The Great Unknown – Federal Independent Agencies’ Regulatory Costs

Let’s be independent together! —Herbie the Dentist Elf to Rudolph in Rudolph the Red-Nosed Reindeer

Independent agencies are not subject to Office of Management and Budget review as executive agency rules are, so their rules’ costs are not included in the annual Report to Congress on the Benefits and Costs of Federal Regulations, confounding as that may be.

So costs again are understated to this degree. OMB noted implications of this shortcoming in the 2011 report (not for the first nor last time):

We emphasize that for the purposes of informing the public and obtaining a full accounting, it would be desirable to obtain better information on the benefits and costs of the rules issued by independent regulatory agencies. The absence of such information is a continued obstacle to transparency, and it might also have adverse effects on public policy.

Technically, a portion of independent agency cost information is available in Regulatory Impact Analyses and the Governmental Accountability Office’s (GAO) database compiled per the Congressional Review Act. But once again it is highly incomplete. Of the independent agencies’ rules issued during FY 2013, for example, the GAO reported that seven agencies issued 18 rules, of which only two provided monetized cost estimates (OMB listed these rules in a table, but did not provide any of the numerical costs for readers).

Referring to whatever cost estimates independent agencies may perform on their own, OMB stated that it “does not know whether the rigor of the analysis conducted by these agencies is similar to that of the analyses performed by agencies subject to OMB review” (taking rigor of executive agency reviews for granted, somehow, although these too are highly incomplete.)

How OMB couldn’t know, even out of curiosity, whether comparable rigor exists after all these years is hard to fathom, but there you have it.

Over the entire decade of 2004-2013 and according to OMB, the total number of major rules issued during this period by independent agencies was 128 (OMB, Table C-1, p. 88). Among them, the total number of independent agency major rules with “some information on benefits or costs” is 76 (italics added; Table C-2, pp. 89-90).

So, the cumulative annual cost of these independent agency rules? Nobody really knows; it’s the same story as that of executive agency rules of the past decade, and as that of legacy regulatory costs.

We need to know independent agency costs; new ones emanating from the Consumer Financial Protection Bureau, Securities and Exchange Commission, the Federal Reserve and the Commodity Futures Trading Commission in response to the Dodd-Frank legislation are highly significant, among much else, like the Federal Communications Commission’s new ventures beyond its founding mandate.

The GAO links to reports on agencies’ major rules, and for the past several years, since 2009, the Heritage Foundation has prepared a “Red Tape Rising” report series (newest available here) featuring incremental rule costs, including independent agencies rather than just the executive agency compilations that OMB emphasizes.

My chart Annual Costs of Independent Agency Rulemakings presents these excerpted independent agency costs for the past five years, which add up to (only) $6.14 billion; I omit executive agency costs included in the Heritage reports to avoid double counting of those where overlap might exist (and in turn miss costs where there is no overlap). This also allows me to preserve an emphasis on the OMB reports as primary documentation for incremental executive agency regulatory costs as the basis for future editions of Tip of the Costberg and Ten Thousand Commandments.

I’m also leaving out start-up costs of independent agency rules—which add up into many tens of billions—referencing only their annual, ongoing costs. Finally I’m using Heritage’s 2010 dollars rather than 2013, which understates somewhat.

In addition to leaving out start-up costs, which would otherwise increase totals here substantially, the mid-point cost is used where a range existed, by a Heritage Foundation more tolerant than me. Also, an obvious next step would be to tally the independent agency costs from the GAO database from years prior to fiscal year 2009 since there’s no indication that GAO, OMB or any other office is interested in doing it. I consider it highly significant that we do not have official aggregate cost estimates for decades of independent agency rules—merely these few years’ partial numbers (most rule costs are not quantified, as noted). It is more than a glaring gap that, apart from the most recent rules, we have no officially embraced estimate of the costs of independent agency rules right through the turn of the century to the present.

In any event, note we get a substantial increment over what OMB reports as its annual regulatory cost tally: as noted, OMB until very recently liked to emphasize that executive agency regulations it reviews tend to average around $5 billion annually by its reckoning (p. 19, here). Yet these few years of a few independent agency rules for which cost tallies were given or available add up to another $6.14 billion annually—equivalent to what OMB makes explicit as a total annual cost.

In my chart Principia Bureaucratica: The Total Annual Cost of Federal Regulation, these amounts are disaggregated in the broad transportation, energy and finance categories where they seem to best fit. Still, one may read the $6.14 (again, incomplete; our government officially examines a fraction of agencies’ actual workloads and private sector compliance burdens) independent agency figure at the bottom in the relevant column.

We don’t know how much regulations cost, nor do we have any idea, really, what their benefits are. OMB’s assumptions are not obviously materially much more justifiable than the Small Business Administration it recently criticized once were, nor will knowledge of costs ever be fully available to us as a cognitive matter. We have to use what’s within the limits of the possible, and not systematically or deliberately understate. That’s about it.