REIGNING
IN THE REGULATORY STATE:
THE SMART-REGULATION AGENDA
John D. Graham, Ph.D.
Administrator
Office of Information and Regulatory Affairs
Office of Management and Budget
CATO Institute
Hill Briefing
B-369
Rayburn House Office Building
Washington, DC
October 3, 2003
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 we are not uniformly pro-regulation or anti-regulation in our decision
making. 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 do not involve any new legislation; no executive orders and no campaigns
for regulating relief. 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.
I believe this expanded openness has already reduced some of the mystery
and suspicion about OMB's "regulatory czar" and the entire regulatory
process. 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?". 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, and
careful consideration of qualitative and intangible values.
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. 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 Clintons last year.) Note that these figures exclude
budgetary rules whose impacts are felt through appropriations.
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 than previous Administrations
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. We do not believe that page counts in the REGISTER
are 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.
Another
example is our ambitious rulemaking effort with EPA 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, I
am encouraged to report that this Administration has begun to exert some
control over major federal regulations, 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 challenges.
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 evaluated to determine if they are working!
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 reported what agencies
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 them. We also referred another
51 ideas to independent agencies for their evaluation. We recognize that
this is a very modest housekeeping effort.
The advantage
of re-looks is that we can identify promising opportunities for deregulation.
The DOTs proposed deregulation of the airline ticketing industry
is a good example where less regulation promises better quality services
and lower prices for travelers. 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
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 help on how homeland security
ideas should be evaluated.
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. 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. |