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Creating a Regulatory Report Card: Toward Maximum Disclosure in the Regulatory State

Regulatory Comments and Testimony

Title

Creating a Regulatory Report Card: Toward Maximum Disclosure in the Regulatory State

A Comment on Improving

The Office of Management and Budget’s

Draft Report to Congress on the Costs and Benefits of Federal Regulations

Overview

Recommendations to Improve Disclosure in the Regulatory State

  • Agencies Should Calculate Costs, But Not Benefits
  • OMB Should Compile a "Regulatory Report Card" of Available Regulatory Statistics for Publication in the Federal Budget or the Economic Report of the President
  • OMB Should Designate Multiple Classes of Major Rules in the Regulatory Report Card
  • OMB Should Separately Categorize "Economic," "Social/Environmental" and "Administrative" Rules
  • OMB Should Include "Transfer" and "Process" Regulatory Costs in the Annual Statement for the Sake of Full Disclosure
  • OMB Should Acknowledge Indirect Impacts of Regulations Where Possible
  • OMB Should Be More Critical of Agency Benefit Claims
  • OMB Should Aggressively Recommend Rules for Revision

Beyond the Draft Report: Congress Can Make OMB’s Job Easier

  • Congress Should Affirm Final Agency Rules Before They Are Effective
  • Congress Should Establish a "Regulatory Reduction Commission" to Cope with Existing Rules

Conclusion

 

 

Overview

Ensuring rational regulatory decisionmaking by federal agencies requires creating and maintaining a direct linkage between agency choices and consequences for those choices. Yet agencies largely lack formal constraints when issuing regulations, and thus lack any forced recognition of opportunity costs. Unlike private entities, agencies' future regulatory actions are not limited upon making any given choice, thus agencies may regulate with little concern for the cost of regulations, and with no worry that regulating one aspect of the economy or public health will impact the ability to regulate another. Perhaps most important from the standpoint of the overall regulatory state, agencies also regulate heedless of what other agencies are doing, and thus can make no rational contribution to government-wide priority setting among competing regulatory goals.

Thus, other than curtailing the delegation of excessive legislative power to unelected agencies -- which is the fundamental source of regulatory excess -- the only response to agency excess is to aggressively monitor and audit what agencies do. This is why a review function and an annual assessment of regulatory impacts by the Office of Management and Budget (OMB), such as that laid forth in the Draft Report to Congress on the Costs and Benefits of Federal Regulations, matters so much. Since regulation and taxes are both means of achieving governmental ends -- and since both have impacts on aggregate output, prices and employment -- policy should strive toward tolerating no "off-budget" or unacknowledged government-caused expenses, whether fiscal or regulatory.

OMB can do only so much on its own. Since Congress itself is the source of overregulation, it must become the target of regulatory reform -- just as Congress is the target of popular proposals like term limits, committee reform, and other reforms aimed at reining in power. True regulatory reform must institute congressional accountability and end "regulation without representation" rather than denounce derivative agencies or scold OMB for failing to properly "audit" the regulatory state. The Congressional Review Act of 1996, which gave Congress an expedited procedure to enact disapprovals of inappropriate legislation, was an important concession to this principle.

In the meantime, OMB must do the best job of reviewing and documenting the regulatory state that it possibly can, and the Draft Report is a commendable start. Congressional accountability and disclosure should serve as the primary goals in regulatory reform; and within that framework, OMB has considerable control of disclosure and can thus advance "truth in regulation" considerably by improving its report. Certain principles, presented below, can help ensure that OMB’s reporting effort succeeds and that future editions of similar regulatory cost reports favorably evolve.

Recommendations To Improve Disclosure in the Regulatory State

Agencies Should Calculate Costs, But Not Benefits

It is well understood that the typical agency faces nontrivial incentives to overstate the benefits of its activities and to enlarge its scope. Therefore, any annual accounting statement intended to accurately portray the scope of the regulatory state should relieve agencies of benefit calculation responsibilities altogether. Agencies should concentrate solely on assessing and fully presenting the costs of their initiatives -- much as our fiscal budget focuses only on the amounts of taxes, not their benefits.

Benefit estimates can be highly subjective, and if an agency is allowed to offset costs of a regulation with benefits, as is currently the case in "net-benefit" reporting, rarely will any regulation fail to qualify from an agency’s point of view. Indeed, even OMB is unwilling to say in its Draft Report that it is prepared to recommend any revision in existing regulations until new evidence is forthcoming. OMB’s apparent belief in the net benefits of the existing body of social regulations sits in stark contrast with a January 1997 House Commerce Committee report on regulatory costs, which concludes, "We have found that the agencies have little, if any idea how their regulations affect the American people" and that "agencies cannot possibly know whether they are doing more good than harm." Moreover, while OMB states that "The advantage of regulation is that it can improve resource allocation or help obtain other societal benefits," that begs the question of whose resources, or whose societal benefits: society doesn’t speak with one voice.

It happens to be the case, of course, that the legislation that required OMB to produce the Draft Report called for cost and benefit calculations, and OMB must comply to the best of its abilities until that approach is amended in future legislation. Nonetheless, OMB noted that "an excessive amount of resources should not be devoted to estimating the total costs and benefits of all Federal regulations" since gathering such information is so daunting, and it doesn’t tell us how to reduce existing burdens. Although laying bare the extent of the regulatory state is essential despite its difficulty, leaving out benefit calculations would help cut down on OMB’s (and agencies’) devoting an "excessive amount of resources." Agencies already do a reasonable job assessing costs through the preparation of Regulatory Impact Analyses, which face public comment, and through the requirements of Executive Order 12866. That work can be credibly built upon.

Of course, focusing on costs doesn’t mean benefits can be ignored. They should simply be addressed differently. As with the tax code, Congress should make the "grand judgments" about where benefits lie and take responsibility for the benefits or lack thereof implied in the regulatory priorities that prevail across the agencies. Congress already "sets" priorities implied by the potential benefits that the various agencies might provide given their latitude. Allowing agencies to focus on costs could prod them toward maximizing benefits within those bounds. Rather than simply claim net benefits for every rule, agencies should "compete" to prove that they save the most lives at least cost or risk having their budgets reallocated. Congress could reapportion regulatory authority based on results achieved or unachieved. For example, if it is determined that OSHA saves more lives than EPA, Congress’s future allocation of regulatory authority could reflect that.

Consider that we don't offset the taxes individuals pay with the benefits those taxes provide to others to arrive at a net tax burden. Doing so would be an obvious and intolerable wealth transfer that few -- other than grateful recipients -- would tolerate. Abuses would result from the fact that persons enjoying the benefits of regulations and persons paying for those benefits are not always, or perhaps rarely, the same people. Even benefits of federal on-budget activities are difficult to compare with costs: How does one for example, trade off benefits of federal outlays on Amtrak versus money spent on welfare? Such ambiguities would become greatly magnified in a regulatory regime that left benefit assessments up to agencies alone.

Leaving off benefit calculations would offer more of a chance for agencies to grapple with indirect costs, and also avoid the intellectual chaos of trying to speak coherently about "net benefits" when we all know that costs and benefits are subjective, often measured best on different metrics, and thus rarely discernible by third parties. Grasping costs fully in preparing any annual regulatory survey will be fraught with difficulties and uncertainties enough: OMB should keep the job manageable by concentrating on cost disclosure.

OMB Should Compile a "Regulatory Report Card" of Available Regulatory Statistics for Publication in the Federal Budget or the Economic Report of the President

Reformers are handicapped by the relative absence of any official concise presentation of known information about regulatory trends and costs. The oft-cited "number of federal register pages" is a tired gauge, and one that reveals little about actual regulatory burdens. In the new Draft Report, OMB did a commendable job outlining what it believes to be the bulk of the costliest rules for the period April 1, 1996 through March 31, 1997. OMB’s summaries in the Draft Report of the available cost-benefit data provided by the agencies for these rules is a giant step above the standard presentation of this information -- scattered across more than 4,000 separate rule entries in the 1,000-plus pages of the Unified Agenda of Federal Regulations, with nary a digestible summary table in sight.

One quick reform that would be difficult to oppose, but would be of immense value to scholars, third party researchers, to Congress and to the ongoing reform effort, would be to fully summarize the regulatory data already provided by the agencies in accordance with Executive Order 12866. Such scattered data could be easily condensed and published as a short chapter in either the Federal Budget, the Economic Report of the President, or the Unified Agenda of Federal Regulations. Such a "Regulatory Report Card" has the advantage that it does not require enactment of benefit-cost requirements, nor would it necessarily even require a presidential signature to put into play (it could likely be accomplished by OMB initiative alone, by Executive Order, or by simple or concurrent resolution).

Precision cost-benefit data would not be necessary to produce a Regulatory Report Card. A significant amount of the non-cost information not currently assembled intelligibly in one location could easily be published and would be of immense value, just as hard numbers would be. OMB could summarize all quantitative and non-quantitative data into as few charts as possible, and provide historical tables as well. Trends in this data alone will prove vital information, facilitating rudimentary cross-agency comparisons over time.

Here is a sampling of dispersed data already compiled that should be officially published annually in summary form by program, agency, and grand total:

REGULATORY REPORT CARD

Recommended Official Summary Data by Program, Agency, and Grand Total

  • Numbers of major ($100 million +) and minor rules
  • Numbers of major and minor rules featuring cost estimates
  • Numbers of major and minor rules lacking cost estimates
  • Tallies of cost estimates that exist, with subtotals by agencies and grand total
  • Percentages of major and minor rules lacking cost estimates
  • Short explanation of ratio and primary reason for lack of cost estimates
  • Numbers of major and minor rules required by statute
  • Numbers of major and minor rules that are discretionary
  • Numbers of rules facing statutory or judicial deadlines
  • Numbers of rules for which cost calculations are statutorily prohibited
  • Percentages of rules reviewed at OMB, and actions taken
  • Numbers of Federal Register pages devoted to final rules and to proposed rules
  • Five-year historical tables for all the above

Requiring this information to be published annually would acknowledge and validate its status as an important component of the disclosure process. A beneficial side effect of such simple disclosure is that it will quickly reveal to what extent Congress itself is responsible for the regulatory burden. For example, it would help emphasize that Congress put in place many of the statutory deadlines that make vigorous regulatory analysis impossible. And so long as agencies continue to calculate benefits, presenting the percentages of rules with and without benefit calculations would reveal whether or not we can truly say the regulatory enterprise is doing more harm than good.

As OMB is aware, the presentation of some of this data would not be a new exercise. Portions of this information, such as numbers of major and minor rules, was formerly collected and published in a "sister" document to the Budget -- the Regulatory Program of the United States Government -- but that process has since been abandoned. Reinstating a Report Card or an "Annual Report" like that published in the former Regulatory Program should be a priority.

If OMB’s Draft Report estimate of the regulation’s cumulative cost becomes an annual fixture, as it should, it should be combined with a annual Regulatory Report Card process (which emphasizes yearly rather than cumulative costs) in future years. Together they would constitute the best ongoing official disclosure of the regulatory state ever published.

OMB Should Designate Multiple Classes of Major Rules in the Regulatory Report Card

If OMB and agencies concern themselves primarily with disclosing regulatory costs rather than benefits, as they should, then that presents an opportunity to improve and present far more meaningful cost analyses. Today, regulations are loosely broken into those that are "economically significant" (over $100 million in annual costs), and those that are not. But that threshold only tells us the minimum level of costs. For example, given the definition of what an economically significant rule is, we can ascertain only that the 116 major rules in the April 1996 Unified Agenda will cost at least $11.6 billion ($100 million times 116 rules) annually, but we can’t glean any more than that without combing tediously through the Agenda.

Should the government adopt a Regulatory Report Card as a policymaker aid, the number of economically significant (or "major") rules would likely be included. But this designation would be far more informative if expanded slightly to tell us a bit more than a minimum level of costs. To that end, OMB should develop simple guidelines and recommend that agencies break economically significant rules up into separate categories that represent increasing costs, to be presented in the Regulatory Report Card. The following chart offers a suggested breakdown:

Proposed Breakdown of "Economically Significant" Rules

Category 1 > $100 million, <$500 million

Category 2 > $500 million, < $1 billion

Category 3 > $1 billion

Category 4 > $5 billion

Category 5 >$10 billion

This particular breakdown is merely one workable suggestion. OMB should select permanent categories based upon a review of costs of major rules over the past decade or so. It is apparent that the "economically significant" designation could be made substantially more meaningful if a breakdown by category were implemented: knowing that a rule is or is not economically significant simply tells us too little unless we dig up a regulatory impact analysis or peruse the copious Unified Agenda. For example, some cost estimates of the EPA ozone-particulate matter rule suggest that by the year 2010, the ozone portion will cost at least $1.1 billion, and that the particulate matter portion will cost $8.6 billion annually at that time. Clearly, knowing that EPA is imposing "Category 3" and "Category 4" rules would be far more informative shorthand than merely knowing that both rules are "economically significant."

OMB Should Separately Categorize "Economic," "Social/Environmental" and "Administrative" Rules

OMB is on the right track distinguishing between economic and environmental/social regulation. Moreover, OMB’s willingness to accept the notion by researchers such as Robert Hahn of the American Enterprise Institute that economic regulation "produces negligible benefits" is a dramatic official development.

There seems to exist an emerging consensus that that the weakest excuse for government interference in the economy is that of economic intervention. This seems to be the case whether the issue is grand-design government intervention -- such as "fine-tuning" of the macro economy -- or whether the issue is direct government management of an specific industry's output and prices (such as agricultural quotas or electricity generation prices) or entry into an industry (such as the trucking industry). Even if motives are pure, such economic interventions fail. More ominously, many now recognize that motives for regulation aren't necessarily always rooted in the "public interest" at all -- and that's a certain recipe for regulatory failure. The "public choice" branch of economic theory has gone to great lengths to document how regulation often works in the interests of the regulated parties themselves rather than in the public interest.

Since the role of health and safety regulation is so utterly different from economic regulation, separate presentation in Annual Reports, Report Cards and/or the Unified Agenda make sense from the standpoint of comparing relative merits of regulations as the scope of OMB’s surveys grows. There are obvious conceptual differences that make meaningless comparisons of, for example, purported economic benefits from a trade regulation with lives saved by a safety regulation. Since the two types of benefits allegedly achieved are on the one hand of the economic variety, and on the other of a health and safety variety, no basis exists for comparing the two. There is no single objective metric, and thus their costs should be presented separately. To the extent that analyses such as the Draft Report help discredit economic regulation, such regulations can be removed from the purview of government altogether (admittedly a utopian thought), leaving Congress and OMB the smaller task of controlling and documenting costs of environmental, health, and safety regulations.

Today, economic regulation is losing its luster more rapidly than environmental or health and safety rules. Nonetheless, where health and safety rules reveal that they too have "private interest" origins, they can be jettisoned.

Paralleling an official distinction between "economic" and "social" regulation, the Unified Agenda and future regulatory cost studies (or Report Cards) prepared by OMB should further distinguish both these variants of these "interventionist" regulations from those that merely affect the public’s dealings with the government. In other words, rulings such as those on benefit eligibility standards, use and leasing requirements for federal lands, and revenue collection standards and such should appear separately in the Unified Agenda and in OMB reports from the economic and environmental and social regulations that normally represent the focus of regulatory reform. This separate category could simply be called "Administrative."

OMB Should Include "Transfer" and "Process" Regulatory Costs in the Annual Statement for the Sake of Full Disclosure

OMB argues against the inclusion of both "process" regulatory costs and "transfer" regulatory costs in the Draft Report. It is obviously true that certain administrative costs represent, not regulation as such, but rather "services" secured from government by the public. But that does not make it appropriate not to actively disclose them. Similarly, it is certainly important not to lump service-oriented administrative paperwork -- such as that for business loans, passports and getting government benefits -- in the same category as paperwork such as the tax compliance burden. Involuntary, non-service-related process costs such as tax compliance and workplace reporting requirements are hardly minimal, and they should be officially tallied where possible.

OMB argues that "transfer" regulatory costs -- such as those produced by the transfer of income from consumers to farmers through farm production quotas -- should not be counted as a regulatory costs because "One person’s loss is another person’s gain." But for purposes of disclosure to the public, it shouldn’t make a speck of difference whether regulations represent actual costs or mere "transfers" and thus not "real costs to society as a whole." To the person or persons on the wrong end of that transfer, the cost is real. An official policy of ignoring and remaining mute on such redistribution merely invites mischief and further transfers, especially since regulations and taxes can be substitutes for one another and subject to interest group manipulation. America is not such an extreme utilitarian state that we don’t care about supposedly neutral transfers so long as "society’s happiness" is maximized. Individual rights matter – and that means governmentally imposed costs that affect individuals must be disclosed.

Taxes, for example, are often merely transfers of wealth: But would anyone dare suggest that we do away with the fiscal budget? Again, OMB must not lose sight of the fact that disclosure and accountability should be the primary goals of any annual report on regulatory costs.

OMB Should Acknowledge Indirect Impacts of Regulations Where Possible

OMB notes that the indirect effects of regulation "are ambiguous theoretically, not well understood empirically, and offer little content for making recommendations about regulatory policy." That unknowability in itself suggests that indirect effects ought to be guarded against and avoided where possible, especially since some argue that indirect costs of regulation could even exceed the magnitude of direct costs. Thus, ignoring indirect costs will lead officials to underestimate the true impacts of regulation and thus overregulate relative to the alternative of taxing and spending. Acknowledging indirect costs is simply a matter of fairness and accountability in government. If government doesn’t regard compliance itself as too complex, then how can the government claim that merely assessing the costs of compliance is too cumbersome? Likewise, if indirect costs are too difficult to compute, then how can government credibly argue that compliance is a simple matter?

(It bears mentioning that some types of indirect costs generated by certain regulations are reasonably well known. The documented negative effects of such interventions as the Corporate Average Fuel Economy standards, "drug lag," and the Endangered Species Act are all evidence of the need to monitor indirect costs.)

Ignoring indirect costs would lead to massive understatements of regulatory burdens. Thus, some explicit recognition of indirect costs imposed by regulations is necessary even though precise measurement will be impossible. Recognizing and somehow incorporating those in a reasonable way represents a critical problem. Luckily, opportunity costs apply even to the economists at OMB: by avoiding benefit assessments as suggested earlier, manpower resources remain available to better assess indirect regulatory costs.

If Congress were to settle on a rule that allows regulators to overlook entire categories of indirect costs, then regulations will tend toward that very type. Imagine an annual OMB report were established that addressed only direct costs of regulations -- such as the engineering costs of controlling an emission. Further suppose outright input or product bans are regarded as "indirect" costs for budgeting purposes, and not counted in regulatory assessments. Under that structure, nearly every environmental regulation could be expected to entail a ban so that regulators would avoid posting high regulatory costs. Clearly the wrong kind of incentives could be disastrous. There are no easy solutions, but policymakers can attempt to regulate in ways that avoid indirect costs. Part of the answer is to limit those types of regulatory activities -- such as product bans -- most likely to be considered indirect costs.

Another way of dealing with the indirect cost dilemma, discussed later, is to require Congress itself to vote on final agency rules, especially where indirect costs are a significant component. Under such a framework, handwringing over indirect costs wouldn’t be quite as worrisome. As noted, the key contribution of an annual regulatory accounting is not accuracy, but making Congress accountable, and inducing agencies to recognize opportunity costs by ensuring that they compete for the "right" to regulate in the open sunshine. Today, no one is held directly accountable to voters for regulatory excess. Thus, one could clearly do worse than settle for rough indirect cost estimates that nonetheless help allocate regulatory dollars in loose correspondence with where an accountable Congress believes benefits to lie.

OMB Should Be More Critical of Agency Benefit Claims

Until OMB and agencies shift their focus to cost calculations alone, a proper attitude toward agency benefit claims is essential.

An unspoken presumption underlying regulatory activism is that markets are not perfect but that political decisionmaking somehow is. Indeed, the fount of regulation is the belief that government actors are non-self-interested, that political markets are fairer than private markets. Even OMB remarks that "It is…difficult to imagine a world without health, safety and environmental regulation. Could a civil society even exist without regulation?" While getting to the bottom of such deeply philosophical discussions as whether markets and the common law are better protectors of the public than regulation is well beyond the scope of this report, it is important for OMB to acknowledge the ease with which regulation can do more harm than good.

OMB appears too comfortable granting the benefit of the doubt to regulators. By placing the burden of proof on those who would remove a rule rather than on those who would impose it in the first place, OMB ultimately fails to recommend any reductions or eliminations of rules. In the face of the prevailing, unquestioning acceptance of "social" regulation, our society is on the other hand in the process of a pervasive dismantling of economic regulations (electricity, telecommunications) because of a realization that such regulation does more harm than good. It has become clear that economic regulation often merely serves special interests. For example, price regulation has not been shown to work for consumers, but it has been shown to increase prices.

Thus it is not the case that "businesses generally are not in favor of regulation." Business not only generally favors regulation, but often seeks the regulation in the first place. Consumers did not ask for the Interstate Commerce Commission, for example, or for the state regulation of utilities: such regulation was sought by the regulated to protect profits. If economic regulatory agencies are subject to capture by special interest groups, it is no great leap to conclude that much of what is considered "social" regulation may likewise be quite self-centered.

Indeed, health and safety regulation can tend to aid the regulated, and potentially produce a bad deal for consumers. For example, food labeling restrictions that limit health claims benefit entrenched food producers that already enjoy healthy reputations. Upstart companies are less able to compete on the basis of health characteristics thanks to restrictions, and thus may emphasize less important features like convenience, microwaveability, and taste. As a result, the health characteristics of newly introduced food products may be caused to decline -- the opposite of regulation's alleged intent. Since regulation can easily be exploited to protect profits, many examples of "social" or "safety" regulations are suspect. Butter producers tried to portray margarine as unsafe and dirty at the dawn of the margarine industry, for example. Likewise, examples of environmental regulations being abused to transfer wealth or protect profits abound.

There are other reasons benefits may not always be as high as agencies claim:

  • Benefits may be less because of agencies incentives to overstate them (the flip side of the incentive of businesses to overstate costs).
  • Benefits are selectively expressed: for example, structurally safer cars may induce some to drive more recklessly, placing others at risk (the moral hazard problem).
  • The benefits of a particular regulation are rarely compared with benefits that could be secured in another agency.
  • Benefits are rarely compared with the benefit of leaving the compliance dollars in the hands of the public.
  • Regulations serve as lower bounds: once in compliance, there may be no competitive edge gained by a firm that exceeds a particular rule’s requirements. In this sense, regulatory "benefits" are actually imposing costs by removing safety as a competitive feature.

OMB should temper the inclination to give the benefit of the doubt to benefits rather than to the non-existence of benefits, and recognize that environmental and social regulation is subject to the same political failure and "regulatory pork barreling" that plagues economic regulation. OMB did not hesitate to make the point that regulatory costs are not as high as depicted in Thomas Hopkins’ work because costs saved by ending an older regulation are not as high as costs of meeting the regulation in the first place. But while OMB believes costs of regulation are overstated because of the rising baseline, where is the parallel conviction that regulatory benefits are overstated? Technical improvements can be important in negating the benefits of regulation as well as the costs. A dangerous impression is given in the Draft Report that even if regulations are piled on unchecked or irrationally, we’ll just "grow out" of them, thus compliance costs won’t matter all that much anyhow.

It is, however, heartening to see OMB acknowledge that health and safety are competitive features and that businesses will strive to provide them without regulation. Clearly regulators should not take credit for the benefits that business would provide anyway.

OMB Should Aggressively Recommend Rules for Revision

As noted, OMB is too timid about recommendations for eliminating past-year regulations. The burden of proof of the value of rules should be on agencies. Although OMB says that "Before supportable recommendations are made to eliminate existing regulatory programs or elements of programs, empirical evidence based on analytical techniques… must be developed," many of the cost-benefit analyses are as good as they ever are going to be. If agency analyses under Executive Order 12866 appear not to justify a rule, then OMB should be forthright and say so. Nor should OMB shy away from making recommendations about modifying regulatory programs based on plain common sense. Here’s a "methodological" approach: OMB might, for example, note the cost of a presumably beneficial regulation, then compare that benefit to the alternative benefits that could be secured if the compliance costs went instead toward hiring policemen or firemen, or simply toward buying buckets of white paint to paint lines down the centers of dangerous rural blacktop roads.

In other words, OMB has the experience and know-how to create a "benefit yardstick" of its own, so to speak, by which it can objectively critique all high cost, low benefit rules. Additionally, OMB could ask agencies to propose rules to cut. Or, OMB could have agencies rank their regulations and show that their least effective rules are superior to another agency’s rules. Results of such questionnaires could be presented in the Regulatory Report Card.

Beyond the Draft Report: Congress Can Make OMB’s Job Easier

Congress Should Affirm Final Agency Rules Before They Are Effective

The very fact that OMB -- the Office of Management and Budget of all entities -- must rely on outside estimates of the very costs that the government it helps administer imposes speaks volumes about the lack of accountability for regulatory costs.

To improve accountability over regulatory costs, the 104th Congress passed the Congressional Review Act (CRA). That law sets up a 60-day period following agency publication of a regulation during which the rule will not take effect. That 60-day pause affords Congress an opportunity, should it desire, to pass a resolution of disapproval to halt the regulation. This law was an important step toward enshrining the all-important notion of congressional accountability for regulations. However, the CRA has the disadvantage that it effectively requires a 2/3 supermajority to strike a bad rule if the president decides to veto a disapproval resolution. The superior approach to ensuring congressional accountability would be to enact a bill setting up a procedure by which no major agency rule becomes law until it receives an affirmative vote by Congress. (An expedited approval process along with en bloc voting on regulations may suffice.)

The rationale for positive approvals? Regulatory decisions today are not made by elected representatives -- officials whom voters can hold accountable at the ballot box. Nonetheless, agency mandates are laws, despite the Constitutional requirement that "All legislative Powers herein granted shall be vested in a Congress of the United States." In delegating these powers to bureaucrats, Congress has created a disconnect between the power to establish regulatory programs and responsibility for the results of those programs.

There is tremendous populist potential in a campaign to end "regulation without representation." Requiring Congress to approve mandates before they are law is the pinnacle of accountable government, a reform that could unite across party lines. Accountability thus embodies a far superior "regulatory reform" than any variant of enhanced cost-benefit or risk assessment analysis. Accountability beats cost-benefit analysis hands down as a locus of reform, because such analysis has little appeal to the man in the street and can easily be caricatured as an attempt to put price tags on human life.

Making Congress accountable for regulations would avoid much of the problem of agency tunnel vision, by which agencies make no cross-agency comparisons of rules for the sake of setting priorities. Congress itself would become answerable for government-wide priorities. Ending "regulation without representation" would also lessen the unease over the fact that for many regulations, agencies’ "understandable response is not to quantify or monetize." In such cases, the rule, like all others, goes back to a Congress that will answer for its efficacy or lack thereof. As long as accountability rules the day, even where cost (or cost-benefit) analyses cannot be conducted, or appear impossible to conduct, the public will have less reason to be concerned about regulatory excess because every elected representative will be on record as either in favor of or opposed to a particular regulation.

OMB’s yearly efforts at presenting a snapshot of the regulatory burden as inaugurated by the Draft Report would be aided by congressional accountability, because returning rules to Congress for approval would provide both agencies and Congress with powerful incentives to ensure that (implied) benefits exceed costs. Agencies would want to ensure that its rule met a reasonable cost-benefit standard before sending it to Congress, and a Congress directly accountable for regulatory costs would be less likely to approve questionable rules. Where today there is little incentive to perform cost-benefit analysis, accountability would "force" agencies and Congress to take those considerations into account.

Even if Congress were required to approve every agency regulation, cost tallies such as those OMB is providing in its Draft Report would still be essential for the same reasons it is essential that the U.S. formally budget its tax revenues and outlays. Moreover, since imposing taxes and imposing regulations can be substitutes for one another, pressures to balance the budget will increase pressures to regulate, underscoring the urgency of accounting for regulatory costs.

Congress Should Establish a "Regulatory Reduction Commission" to Cope With Existing Rules

Congressional accountability obviously would target future mandates rather than the existing regulatory state, whose costs OMB pegs at $289 billion for 1997.

To deal with the existing enterprise, Congress could put into place a mechanism that would, over time, considerably lessen the scope of OMB’s regulatory surveys. Where OMB is too timid to recommend rules for abolition, setting up a congressional Regulatory Reduction Commission -- modeled on the military base closure and realignment commission -- would allow Congress to begin to review, hold hearings, and assemble a package of rule reductions and require an up or down vote by Congress, with no amendments. This procedure could be followed every year for as long as necessary, and over time, could shave off large chunks of ineffective regulations. Furthermore, as an aid in preparing commission reports, Congress could, for example, have EPA update its key 1990 Cost of Clean report, and have other agencies prepare similar documents. The findings of such studies, paired with congressional accountability, would assure our getting more bang for the regulatory buck over time.

Conclusion

OMB has considerable leeway in making its Draft Report on regulations a supremely useful tool for coming to grips with the regulatory state. By focusing on costs rather than benefits, preparing summary "Regulatory Report Cards" for prominent presentation in the Fiscal Budget, by creating multiple classes of major rules, and by taking other steps designed to maximize disclosure, OMB will ensure that annual status reports on regulation continue to improve. Accountability and disclosure are the keys to guaranteeing that the regulatory enterprise always does more good than harm, and OMB has a significant role to play.