OVERSIGHT OF THE
REGULATORY STATE: CAN IT WORK?
D. Graham, Ph.D.
Office of Information and Regulatory Affairs
Office of Management and Budget
Executive Office of the President of the United States
Speech at Heinz School, Carnegie Mellon University
My topic this afternoon is Presidential Oversight
of the Regulatory State: Can It Work? Regulation may seem like
an abstract concern of interest only to policy wonks, but rules have a
big impact on our daily lives.
What privacy rules must your doctor respect when sharing information
about your health with a pharmacist?
What fuel economy requirements should be applied to the growing number
of sport-utility vehicles, pick-up trucks and minivans?
What financial disclosure requirements should be applied to corporations,
especially in the wake of the Enron fiasco and the need for investors
to make informed choices?
What levels of radon should be permitted in drinking water and in indoor
We live in a regulatory state and it is reasonable to
ask: Who is managing the regulatory state?
The short answer is that the President undertakes such
management responsibilities. This begs yet another question: Why
would any clear thinking President ask a senior OMB official with a modest
staff of 40 professionals to oversee the entire federal regulatory state?
Let me suggest, at the outset, that any such effort might justly be considered
First, there are over 100 federal agencies and subagencies
with regulatory mandates from Congress. They churn out 4,500 new rules
each year. The 40 OMB professionals are obviously outnumbered by the thousands
of regulatory specialists in the agencies. We currently review 600 of
them 100 formal regulatory analyses.
Second, a wise regulatory system requires specialized
expertise on a remarkable variety of subjects: agriculture, telecommunications,
occupational safety and health, immigration control, energy production
and conservation, environmental protection, law enforcement, medicine
and health care systems, and so forth. The responsible federal agencies
have experienced professionals in each of these fields; the expertise
at OMB is more limited.
Third, once a regulatory proposal is formally submitted
to OMB, there is already powerful organizational momentum behind the proposal.
Not only have agency staff devoted potentially years of work to data collection
and analysis, but policy officials at agencies may have managed delicate
relationships among stakeholders. At this stage, OMB review is destined
to make waves and bruise egos, which means that it will be resisted, sometimes
fiercely and effectively.
Finally, it is sometimes argued that Congress, through
legislative mandates and oversight, instructs or guides the efforts of
agencies. From this perspective, any OMB influence in this
bilateral relationship might be seen as extra-legal or even a perverse
influence in democracy. And of course, there is the cynical view that
OMB is simply the place where nefarious deals are cut in the interests
of lobbyists wearing alligator shoes and Rolex watches.
Not surprisingly, I do not share these views that Presidential
management of the regulatory state is hopeless or perverse. I share the
vision of Supreme Court Justice Stephen Breyer who described an experienced
cadre of civil servants in the Executive Office of the President who have
broad expertise in the craft of regulatory policy. Although I am not sure
that the British or French civil service are exactly the right analogies,
I do have in mind a talented and analytically keen staff who know how
markets work, how government works, and respect the role of expertise
and values in solving national problems.
I think the following empirical fact is instructive: Every
President since Richard Nixon, Democrat and Republican, has insisted on
some type of centralized management of the regulatory state. The common
theme has been professional analysis of regulations to make sure they
are sensible. For example, President Carter, an advocate of stringent
regulation and energy controls, when faced with double-digit inflation,
issued an executive order that required agencies to conduct cost-benefit
analyses of major rules. In late 1980, President Carter signed the Paperwork
Reduction Act, which created the Office of Information and Regulatory
Affairs, known affectionately as OIRA. OIRA serves as the Presidents
office of expertise and management of the regulatory state.
During the Reagan Years, OIRA had a stormy relationship
with a Democratically controlled Congress. A threat to zero out
OIRAs budget was avoided only by a new requirement that the OIRA
Administrator be confirmed by the Senate.
President George Herbert Walker Bush, when frustrated
by his inability to confirm a nominee to the post I now hold, created
an entirely new structure in the White House to serve roughly the same
function. I refer to the Council on Competitiveness run by Vice President
Dan Quayle. Given this history, it is instructive to consider why Presidents
are so determined to manage the regulatory state.
First, the federal regulatory state is here to stay. Although
economic regulation has seen much privatization over the last 20 years,
the public and Congress have revealed a growing commitment to public health,
safety and environmental regulation. Market-based approaches to social
regulation have shown tremendous promise but citizens expect leadership
from the federal government on issues of social regulation. There is certainly
an urgent need to consult with state and local officials and respect the
role of federalism in our system of government. Indeed, my boss, Mitch
Daniels, has instructed me that I should return to agencies any rule that
does not have adequate consultation with our intergovernmental partners.
But we should also not forget that Alexander Hamilton was an important
framer of our Constitution and he recognized the value of a strong central
government and the weaknesses in the original Articles of Confederation.
Second, the economic costs of the regulatory state are
substantial, exceeding $800 billion according to one recent estimate prepared
for the Small Business Administration. Note that this figure is larger
than the discretionary federal budget, and the figure translates into
an average annual cost of almost $8,000 per household. Although many rules
have enormous benefits for households, there is real concern that these
dollars are not always invested wisely. Certainly, no one would suggest
that agencies should be permitted to negotiate their on-budget
resources from Congress, without a check from OMB. Likewise, Presidents
realize that regulatory expenditures, while off budget, require fiscal
restraint for the same reasons that public budgets need restraint.
Third, when two or more agencies disagree about a regulatory
matter, the President needs an experienced unit to forge a consensus so
that governance can proceed. OMB often plays that role in the regulatory
arena. For example, OMB recently worked with EPA and DOE and other White
House offices to devise a legislative strategy to promote cleaner power
generation in America. It calls for a 70% reduction in the pollutants
that form smog and soot in the air.
Finally, Presidents use the powers of OMB regarding agency
action to advance Administration priorities and policy objectives. President
Reagan pursued an agenda of regulatory relief as one way to nurture a
depressed economy riddled by the misery index: double-digit rates of inflation,
unemployment, and interest. President Clinton used centralized review
to promote a wide range of social objectives such as tobacco and firearms
control and childrens health. We should remember that OMB is an
office within the Executive Office of the President and its actions necessarily
reflect Presidential priorities.
In this Administration, OMBs regulatory office
is pursuing an agenda of smarter regulation. We see this not simply as
a slogan but as something very practical: adopting new regulations whose
benefits to the public justify their costs, modifying existing regulations
to improve effectiveness and/or reduce cost, and rescinding regulations
that are outmoded or that should never have been adopted in the first
place. Smart regulatory policy is not uniformly pro-regulation or anti-regulation;
the science and economics may point in very different directions depending
upon the case.
The changes we are making at OMB in pursuit of smarter
regulation are not headline-grabbers: No far-reaching legislative initiatives,
no rhetoric-laden executive orders, and no campaigns of regulatory relief.
Yet we are making some changes that we believe will have a long-lasting
impact on the regulatory state.
First, we have taken steps to enhance the openness of
the regulatory process, including OMBs regulatory review. My office
is involved with the Presidents E-government initiative, which
will expand the services and information provided by the federal government
over the Internet. Part of this increased interactivity is the promotion
of e-rulemaking, which will increase public participation in the regulatory
Through the Internet, it is also possible for the public
to scrutinize how we at OMB use science and economics to stop bad rules
and help agencies craft better ones. By consulting our web site, you can
learn which rules are formally under review at OMB, which rules have recently
been cleared, and which rules have been returned to agencies for reconsideration.
You can even learn about which interest groups have recently lobbied us,
the date of the meeting, the names of the participants, and the specific
topic of the meeting. There may always be a need to hold some candid deliberations
in the secluded quarters of the Old Executive Office Building. I certainly
do not believe that the Executive Office of the President can operate
in a fishbowl. However, I do believe that more openness at OMB about regulatory
review will enhance public appreciation of the value and legitimacy of
a centralized, analytical approach to regulatory policy.
Second, we are hiring the first scientists and engineers
at OIRA to accompany a cadre of economists, statisticians, and information
technology specialists. We believe this more diversified pool of expertise
will enable us to ask better questions about agency proposals. We have
reversed the 20-year decline in staffing at OIRA and have done so in a
way that reflects the increasing importance of science-based regulation
in the federal agencies.
Third, we have sent clear signals to agencies that we
care about regulatory analysis, QUALITY regulatory analysis. We are using
both the carrot and the stick. The carrot we have offered is more deferential
OMB review of proposals that agencies have voluntarily subjected to independent
peer review. Administrator Whitmans decision on arsenic last year,
whether you like it or not, was supported by just that type of review.
The Bush Administration recognizes that we should consider and account
for the consensus views of the leadership of the scientific community,
regardless of whether it leads to a pro- or anti- regulation result. The
stick has been a revival of the dreaded return letter. In
the last three years of the Clinton Administration, there were exactly
zero return letters sent to agencies for poor quality analysis. I have
signed roughly 20 such return letters during my tenure thus far, and the
letters are available for scrutiny on OMBs web site. Knowing that
we care, agencies are beginning to invite OMB into the early stages of
regulatory deliberations, where our analytical approach can have a much
Fourth, we have demonstrated that we are prepared to initiate
new regulatory actions when they are sensible and based on sound science
and economics. For example, since the events of September 11, we have
worked with regulators on 58 new rules aimed at protecting homeland security,
including airline safety, food safety, and immigration control.
We have also devised a modest tool called the prompt
letter that enables OMB to publicly identify areas where agencies
might improve regulatory policies. Our first four prompt letters, available
on OMBs web site, address potential opportunities to save lives
and improve health through cost-effective regulation. One OMB letter has
accelerated FDAs deliberations on a rule that would require labeling
of foods for their trans-fatty acid content, an important risk factor
for coronary heart disease. Another OMB letter to OSHA has stimulated
a national information program to promote workplace use of automatic defibrillators,
a technology that saves lives from sudden cardiac arrest and is already
found in airports and federal buildings. A letter to NHTSA suggested that
priority be given to a rulemaking to test cars and light trucks in offset
crash tests, an approach that may reduce the frequency and severity of
lower extremity injuries in car crashes. And another letter to EPA has
encouraged targeted research to better understand the health benefits
of reducing different types of particle pollution from power plants, industry,
and motor vehicles. Unlike the more definitive Presidential directive,
the prompt letter is a public request that is intended to stimulate agency
and public deliberation. Final decisions about priorities remain with
Finally, and perhaps most importantly, we are taking steps
to improve the quality of information and analysis that agencies use and
disseminate to the public. Pursuant to the Information Quality Act, OMB
issued government-wide guidelines to promote better quality in the information
and technical data that agencies collect, use and disseminate to the public.
When agency information forms the basis of important public policies,
we go beyond the standard of journal peer review and require that such
data be reproducible, or at least highly transparent about research design,
data sources, and analytic methods. When people are harmed by poor quality
information, the OMB guidelines provide new avenues for citizen complaints,
agency corrections, and formal appeals processes to resolve disputes.
Each agency has prepared its own implementing guidelines, which were reviewed
by OMB, and the agencies must annually report to OMB on their implementation
of the Information Quality Act. Improvements in information quality have
tremendous potential to enhance the competence and accountability of the
In summary, the Bush Administration is committed to a
strong, centralized approach to regulatory policy. We seek to adopt smarter
regulations. The approach is becoming more open, it is becoming more analytical,
and it is beginning to exert influence at earlier stages of the regulatory
process. Although we certainly have a lot of work to do, I am confidentand
after more than a year in this job, convincedthat Presidential
oversight of the regulatory state does work. And it works for the public
Thank you very much for the opportunity to speak today
and I certainly welcome any questions and comments.