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Regulatory Cost Balance Sheet

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Regulatory Cost Balance Sheet

A new report to Congress by the Office of Management and Budget (OMB) finds that health, safety and environmental regulations cost between $174 billion and $234 billion annually. Economic regulations and paperwork cost billions more.

Many have noted that regulations often are not well-targeted and cost more than they should, and propose that agencies better weigh costs and benefits.

But better cost-benefit analysis won't help much. The cure for excessive regulation is to end regulation without representation.

Congress delegates immense legislative power to agencies despite the fact that the Constitution grants legislative powers solely to Congress. That severs the voters' connection to those who regulate them, and allows Congress to take credit for, popular regulatory initiatives while blaming agencies for costs.

Rational regulatory policy — not to mention constitutional government — demands that every elected representative be on record for every significantly costly regulation imposed. One key proposal, the Congressional Responsibility Act, introduced by Rep. J.D. Hayworth, Arizona Republican, and Sen. Sam Brownback, Kansas Republican, would require congressional approval of significant agency rules. As to the complaint that voting on agency regulations would bog down the Congress, stop and think a minute: Do we want a society that makes so many laws the legislature can't even pass them all?

In addition to improving congressional accountability, better cost disclosure is vital. Much regulatory data already exists, but is scattered across government agencies. For example, 4,538 rules were at various stages in the pipeline in 1999 — but how many policy-makers knew that? And of these rules, 137 cost more than $100 million each.

A breakdown of such costly rules should be included in an annual "Regulatory Report Card." Other useful items that could easily be included in an annual Report Card include: total numbers of rules produced by each agency; the top rule-making agencies; numbers of rules facing statutory or judicial deadlines; and the numbers of rules impacting small businesses, or impacting state and local governments.

A Report Card would expose where cost estimates do and do not exist, thereby highlighting the best and worst agency efforts at cost disclosure, and competence in congressional oversight. A Report Card would help reveal whether we can say with certainty that the regulatory enterprise does more good than harm.

The problem with agency-driven cost-benefit analysis, on the other hand, is that, to work, agencies would frequently need to admit their rules' benefits do not justify the costs. That chafes against bureaucratic incentives. No matter how costly or inconvenient, a nationwide 15 mph speed limit and mandatory 15-foot bumpers would save lives; some agency somewhere could legitimately claim the benefits outweigh the costs.

Instead, by preparing Regulatory Report Cards, agencies would concentrate on assessing and fully presenting the costs of their initiatives — much as the federal budget focuses only on the amounts of taxes, not the benefits of the dollars spent.

Emphasizing costs doesn't mean that benefits can be ignored. Quite the contrary: The proper time to assess regulatory benefits is while Congress is contemplating legislation that later will become translated into regulations. Saving benefit appraisals for the time regulations are written is backward. Those benefits were presumably the reason for Congress' seeking legislation in the first place.

The proper regulatory reform goal is assurance that regulatory compliance dollars are allocated according to where an accountable Congress believes benefits to lie.

Moreover, OMB has the experience and know-how to create "benefit yardsticks" by which it can objectively critique high cost, low benefit rules in an annual Report Card. OMB could note the cost of a new regulation and compare its anticipated benefits to the alternative benefits that could be had if the compliance costs went instead toward hiring policemen or firemen, buying smoke detectors, anti-skid tape for stairways, or simply toward painting white lines down the middle of unmarked rural blacktop roads.

Improving congressional accountability and instituting annual. Report Cards would primarily affect future mandates. So what about overhaul of the existing multihundred-billiondollar regulatory state?

For starters, Congress could ask agencies and OMB to propose rules to cut at the time they prepare annual Report Cards. Increased interagency competition generated by those very Report Cards may increasingly make it apparent that regulatory benefits are not always what their proponents claim. More formal review and sunsetting of regulations are also options.

Limited regulatory cost budgeting would help as well. For example, an agency might freely issue new regulations, but be asked to offset the cost by eliminating one or more existing rules of roughly equivalent cost, or by persuading another agency to eliminate a regulation on its behalf.

Pollution credits for regulatory emissions, one might say.

Finally, another reform model worth considering is that embodied by the military base closure and realignment commission, which helped resolve the politically impossible task of closing obsolete military bases one at a time by instead assembling a bundle of them to vote on at once. Since everybody stood a good chance of getting "hit," the bundling provided some political cover. Likewise, a congressionally appointed, bipartisan Regulatory Reduction Commission could hold hearings and assemble a yearly package of proposed regulatory reductions to vote on, with no amendments permitted.

Since government spending and regulating can be substitutes for one another, today's pressures to maintain the federal budget surplus could increase incentives to regulate instead. Regulatory Report Cards and holding Congress accountable for rules are the best bets for offsetting that tendency, and are certain to improve disclosure and openness in the regulatory state.