STATEMENT OF
JOHN D. GRAHAM, PH.D.
ADMINISTRATOR,
OFFICE OF INFORMATION AND REGULATORY AFFAIRS
BEFORE THE
SMALL BUSINESS COMMITTEE
UNITED STATES HOUSE OF REPRESENTATIVES

May 19, 2004

Mr. Chairman, and Members of this Committee, thank you for inviting me to this hearing to discuss our initiative on regulatory reform. I am John D. Graham, Ph.D., Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget. Prior to joining the Bush Administration, I served as a faculty member at the Harvard School of Public Health, where I founded and directed the Harvard Center for Risk Analysis.

First, I would like to briefly describe to the Committee the origins of our manufacturing reform initiative. Streamlining regulation is a key plank in the President’s Six-Point Plan for the Economy. The last twenty years have witnessed an explosion of new federal rules and paperwork requirements that burden consumers, businesses, taxpayers and State and local governments. Many of these regulations undoubtedly are essential to protect consumers, workers and the environment; however, their cumulative burden is onerous, especially for small businesses and others trying to create new jobs. Recent studies show that regulations have significantly raised the cost of doing business in the United States, especially for manufacturers.

The Administration is moving on several fronts to facilitate the streamlining of regulation. First, we have insisted that new federal regulations be supported by good science and economics to ensure that they are necessary and cost effective, and have worked closely with the Congress to limit the number of new laws that would spawn unnecessary regulatory burdens. We are happy to report significant success in this regard: even by conservative estimates, this Administration has slowed the growth of burdensome new rules by at least 75% when compared to the previous Administration, while still moving forward with crucial safeguards for homeland security, human health, and environmental protection.

We are also working to streamline the sea of existing federal regulations, which is a humbling and difficult task. As with the federal budget, actually shrinking the absolute burden of imposed regulatory cost is much more difficult than slowing its growth. Our primary approach to date has been a series of solicitations for reform nominations. As a result of our first two reform solicitations in 2001 and 2002, the Administration is working on reforms to over 100 rules, guidance documents, and paperwork requirements.

In OMB’s 2004 Draft Report on the Congress on the Costs and Benefits of Federal Regulation on February 13, 2004, we included an expanded review of the impacts of regulations on small business, and an expanded review of the impact of regulation on the manufacturing sector.

In short, our Report confirms once again the relatively large burden that regulation imposes on small businesses, and demonstrates the need for an effective voice for small business during the regulatory review process. We also found that the cumulative regulatory burdens on the manufacturing sector are larger than the costs imposed on other sectors of the economy -- and disproportionately large for small and medium-sized manufacturers. One study found that manufacturing firms face a regulatory burden approximately 5 times greater than the average firm, and even when adjusted by the number of employees, manufacturing firms face a regulatory burden per employee approximately 1.7 times greater than the average firm. Environmental regulations impose the largest burden; followed by economic regulations, which include direct controls on the structure of certain markets; tax compliance; and workplace rules; which include categories such as employee benefits, occupational safety and health, and labor standards.

In addition to our work on this issue, the President's Council of Economic Advisors recently reported that, while manufacturing is beginning to share in the economic recovery, the rebound in manufacturing employment has not been as rapid as in other sectors. A recent Commerce Department report included a broad-based review of manufacturing policy and also recommended that federal regulations be re-examined for reform.

Because of these findings, we decided to launch this Administration’s 3rd solicitation of reform nominations, and for this reform initiative we decided to solicit reforms relevant to the manufacturing sector. We encouraged commenters to suggest specific reforms to regulations, guidance documents or paperwork requirements that would improve manufacturing regulation by reducing unnecessary costs, increasing effectiveness, enhancing competitiveness, reducing uncertainty and increasing flexibility. We are particularly interested in reforms that address burdens on small and medium-sized small manufacturers, where burdens tend to be relatively large. In addition, because studies have found that tax compliance was particularly burdensome for small businesses, we solicited nominations on ways to simplify IRS paperwork requirements.

In the report, we requested that commenters concentrate on presenting us, to the extent possible, a quantitative or qualitative benefit-cost case that can be made for the reform. We must approach regulatory reform with care because many rules governing this sector may produce substantial benefits for workers, consumers and the environment. Even where the benefits of rules are substantial, it makes sense to search for more cost-effective ways of achieving those benefits; for example, replacing outdated command and control regulations with market-based policy instruments. Whenever the costs of rules are substantial, the search for cost-effective reforms is critical.

We also requested that commenters focus on reforms that the agency or multiple agencies have statutory authority to make. Even nominations that agencies have the authority to pursue often require notice and comment rulemaking, thus it is likely to require a bit of time to enact a substantial number of reforms.

Reform nominations are due at OMB by May 20, 2004, and we will release those nominations as soon as possible. In consultation with the relevant departments and agencies, we will then identify a group of promising reform nominations. Our 2004 Final Report to Congress on the Costs and Benefits of Federal Regulation will report in detail on the progress on this initiative.

In closing, let me assure you that this Administration understands the needs for regulatory reform of the manufacturing sector. The progress we have made so far is a direct result of the President’s leadership. Reining-in regulatory costs is a critical part of the President’s six-point plan to stimulate the economy, create jobs and foster economic prosperity for all Americans. We also acknowledge that we have a considerable way to go.

Thank you very much for the opportunity to appear today. I am willing to answer any questions you may have.