MANAGEMENT OF REGULATORY POLICY:
A STRONGER ROLE FOR SCIENCE, ENGINEERING, AND ECONOMICS
D. Graham, Ph.D.
Office of Information and Regulatory Affairs
Office of Management and Budget
Executive Office of the President of the United States
Prepared for Delivery to the National Academy of Engineering
February 20, 2002
The Office of Management and Budget is well known as the center
of budgetary policy in the executive branch, but OMBs role
as a force for sound regulatory policy is not well understood. Today
I would like to discuss some of OMBs recent initiatives to
strengthen the roles of science, engineering and economics in federal
regulation. Before doing so, I believe I need to provide some basic
background about the responsibilities of my Office at OMB: the Office
of Information and Regulatory Affairs (OIRA).
The best way
to proceed may be by posing the following question: Why would
any clear-thinking President ask a senior OMB official with a modest
staff of 40 analysts to oversee the entire federal regulatory state?
Let me suggest, at the outset, that any such effort might justly
be considered ambitious.
over 100 federal agencies and subagencies with regulatory mandates
from Congress. They churn out 4,500 new rules each year. The 40
OMB professionals in my office are obviously outnumbered by the
thousands of regulatory specialists in the agencies.
rulemakings must be submitted to OMB for review and clearance before
they are published in the Federal Register. Yet 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;
policy officials at agencies may have managed delicate relationships
among stakeholders. At this stage, any changes suggested during
OMB review are destined to make waves and bruise egos, which means
that they will be resisted, sometimes fiercely and effectively.
realities, I do not share the view that Presidential management
of the regulatory state is hopeless. Rather, I share the vision
of Supreme Court Justice Stephen Breyer who described in his book,
BREAKING THE VICIOUS CIRCLE, an experienced cadre of civil servants
in the Executive Office of the President who have broad expertise
in the craft of regulatory policy. More importantly, these analysts
are empowered to look beyond the tunnel visions that
plague individual agencies, thereby fostering a more holistic approach
to regulatory policy.
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 regulatory policy. The common theme has been professional
analysis of regulations to make sure they are sensible. Given this
history, it is informative to consider why leaders are so determined
to manage the regulatory state.
Presidents have recognized that, regardless of whether we like rules,
the federal regulatory state is here to stay. While economic regulation
has seen much privatization over the last 30 years, the public and
Congress have revealed a growing commitment to public health, safety
and environmental protection. In fact, science-based regulation
is on the rise in areas ranging from bioengineered foods and pesticides
to motor vehicle fuel economy and diesel exhaust control.
is at the heart of American society and is the engine of Americas
record of prosperity but citizens also recognize the limitations
of capitalism. For example, recent revelations about the Enron fiasco
have stimulated discussion of the need for appropriate public disclosure
requirements and other regulations. As we advocate more worldwide
appreciation of the form of democratic capitalism that America cherishes,
we must continue to improve the regulatory policies that are designed
to compensate for the limitations of capitalism.
debate continues as to what level of government should possess the
most regulatory power. There is surely an urgent need for federal
regulators to consult with state and local officials and to respect
the role of federalism in our national system of government. Indeed,
my boss, OMB Director Mitch Daniels, has instructed me that I should
return to agencies any proposed rule that does not have adequate
consultation with our intergovernmental partners. This principle
is particularly important when Washington seeks to impose unfunded
mandates on state and local officials. But we should also respect
the views of Alexander Hamilton, an important framer of our Constitution.
Hamilton recognized the weaknesses in the original Articles of Confederation
and the need for a strong centralized government to promote the
welfare of the republic. Indeed, there is growing consensus that
in certain fields of regulatory policy it is important for the federal
government to preempt the regulatory powers of state and local governments.
In other words, a thoughtful approach to regulatory policy envisions
a substantial role for the federal government. And this role will
only become more important as our nation engages in more international
deliberations to harmonize regulations with our trading partners.
While we need
federal regulators, lets face it: they are expensive. Now
the total budgets of federal regulators are not much greater than
$8 billion per year. But for every dollar that taxpayers provide
to federal regulators, another 100 dollars in cost is imposed outside
the federal sector on State and local agencies and the private sector.
According to one recent estimate prepared for the Small Business
Administration, federal rules cost American households $800 billion
per year. Note that this figure is larger than the entire discretionary
federal budget, amounting to an average annual cost of almost $8,000
per household. These regulatory costs are like an invisible tax
on the consumer who typically does not realize that regulation is
causing higher prices for goods and services.
It is certainly
true that many federal rules have significant, even lifesaving,
benefits for households and future generations. OMBs recent
Annual Report to Congress describes numerous cost-effective federal
regulations. Yet there is real concern that regulatory costs are
not always imposed wisely, suggesting that we could save more lives
and do more for the consumer and taxpayer through a simple reallocation
of the regulatory dollar.
Now, no one
would suggest that agencies should be permitted to negotiate their
on-budget resources from Congress, without any OMB review.
Likewise, Presidents realize that regulatory expenditures, while
off budget, require fiscal restraint for the same reasons that the
size of public budgets need to be restrained. If the President restrains
the federal budget without restraining regulation, regulatory advocates
may simply respond by urging Congress to shift regulatory costs
from the federal budget to states and the private sector. In other
words, the President cannot manage the Nations fiscal health
without managing the regulatory state.
OMB also has
a role in conflict resolution. When two or more agencies disagree
about an issue, 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 the last six months, the White
House Council on Environmental Quality and OMB have been working
with EPA and DOE to fashion a legislative strategy to promote cleaner
power generation in America. This kind of consensus building is
not easy. We are pleased that the President announced last week
a strong market-based approach to environmental protection that
will reduce pollution from the electric utility sector by 60-70%
over the next 15 years.
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 and properly reflect Presidential priorities.
In this Administration,
OMBs Office of Information and Regulatory Affairs is pursuing
an agenda of quality regulation. What President Bush seeks is a
smarter regulatory process rooted in sound science, engineering,
and economics. A high-quality regulatory process is not uniformly
pro-regulation or anti-regulation. Instead a smart process adopts
new rules when market and local choices fail, modifies existing
rules to make them more effective or less costly, and rescinds outmoded
rules whose benefits no longer justify their costs.
We are pursuing
the agenda of quality regulation under the terms of the Clinton-Gore
executive order, which we believe though not always enforced
in the 1990s is based on sound principles and procedures.
The changes we are making at OMB 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 modest
changes that may have a long-lasting impact on the regulatory state
by increasing the roles of science, formal analysis, peer review
and public participation in regulation.
have taken steps to enhance the openness of OMBs regulatory
review process. Each day we post information on our web site about
which rules are under review, who we are meeting with, and what
we have decided. After rules are cleared, we also release information
about how rules have changed due to OMB review. Through the Internet,
it is now possible for the public to scrutinize how we use science,
engineering, and economics to stop bad rules and help agencies craft
better ones. We are also an active partner in a multi-year effort
to link my office to the Administrations E-government initiative,
which will allow electronic and interactive communication about
OMB issues under review. Now, I certainly do not believe that the
Executive Office of the President can operate in a fishbowl. There
is a delicate balance to be drawn here but 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.
have reversed the 20-year decline in staffing at OIRA and have done
so in a way that recognizes the increasing importance of science-based
regulation in the federal agencies. We are now 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.
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 recent decision
on arsenic in drinking water 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 20 return letters in the last seven
months and they are available for scrutiny on OMBs web site.
A return letter does not necessarily kill a proposed rule. In five
cases so far, we have ultimately cleared an improved version of
a rule that we initially returned. Knowing that we care, agencies
are beginning to invite OMB into the early stages of regulatory
deliberations, where our analytical approach can be more effective.
have demonstrated that we are prepared to initiate new regulatory
actions when they are needed. I am not simply talking about the
series of new rules aimed at protecting homeland security, including
airline safety, food safety, and immigration control. President
Bush himself recently announced new regulatory steps to protect
the 401(k) and retirement plans of the American worker.
At OIRA we
have devised a modest tool called the prompt letter
that OMB uses to 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
recent letter to NHTSA suggests that priority be given to a new
rulemaking that would test cars and light trucks in offset crash
tests, as well as frontal crash tests, an approach that may reduce
injuries in vehicle crashes. And our most recent letter to EPA,
we 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 the agencies.
In the search
for promising new regulations, we should not forget the urgent need
to streamline existing federal regulations. Our goal is to modernize
or remove outdated regulations. OMB does not believe that across-the-board
reviews of all existing rules are a cost-effective use of agency
resources; yet OMB does support selective reviews of existing rules
based on public participation. We recently sought public comment
in this area and learned of 71 specific suggestions to modify or
rescind existing rules to increase benefits or reduce costs. We
have rated these ideas in our recent annual report to Congress and
are now in discussions with agencies about whether these suggested
reviews should be an agency priority. We are also encouraging interested
parties to prepare additional nominations for the public comment
process on next years annual report on the costs and benefits
of regulation, which should be released in the next month or so.
perhaps most importantly, OMB has developed government-wide guidelines
to promote better quality in both the formal analyses and original
data that agencies use and disseminate to the public. The OMB guidelines
were mandated by Congress and we have developed them pursuant to
an extensive public comment process. When agency information is
so influential that it forms the basis of major public policies,
we go beyond the standard of journal peer review and require that
such information be reproducible, or is at least highly transparent
about research design, data sources, and analytic methods.
are harmed or otherwise affected by poor quality information that
agencies disseminate, the OMB guidelines provide new avenues for
citizen complaints, agency corrections, and formal appeals processes
to resolve disputes. Over the next year each agency, including the
independent agencies, will be preparing information-quality guidelines
that OMB will review. The agencies will be reaching out to the scientific
communities and the public to assist in this process and they will
need your help. We urge you to participate in this process because
we believe it has tremendous potential to enhance the competence
and accountability of the federal regulatory state. As many of you
know, dissemination of information by the government, with its broad
consequences for citizens and firms in the USA and abroad, is often
a more important act than the final adoption of a regulation.
I am aware
that some science groups have argued that the government should
accept the quality of any information that is published in a peer-reviewed
academic journal. As an academic who practiced the publish
or perish game for over 20 years before joining the Bush Administration,
I must confess that some of my peer-reviewed papers are not ready
for use in policy making. For example, my doctoral dissertation
of 1983 projected that installing airbags in all new cars would
save 9,000 lives per year. The error bars on my estimates were not
large enough since the best studies, conducted after real-world
experience, now estimate that the technology now in cars will save
about 3,000 lives per year. The point is: Even publications in the
best academic journals have been shown to have serious problems,
including some errors that could have been detected and prevented
at the time of publication. I will conclude with two revealing examples
of attempts at reproduction of peer-reviewed, published results.
The first example involves a scientific report about a laboratory
experiment about whether two or more chemicals can have a synergistic,
damaging effect on the endocrine system of the body. The second
example involves a scientific report indicating that long-term exposure
to low levels of air pollution may cause a significant increase
in human mortality.
After an intensive
investigation of the first report, the Office of Research Integrity
of the NIH concluded on October 12, 2001 that the author committed
scientific misconduct by intentionally falsifying the research results
reported in Table 3 of a paper published in the journal Science.
In addition, PHS finds that there is no original data or other corroborating
evidence to support the research results and conclusions reported
in the Science paper as a whole. Before this problem was exposed,
this study was cited widely in environmental policy debates in the
US and abroad.
report was subjected to an intensive re-analysis by the Health Effects
Institute, an independent research organization in Cambridge, Massachusetts,
and the result was more encouraging. HEI found no significant mathematical
errors in the published report, although some of the reported associations
between pollution and mortality were altered in size when plausible
changes in the analytic approach were implemented. That was a paraphrase
of HEIs findings, not a direct quotation.
I want to
acknowledge that science is an evolving process where errors are
made and then corrected. I am not asking scientists to be perfect.
What I am suggesting is that regulators should be careful about
using scientific, engineering, and economic information to support
important public policies when that information, the analysis and
the original data, are not available for scrutiny by qualified third
One of my
objectives at OMB is to expose more of the critical regulatory information
to the reproducibility test, regardless of whether the agency obtained
the information from academics, in-house scientists, industry or
other sources. The public has a right to expect that when agencies
disseminate technical information to the public, that information
satisfies minimum quality standards.
Thus, I hope
that I have given you a better sense of the role that OMB is playing
in this Administration, particularly our role in enhancing the place
of science, engineering and economics in quality regulation. Thank
you very much for the opportunity to speak today and I look forward
to questions, comments and discussion.