTERNATIVE APPROACHES
Congress is considering a number of
proposals that would enhance the public's right to know about the
decisions regulators make and that would hold them accountable.
Ironically, the Administration usually opposes such regulatory
right-to-know measures. Rather than debating the merits of S. 746
as currently drafted, Congress should take steps to put real
regulatory improvement back on track by focusing on a number of
regulatory accountability proposals already introduced in existing
legislation. For example, the Senate should consider the Regulatory
Right to Know Act of 1999 (S. 59/H.R. 1074) and the Mandates
Information Act of 1999 (S. 427/H.R. 350), which have already
passed the House of Representatives.
In addition, Congress should take steps
to give itself resources dedicated solely to oversight of the
regulators. The Truth in Regulating Act (S. 1244) and the
Congressional Accountability for Regulatory Information Act (S.
1198) would establish mechanisms for Congress to analyze and track
rules. Congress also should move forward with the very good risk
assessment principles in S. 746 as a separate proposal, as Senator
Trent Lott (R-MS) proposed in the second session of the 105th
Congress in the Risk Assessment Improvement Act of 1998 (S. 1728).
These are just a few examples of the proposals being considered in
Congress that seek to improve the regulatory system by making it
more accountable.35
The tyranny of the federal regulatory
system can only be ameliorated by injecting true democracy into the
process. Federal regulators have little incentive to maximize the
dissemination of information and public participation in the
rulemaking process because this makes them vulnerable to challenge.
For Congress, this ultimately means it must act to give the public
a larger window into the world of rulemaking and a seat at the
table. Congress must take steps to open up regulators' books to
scrutiny, demand more information and analyses, and foster a
healthy system of checks and balances where no one party holds all
the resources and information.
Today, regulators are increasingly
making value judgments about society's needs and priorities.
Americans elect representatives who reflect their interests to make
those judgments for them. Unlike the citizens of many European
nations, Americans have no desire to turn major policy decisions
affecting their lives to an elite core of professional bureaucrats
who would determine their future, their health, and their
prosperity.
CONCLUSION
The Regulatory Improvement Act of 1999 (S. 746) is
a compromise between Senators Levin and Thompson and the White
House that is fundamentally flawed and will not lead to real
regulatory improvement. The exemptions, loopholes, and lack of real
judicial review in the bill will leave the vast majority of federal
rules untouched by its analytical and reporting requirements. For
the less than 1 percent of rules it will cover, S. 746 provides
agencies with the opportunity to justify any regulatory outcome
while failing to give the public either greater access to
information or the legal tools needed to hold agencies accountable.
Congress should take a second look at a number of other proposals
before Congress that would do much more to put real regulatory
improvement back on track.
Angela Antonelli is the former Director of the
Thomas A. Roe Institute for Economic Policy Studies at The Heritage
Foundation and a former Assistant Branch Chief in OMB's Office of
Information and Regulatory Affairs.