The real cost of federal regulations

When the news broke that the National Security Agency has been monitoring Americans’ communications, the Obama administration was reluctant to discuss if it had broken any rules. It has been much more talkative regarding its new rules for the rest of us to follow on auto safety, energy efficiency and credit cards. The fiscal 2014 budget report claims that “the net benefits of regulations issued through the third fiscal year of the first term have exceeded $91 billion.” That’s a bold claim, and it deserves a closer look.

The Office of Management and Budget (OMB) is the agency responsible for tallying the costs and benefits of proposed regulations as they slog through the rule-making process. The office’s work is, shall we way, less than complete.

Last year, 63 federal departments, agencies and commissions had just completed or were at work on 4,062 rules and regulations at various stages of planning and implementation. Of those, 224 were classified as “economically significant,” meaning they have $100 million or more in annual economic impact. All in all, 3,708 final rules hit the books in 2012 — more than 10 daily.

The OMB reviewed just 47 major rules in its latest mandatory annual roundup of regulatory benefits and costs — around 1 percent of all rules issued. Most of the reviews the agency did perform were incomplete, with only 14 rules being assessed for both cost and benefit estimates. It is from this small group of regulations, with both costs and benefits tallied, that the Obama administration gets the $91 billion in benefits it touts in the budget.

Why does the OMB review such a small fraction of regulations? One reason could be that the Office of Information and Regulatory Affairs, the body within the agency that does the number-crunching and central review of rules, has fewer than 50 employees. More likely, though, it is because agencies are not required to perform analyses subject to independent review. This is the root of the problem, and it is much more difficult to strike.

The OMB is typically only required to review rules if they meet the specialized definition of “significant” laid out by President Clinton’s Executive Order 12866. Fewer than 10 percent of rules typically receive this “significant” tag. This calendar year, agencies have issued 248 significant rules, as of Sept. 30. This is out of 2,782 total final rules. Unfortunately, many rules that are significant in normal parlance don’t get categorized that way.

This is because more than 40 “independent” regulatory agencies are mostly exempt from OMB review, because the “significant” standard in Executive Order 12866 primarily applies to agencies within the 17 Cabinet departments. However, those agencies do some limited reporting to the Government Accountability Office on major rules, and their work is tallied in the “Regulatory Plan and Unified Agenda of Federal Regulatory and Deregulatory Actions,” published within the Federal Register each year.

We face a considerable transparency problem that needs fixing. As the OMB itself noted back in 2002: “Based on the information released in previous reports, the total costs and benefits of all federal rules now in effect (major and non-major, including those adopted more than 10 years ago) could easily be a factor of 10 or more larger than the sum of the costs and benefits reported.” Now, the agency only emphasizes the handful of rules for which it happens to have both costs and benefits quantified to some degree.

In contrast, the American economy faces some $1.8 trillion in annual regulatory costs, as our own estimates in the current edition of our Ten Thousand Commandments report show. To get a better handle on those costs, Congress should require the compilation of a federal regulatory report card similar to the presentation in Ten Thousand Commandments.

The OMB should ensure any new proposal creates more value than it destroys. One reason agencies regulate so recklessly is that they know few people are paying attention. Expanding Executive Order 12866 to include independent agencies would allow the agency to review more rules, though it would still fall well short of transparency. The Code of Federal Regulations contains more than 1 million regulations, with thousands more being added every year, according to George Mason University’s RegData project.

If only Washington paid as much attention to regulations as we’re learning it pays to our private phone calls and emails.