“SMARTER
REGULATION –
PROGRESS AND UNFINISHED BUSINESS”
John
D. Graham, Ph.D.
Administrator
Office of Information and Regulatory Affairs
Office of Management and Budget
Prepared for Seminar on New Directions in Regulation
Kennedy
School of Government
Harvard University
Cambridge, Massachusetts
September
25, 2003
Thank you
very much for the opportunity to lead off this seminar series on "New
Directions in Regulation." It is delightful to be back in a university
environment. I have missed dearly my day-to-day discussions with students
and faculty. I enjoyed the opportunity to prepare these remarks because
it has compelled me to step back from the daily battles at OMB and reflect
on where we have been and where we are headed.
When I assumed
this role at OMB over two years ago, the President instructed me to pursue
an agenda of "smarter regulation". This phrase is not simply
a "feel-good" slogan; it has profound implications. It means
that this Administration does not approach regulation simply as an ideological
or philosophical matter. We are not uniformly pro-regulation or anti-regulation
in our decision making, despite what your image of conservative Republicans
may be. We seek to accelerate the adoption of good rules, modify existing
rules to make them more effective and less costly, and rescind outmoded
rules whose benefits do not justify their costs. The policy principles
we use at OMB were actually defined by President Clinton in 1993 in Executive
Order 12866. But as you all know, distinguishing a good rule from a bad
one based on general principles is not always an easy task.
THREE
INITIATIVES
In order to accomplish smarter regulation, we have launched three initiatives.
They involve more openness in deliberation, better regulatory analysis,
and higher quality technical information for use by regulators. Let me say
a few words on each initiative.
At my office,
we have practiced an unprecedented degree of openness about how we do
our work. I supervise a staff of 55 career public servants who each year
review roughly 500 rulemakings and 2,000 information-collection requests.
We have an open-door policy for visitors interested in our work and we
have made aggressive use of public-comment procedures to learn about the
views of the public. By consulting OMB's web site, you can learn each
day which rules are under formal review at OMB, which have been cleared
or returned, and even which groups have recently lobbied Dr. Graham: their
names, organizations, the date of the meeting and topic of the discussion.
We have also supported a government-wide approach to electronic rulemaking
that is reducing the advantage of Washington-based groups in regulatory
policy. I believe this expanded openness has already reduced some of the
mystery and suspicion about OMB's "regulatory czar" and the
entire regulatory process. More openness has also exposed my staff to
a large volume of well-prepared presentations and documents on specific
issues. While openness is good government, it has also been a useful tactic
in helping shift the public debate on regulation. The debate is moving
away from process toward substance, from "who met with whom"?
to "is this option more cost-effective than that option?". This
shift in public debate, quite frankly, has strengthened the hands of the
policy analysts relative to the lawyers and PR meisters -- and I believe
that is a good development for public policy. While I am an advocate of
more openness at OMB, there are limits to openness. For example, I have
no intentions of compromising the ability of my career staff to have candid
discussions with professionals from the regulatory agencies.
We have also
established more rigorous standards for what we expect from agencies in
the way of regulatory analysis. These tougher expectations began with
stricter enforcement of OMB's existing analytic guidance, which was crafted
by OMB and CEA under President Clinton. In my first six months, we returned
more than 20 rules to agencies for reanalysis; by way of comparison, this
was more than the total number of the returns in the entire eight years
of the Clinton Administration. Once we established that we cared about
analysis, the agencies began to respond and returns have become less frequent.
Believe me, we have much more work to do on analytic quality but a favorable
trend line is apparent. Most recently, we have issued a final revised
guidance for regulatory analysis that calls for innovations that are already
commonplace in the academic community. I am talking about basic things
such as cost-effectiveness analysis, formal probability analysis, scope
tests for contingent valuation results, and careful consideration of qualitative
and intangible values. Doing better analysis does require that OMB be
sensitive to the staffing and budgetary needs of agencies. We are working
with our budget colleagues to demonstrate that sensitivity.
And we have
sought to expand the "information policy" function at OIRA to
include the technical quality of information that agencies disseminate
to the public. In response to the new Information-Quality Act, which was
enacted in 2000, we have expanded OIRA's staffing in science and engineering
while maintaining our historical strengths in economics, statistics and
policy analysis. This new staffing mix at OIRA responds to the changing
nature of regulation: the rise of social regulation -- especially health,
safety and environmental regulation -- and the decline of classic economic
regulation which began in the 1970s. We are now in the process of helping
agencies develop peer-review procedures for technical information, thereby
better assuring quality before release. Agencies have also established
formal correction mechanisms that the public can use to fix poor quality
information that has been placed on agency web sites or written into rulemaking
documents. The Surgeon General's Report on Smoking has demonstrated that
the benefits of information dissemination can be very large. Yet when
the government disseminates faulty information, it can unfairly stigmatize
people, products and technologies. OIRA sees information policy as another
form of regulation that needs greater quality control through checks and
balances.
RESULTS
Are these
initiatives making any difference in regulatory outcome? It is too early
to make any definitive assessment of this Administration's regulatory
record. But the preliminary evidence suggests that we are making a difference.
The flow
of costly new regulations during this Administration -- measured by major
rules on the private sector or state and local governments -- has slowed
considerably. My staff estimates that this flow, expressed as an annualized
average, was about $8.5 billion under Bush 41 and $5.7 billion during
President Clinton's two terms. (That includes a whopping $12 billion in
President Clinton’s last year.) By comparison, our annual average
for the last two years is running just under $1 billion per year. (By
the way, some students of regulation are surprised to learn that costly
regulatory action was greater under Bush 41 than under President Clinton.
Please keep in mind that Bush 41 (1) faced a heavily Democratic Congress,
(2) made new major regulatory commitments under the Clean Air Act and
the disabilities act, and (3) had no success in winning Senate confirmation
of a leader for OIRA. There is no question that the Bush 43 has been far
more selective in imposing unfunded mandates on the private sector and
our state and local partners.
In this Administration, we have slowed the flow of costly rules without
slowing the flow of inexpensive rules. The total number of federal rules,
which are dominated by rules that do not meet the $100 million-impact threshold,
has not changed significantly. In fact, we do not regard the number of rulemakings
per se as a meaningful performance indicator. We have been particularly
amused by references to the increased number of pages in the FEDERAL
REGISTER that occurred in 2002 over 2001, which some see as evidence
that the burden of federal regulation is soaring. It turns out that this
increase was due almost entirely to the pages devoted to the Microsoft settlement.
OMB believes that page counts in the REGISTER are not very meaningful
as a performance indicator.
Students
of regulation will notice that we have avoided the clumsiness of a complete
moratorium on new rules. We are permitting -- indeed encouraging -- agencies
to pursue new rules -- even costly ones -- when they have substantial
benefits.
For example,
we prompted FDA to add a mandatory label for the trans-fat content of
foods. This rule, begun under the previous Administration, allows consumers
to make more heart-healthy choices while encouraging food processors to
reduce trans-fat content. The longrun result, FDA expects, will be less
heart disease and fewer hospital admissions and premature deaths from
heart attacks. FDA estimates this rule's ratio of benefits to costs to
be about 100 to 1. The rule will cost consumers about $50 per quality-adjusted
life year saved. By way of comparison, coronary artery bypass surgery
and angioplasty cost on the order to $50,000 to $500,000 per QALY saved,
depending upon the patient group.
We have
also worked with DOT to tighten fuel-economy rules for light trucks and
SUVs for the first time in almost a decade. This was an interesting case
where the private fuel savings to consumers -- measured at $1.50 per gallon
saved -- more than outweighed the estimated technology costs of the tighter
standards. I will let the Chicago-school economists theorize about why
free-market forces did not capture these gains without regulation. The
long-term environmental and energy-security benefits of the tighter standards,
while very difficult to quantify precisely, were not even necessary to
justify the rule. Looking forward, we are working with DOT to reform the
fuel-conservation program in ways that will allow even more fuel-savings
to be achieved in model years 2008 and beyond, without compromising the
safety of consumers or American jobs in vehicle manufacturing.
Perhaps
our most ambitious rulemaking effort has been an EPA proposal to slash
by 90% the amount of diesel exhaust from off-road engines used in mining,
agriculture and construction. These gains can only be accomplished through
a dramatic reduction in the sulphur content of diesel fuel and installation
of new control equipment on engines. Although this proposed rule will
be costly, EPA estimates that the benefits -- driven primarily by cardio-pulmonary
gains from less particle exposure -- will outweigh costs by a ratio of
5 to 1 or even 10 to 1.
UNFINISHED
BUSINESS
Thus, in
two short years I am encouraged to report that this Administration has
begun to exert some control over major federal regulation, at least those
in the purview of Cabinet agencies and EPA. However, the list of unfinished
business is much longer than the accomplishments. I will offer just a
brief checklist of the most important challenge.
First, the
sea of existing federal regulations needs to be renovated. But it is hard
to know where to start! Since 1981 OMB has cleared 36,219 rules, including
1,966 rules that passed the $100 million test. Most of these rules have
never been re-evaluated! As a modest step toward housekeeping, last year
we requested public nominations of regulatory programs that are in need
of reform. Within 90 days, we were inundated with 316 reform nominations
from over 1700 commenters. In our Final 2003 Report to Congress issued
last week, we report what agencies have decided to do with these reform
ideas. Fortunately, we learned that 109 of the reform ideas were already
being addressed by agencies. Another 156 reform ideas were referred to
agencies and I am pleased to report that agencies have decided to pursue
45 of these ideas. We also referred another 51 ideas to independent agencies
for their evaluation. We recognize that this is a very modest housekeeping
effort. More thought needs to be given to how regulators, OMB, and Congress
should modernize the huge existing stock of regulations.
Second,
homeland security has emerged as a new growth area for federal regulation.
Since 9/11 federal agencies have adopted over 60 new rules as part of
the Administration's homeland security effort, though few of them have
yet passed the $100 million test for "economic significance".
The new Department of Homeland Security has many new regulatory ideas
under development, as does the Congress. At OMB we have been humbled by
the challenge of analyzing these ideas. How should agencies quantify the
benefits of rules aimed at reducing the probability of (or damages from)
future terrorist acts? How should agencies quantify the costs of homeland
security rules, whether they come in the form of time losses at airports
or intrusions into privacy or freedoms of foreign students and visitors
to our country. Quite frankly, the agencies and OMB need intellectual
help from the academic community to assist in the evaluation of homeland
security ideas.
Finally,
Congress is searching for new ways to demonstrate greater political accountability
in the arena of regulation. As you know, many federal regulations -- both
the general area and the specifics -- are specified in statute. Although
legislators may respect what we are doing at OMB, some regard our "smart-regulation"
agenda as too "technocratic" to produce the democratic accountability
that is desired. This concern also relates to the growing judicial interest
in the so-called non-delegation doctrine and the need for Congress to
make intelligible delegations to agencies. OMB does not pretend to have
answers in this area but we do believe it is constructive for Congress
to begin to ask more fundamental questions about the role of the Congress
relative to the federal agencies and the courts. It may be constructive
for this dialogue to include the independent agencies as well as the Cabinet
and EPA.
Thank you
very much for the opportunity to speak today. I look forward to comments
and questions.
