STIMULATING
SMARTER REGULATION: OMB'S ROLE
John
D. Graham, Ph.D.
Administrator
Office of Information and Regulatory Affairs
Office of Management and Budget
Executive Office of the President of the United States
Remarks Prepared
for a Policy Symposium organized by North Carolina State University,
Research Triangle Park, North Carolina, May 3, 2002; and Council
of Scientific Society Presidents, Washington, DC
May 6, 2002
My topic today,
smarter regulation, has been near and dear to my heart for twenty
years -- as a graduate student interested in airbags and auto safety,
as a post-doctoral fellow interested in regulation of toxic air
pollution, as a junior faculty member interested in control of the
AIDS epidemic and as a senior faculty member interested in what
Europeans call the precautionary principle. Indeed, I would be embarrassed
to admit how many words I wrote, how many speeches I gave, and how
many numbers I computed that were relevant to the topic of regulatory
reform.
Yet now I
have both a tremendous opportunity and a very different challenge:
how to stimulate smarter regulation from inside the executive branch
of the federal government. I would like to describe some of the
actions we are taking, some obstacles we face, and some practical
ways that people in the university community can help us make a
constructive difference.
I should start
by defining a key phrase. The Bush Administration sees "smarter
regulation" 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 Office
I run at OMB has about 50 career public servants with expertise
in policy analysis, law, economics, statistics and information technology.
We have recently hired additional expertise in public health science,
toxicology, engineering and health economics. These new hires reflect
the increasing importance of health, safety and environmental issues
in federal regulatory policy. Obviously, we are vastly outnumbered
by the thousands of specialists in numerous agencies throughout
the Federal government.
These Federal
agencies issue 4,500 new rulemaking notices each year and, thank
goodness!, only about 600 of these notices are judged significant
enough to merit OMB review. Of those 600, only 50 to 100 each year
are considered costly enough to justify a formal analysis of benefits
and costs by the agency. We do not typically perform original analysis
but rather focus our limited resources on review of these most important
rulemakings.
The Bush Administration
is not allergic to regulation; indeed, we consider it an essential
tool of government policy in conjunction with spending and taxation.
Already, due to the events of September 11th, we
have cleared 41 significant new federal regulations covering concerns
such as airline safety, border control and disaster assistance.
While OMB
oversees dozens of federal regulators, the busiest regulators by
far are the Department of Health and Human Services, the Department
of Transportation and the Environmental Protection Agency. In considering
whether the benefits of rules justify their costs, we expect agencies
to consider non-quantifiable factors, such as fairness, quality
of life and privacy, as well as benefit and cost items that can
be quantified and expressed in monetary units.
In my first
year at OMB, my boss, OMB Director Mitch Daniels and I have pursued
initiatives in four areas: openness, promptness, early involvement,
and information quality. Let me say a few words on each topic.
First, we
have deployed the OMB web site to diminish the culture of secrecy
and mystery that has surrounded my Office since it was launched
early in the Reagan Administration. 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.
Our openness
does not necessarily make us popular. For example, in the last 10
months we have returned roughly 20 significant rules to agencies
for reconsideration - more than the total number of returns in the
entire Clinton Administration - and each of the these return letters
is a public document posted on our web site. In six of those cases,
we subsequently cleared improved rules that the agency revised and
submitted to us for reconsideration. Given our demonstrated willingness
to critique poorly analyzed rules, and to do so publicly, we believe
we are beginning to see an improvement in the quality of regulatory
packages submitted to OMB.
Second, one
of the historical frustrations of agencies is that OMB review takes
too long. Although there has historically been a 90-day limit for
OMB review, agencies have sometimes been forced to wait 6 months,
a year, or even longer to get an answer from OMB. We have changed
that practice. I have instructed my staff that no rule will stay
longer than 90 days at OMB without my personal authorization. Result:
The number of rules held at OMB for longer than 90 days has plummeted
to near zero for the last several months compared to the 15 to 25
delays occurring at any time under previous Administrations. We
believe that since agency staff often toil for years in development
of a regulatory proposal, they and the public deserve a rigorous
yet prompt review from OMB.
Third, early
OMB involvement is underway to increase the impact of OMB's analytical
perspective. We have devised the "prompt letter" to agencies as
a new way to suggest promising regulatory priorities. Our first
set of prompts have suggested lifesaving opportunities at FDA, NHTSA,
OSHA and EPA. For example, we have worked to persuade FDA that priority
should be given to completing a promising rulemaking started in
the previous Administration, a consumer labeling rule that would
require food companies to report the trans-fatty acid content of
foods. Trans-fats are now recognized as a significant contributor
to coronary heart disease. OSHA has responded to one of our prompt
letters by notifying each employer in the country of the lifesaving
effects and cost-effectiveness of automatic defibrillators, a lifesaving
technology designed to save lives during sudden cardiac arrest.
And we are encouraging NHTSA to apply off-set crash tests to new
cars and light trucks in order to provide superior crash protection
to motorists.
More generally,
we are stimulating a stronger role for science in priority setting
by encouraging early external peer review of technical documents
such as human health risk assessments. We have said to agencies:
If you engage in serious independent peer review of your technical
work, you can expect a more deferential review from OMB. My analysts
are also offering some informal yet early comments to agencies about
how to structure a good regulatory analysis. Think of this revolutionary
change: decisions are sometimes being made after -- rather than
before -- a regulatory analysis is completed!
In contrast,
OMB's historical "end-of-the pipeline" approach to regulatory review
is not a prescription for large impact. By the time a rule is formally
submitted to OMB, agency career staff and senior management are
already invested in the initiative, which means that any changes
we suggest are destined to make waves, bruise egos and stimulate
resistance. Although we must occasionally use our ultimate weapon
to be effective -- I mean the dreaded return letter -- we have found
that an increasing number of agencies are becoming more receptive
to early discussions with OMB, at least on highly significant rulemakings.
We have also
devoted significant resources to analysis of new regulatory legislation,
since the laws passed by Congress often dictate decision criteria
to be used by agencies and OMB. We are pleased, for example, that
the Congress -- in the context of the energy bill -- may decide
that new fuel economy standards for new cars and light trucks should
be initiated through administrative action rather than arbitrary
legislative prescription. President Bush has also announced his
Clear Skies Initiative aimed at reducing by 70% the amount of pollution
from coal-fired powerplants. We believe that a market-based cap-and-trade
system can achieve pollution reductions more quickly and inexpensively
than the litigation-prone system that EPA now administers.
Finally, and
perhaps most importantly, we are taking steps to enhance the quality
of information and analysis that agencies use and disseminate to
the public. We recently issued government-wide guidelines that require
agencies to establish minimum quality standards for information
that they disseminate to the public, whether through their web sites
or through rulemaking notices. A key feature of the OMB guidelines
is the requirement that formal analytical results produced by agencies
be reproducible, which means that there must be sufficient transparency
about inputs, models and assumptions that a qualified third party
could reproduce the agency's numbers. The enforcement mechanism
in the new guidelines was specified by Congress in statute: any
affected member of the public is permitted to challenge agency information
and request a specific technical correction by the agency.
The new information-quality
law will take effect October 1st of this year. OMB will
oversee agency responses to information-quality complaints. The
new OMB guidelines will create some headaches at the agencies but
we believe the guidelines will ultimately enhance the competence,
accountability and credibility of federal regulation. Third parties
-- including business, academia and public interest groups -- also
need to be aware that the new information-quality guidelines may
set new standards for information that they submit to the government,
assuming that an agency is asked to cite that information in support
of agency policies.
In the economic
arena, we have recently initiated a project with the Council of
Economic Advisors to update our guidelines on proper cost-benefit
analysis. Last updated in 1996, these guidelines govern our reviews
of agency rulemakings. We have asked the public to nominate analytic
issues that are ripe for reconsideration or refinement. We have
already been urged to reconsider several analytic practices of strong
interest to environmental regulators: the proper discount rate for
computing the present values of cost and benefit streams and the
analytic methods used to value health benefits in both health and
monetary units.
I am particularly
interested in fostering more government-wide consistency in specific
analytic practices in health policy. Although I have never been
a big fan of the idea that dollar values should be assigned to lives
saved by regulations, we do need more analytic rigor in how we quantify
the lifesaving effects of rules and how we compare the severity
of different nonfatal health conditions ranging from a mild case
of chest pain to a severe yet nonfatal heart attack. I have recently
recommended that a think tank such as Resources for the Future convene
a conference to assess the state of the art in valuation of health
and safety outcomes.
Let me conclude
with some specific steps that faculty and students at universities
can take to assist my Office in improving the quality of federal
regulation. I am aware that academics are not regular readers of
the Federal Register and are not used to participating in
the administrative process. However, between now and the end of
May, OMB has provided everyone an excellent opportunity to suggest
innovations in both analysis and regulation. Our draft Report to
Congress on the Costs and Benefits of Regulation -- available on
our web site -- suggests numerous areas for public comment, including:
(1) regulatory programs that need to be extended, modified or rescinded,
(2) issues of regulatory analysis that need to be refined in OMB's
formal guidance documents to agencies, and (3) ideas for new regulatory
priorities that we can suggest to agencies in the form of prompt
letters. We know that many interest groups based in Washington,
DC will participate in this public comment process but we are also
hopeful that the academic community will choose to offer suggestions.
In summary,
the Bush Administration supports federal regulations that are based
on sound science and economics. We are taking modest yet important
steps to improve the quality of federal regulation. Our primary
role at OMB is to undertake rigorous yet prompt regulatory reviews
-- reviews that can be scrutinized by the public. We have also practiced
"early involvement" as a technique to enhance the impact of OMB's
analytical perspective on legislative and administrative initiatives.
We have set in motion a longer-term process of improvement in the
quality of information and analysis used and disseminated by federal
agencies. It is too early to assess the ultimate impact of these
process endeavors but my academic instincts tell me that it may
produce far greater public benefit than many pundits appreciate.
Thank you
for the opportunity to offer these remarks and I look forward to
questions, comments and discussion.
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