Letter to House Regulatory Affairs Subcommittee Chairwoman Candice Miller

Letter to House Regulatory Affairs Subcommittee Chairwoman Candice Miller

August 04, 2005

Dear Chairwoman Miller:

Thank you again for giving me the opportunity to present testimony on congressional regulatory reform initiatives.

After further reflection, I believe I can state more clearly the key requisites of successful regulatory reform. Recent history suggests that reformers should concentrate on initiatives that: (1) visibly embody good-government principles, (2) enhance competition and checks and balances in the regulatory process, and (3) credibly advance the interests of small business and state and local governments. A brief explanation follows.

(1) Choose initiatives that visibly embody good government principles. Reformers can prevail only if they can convincingly lay claim to the moral high ground. One reason the Contract with America’s cost-benefit and risk-assessment provisions went down in flames is that they could not easily be explained or defended in terms of generally recognized good-government principles. Indeed, opponents plausibly argued that the Contract’s proposals would cause “paralysis by analysis” and, thus, block, delay, or weaken critical public protections.

Today’s reformers should highlight how the regulatory status quo undermines good government. Regulatory costs, unlike tax and spending burdens, are largely hidden from public view. Regulatory decisions, unlike tax and spending decisions, are made by bureaucrats not accountable to citizens at the ballot box. Agencies, unlike the entities they regulate, face little competition and no market test for their services. Reforms designed to make the regulatory process more transparent, accountable, and competitive are more likely to gain broad public acceptance than those attempting to impose new analytic requirements on agency actions.

Opponents may try to deny that the current system conceals costs, sunders power from responsibility, or monopolizes decision making in the hands of unaccountable bureaucrats; but that’s okay. Public debate on these matters would in itself enhance the prospects for reform.

(2) Emphasize reforms that enhance competition and checks and balances. Rules of rulemaking are necessary, but as my testimony discussed, agencies are artful dodgers and OMB does not always want to constrain them. In the past, reformers mainly relied on what James Madison called “parchment barriers,” with generally disappointing results. Today’s reformers should pursue strategies enabling agency to check agency, Congress to check and balance both OMB and the agencies, and outside experts to compete for public approbation with agency experts.

Perhaps the most successful reform of recent years is President Bush’s Executive Order 13272, “Proper Consideration of Small Entities in Rulemaking,” which creates a significant role for SBA’s Office of Advocacy in rulemaking. E.O. 13272 enables Advocacy in some measure to check and balance the rulemaking agencies, providing partial relief to the monopoly they otherwise exercise over regulatory analysis and deliberation. All the bills sponsored by the congressional witnesses aim to expand Congress’s role in regulatory decisions. That is the right goal.

(3) Champion reforms that credibly advance the interests of small business and state and local governments. Influential constituencies must support regulatory reform, or it will not happen. But just having influential supporters is not sufficient. The supporters themselves must enjoy the respect and trust of the public at large. Rightly or wrongly, in public opinion, big business has almost no moral standing on regulatory issues. Indeed, corporate lobbying on behalf of the Contract’s cost-benefit and risk-assessment proposals arguably proved to be a net political liability.

In contrast, public opinion is generally favorable to small business and state and local governments. Thus, it was no accident that, although reformers in the 104th Congress failed to enact the Contract’s cost-benefit and risk-assessment criteria, a top priority of big business, they did enact SBREFA and UMRA.

Implications

As noted, the bills considered by the Subcommittee all aim to enhance Congress’s responsibility for regulatory decisions. Their good-government bona fides are clear and easily explained. Moreover, any reform that increases Congress’s role in rulemaking must also benefit small business and state and local governments. Why? Small business and state governments are better represented in Congress than they are in the federal regulatory bureaucracy. The more responsibility Congress takes for regulation, the more incentive Congress has to ensure agency compliance with SBREFA and UMRA.

Economist Richard Belzer’s proposal to open the market for regulatory analysis is another good-government reform that would advance small business and state government interests. Under Belzer’s plan, Congress would require OMB and GAO to hold contests and judge between competing cost-benefit assessments of selected major rules. Competition would spur the agencies to improve their product, and the contests would attract media attention and public scrutiny, contributing to a more informed and transparent process. Further, regulatory experts from small business associations and state and local governments might actually win from time to time, making it tougher for agencies to ignore their concerns.

Consider how such a regime might have affected the debate over EPA’s Total Maximum Daily Load (TMDL) Clean Water Act rule. EPA estimated the rule would cost state and local governments no more than $25 million annually. The Association of State and Interstate Water Pollution Control Administrators (ASIWPCA) estimated it would cost between $670 million and $1.2 billion annually. These estimates are more than an order of magnitude apart. Which estimate should Congress and the public trust? Nothing in the current process allows ASIWPCA’s estimate to serve as a reality check on EPA’s, or vice versa. A contest open to all experts, with OMB and GAO each required separately to pick a winner and explain its reasons, would at least have given the public and policymakers some basis for deciding whose estimate was closer to the truth.

A competitive market for regulatory analysis would have the added benefit of discouraging distortion and exaggeration, whether by agencies or other stakeholders. Under the status quo, EPA has nothing to lose by grossly understating the costs of the TMDL rule, nor does ASIWPCA have anything to lose by grossly overstating the costs. But in a contest, anyone proffering extreme estimates based on poor data, unsound methods, or unrealistic assumptions is likely to lose, jeopardizing his credibility as a regulatory expert. Thus, competition would spur both agency and non-agency experts to produce better analyses. Better analyses should then lead to better decisions.

I hope the foregoing comments clarify certain key points of my testimony. If Subcommittee rules permit, I would be grateful to you for including this letter in the hearing record.

Sincerely,

Marlo Lewis