United States General Accounting Office
GAO Report to Congressional Requesters
April 1999
REGULATORY
ACCOUNTING
Analysis of OMB’s
Reports on the Costs
and Benefits of Federal
Regulation
GAO/GGD-99-59
United States
GAO General Accounting Office
Washington, D.C. 20548
General Government Division
B-281445
April 20, 1999
The Honorable Fred Thompson
Chairman
Committee on Governmental Affairs
United States Senate
The Honorable Ted Stevens
Chairman
Committee on Appropriations
United States Senate
The Honorable Tom Bliley
Chairman
Committee on Commerce
House of Representatives
The Honorable David McIntosh
Chairman
Subcommittee on National Economic Growth,
Natural Resources and Regulatory Affairs
Committee on Government Reform
House of Representatives
The Honorable John B. Breaux
United States Senate
This report responds to your requests that we provide information on the Office of
Management and Budget’s (OMB) 1997 and 1998 reports to Congress regarding the costs and
benefits of federal regulations. Specifically, we were asked to describe, for each of four
statutory requirements, (1) how OMB addressed the requirements in its reports and (2) the
views of noted economists in the field of cost-benefit analysis regarding OMB’s responses in
these reports.
We are sending copies of this report to Senator Joseph I. Lieberman, Senator Robert C. Byrd,
Representative John D. Dingell, and Representative Dennis J. Kucinich in their respective
capacities as the Ranking Minority Members of the Senate Committee on Governmental
Affairs, the Senate Committee on Appropriations, the House Committee on Commerce, and
the House Committee on Government Reform’s Subcommittee on National Economic
Growth, Natural Resources and Regulatory Affairs. We are also sending copies to the
Honorable Jacob Lew, Director of OMB, and will make copies available to others on request.
Page 1 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
B-281445
If you have any questions about this report or would like to discuss it further, please contact
me on (202) 512-8676. Major contributors to this report are listed in appendix V.
L. Nye Stevens
Director, Federal Management
and Workforce Issues
Page 2 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Page 3 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Executive Summary
The process of issuing and enforcing regulations is a basic tool of
Purpose government, but the costs that nonfederal entities pay to comply with
federal regulations are not accounted for in the federal budget process.
Some researchers have estimated those costs in the hundreds of billions of
dollars, and some estimates of aggregate benefits are even higher.
Congress decided that it needed more information on regulatory costs and
benefits, so it required the Office of Management and Budget (OMB) to
submit two successive annual reports to Congress providing (1) estimates
of the total annual costs and benefits of federal regulatory programs; (2)
estimates of the costs and benefits of each rule likely to have a $100
million annual effect on the economy in increased costs; (3) an assessment
of the direct and indirect effects of federal rules on the private sector, state
and local governments, and the federal government; and (4)
recommendations to reform or eliminate any federal regulatory program or
program element that is inefficient, ineffective, or not a sound use of the
nation’s resources.
GAO conducted this review at the request of several Members of Congress.
GAO’s objectives were to describe, for each of these four requirements, (1)
how OMB addressed the requirements in its 1997 and 1998 reports and (2)
the views of noted economists in the field of cost-benefit analysis
regarding OMB’s responses in these reports.
Conceptually, cost-benefit analysis is a rigorous procedure of weighing the
Background costs and benefits of a proposed action and various alternatives and is
generally regarded as an important and useful tool in regulatory
decisionmaking. For nearly 20 years, both the executive and legislative
branches have required federal agencies to prepare cost-benefit analyses
for certain rules. Under Executive Order 12866, OMB reviews agencies’
regulations and associated cost-benefit estimates to ensure that the
regulations are consistent with applicable laws, the executive order’s
principles, and the President’s priorities.
The statutes requiring OMB to prepare its reports on regulatory costs and
benefits do not prescribe how those reports should be prepared, and no
clear legislative history exists to describe congressional intent. Some
Members of Congress expressed their individual views that OMB should
simply compile existing information about regulatory costs and benefits.
However, other Members of Congress said that OMB should prepare an
independent assessment of regulatory effects, not just report the results of
agencies’ cost-benefit analyses.
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Executive Summary
OMB’s 1997 and 1998 reports contained some, but not all, of the elements
Results in Brief Congress required. OMB provided estimates of total regulatory costs and
benefits and provided estimates for some (but not all) $100 million rules
issued within particular 1-year periods. OMB’s 1998 estimate of total
federal regulatory benefits was 12 times its 1997 estimate, driven almost
entirely by a 1998 Environmental Protection Agency (EPA) estimate of the
benefits associated with the Clean Air Act. However, OMB did not
separately assess the direct and indirect effects of federal regulations on
various sectors in either report. Also, although it discussed a proposal for
electricity restructuring and some previously announced agency initiatives
in its 1998 report, OMB did not provide any new recommendations to
reform or eliminate regulatory programs or program elements.
The cost-benefit analysis experts that GAO consulted were generally
critical of OMB’s performance, with regard to three of the four statutory
requirements. The experts said OMB’s 1998 upper-bound estimate of total
regulatory benefits was questionable or implausible, and they were
particularly critical of OMB’s unadjusted use of EPA’s Clean Air Act
benefit estimate. They also said OMB should not have simply accepted
agencies’ cost and benefit estimates for the “major” and “economically
significant” rules and should have provided new regulatory reform
recommendations. However, the experts said they understood why OMB
could do little to discuss the other statutory requirement regarding indirect
regulatory effects on particular sectors. Overall, they said OMB should
have been more than a “clerk,” transcribing the agencies’ and others’
estimates of costs and benefits. However, several of the experts also
recognized that, as part of the administration, OMB was politically
constrained from doing more than it did because providing independent
assessments would have required OMB to criticize positions approved by
the administration.
OMB has a responsibility to review agencies’ estimates of regulatory costs
and benefits in rules and reports before they are published. However, after
their publication, those rules and reports become statements of
administration policy. It is politically difficult for OMB to provide an
independent assessment and analysis of the administration’s own
estimates in a public report to Congress. If Congress wants an independent
assessment of executive agencies’ regulatory costs and benefits, it may
have to look outside of the executive branch or outside of the federal
government.
The first statutory requirement was that OMB provide estimates of the
Principal Findings total annual costs and benefits of federal regulatory programs. In its 1997
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Executive Summary
report, OMB estimated that the annual cost of federal regulations was $279
billion and estimated annual benefits at $298 billion. In its 1998 report,
OMB estimated annual regulatory costs at between $170 billion and $230
billion and estimated annual regulatory benefits at between $260 billion
and $3.5 trillion. The decrease in the cost estimate between 1997 and 1998
was primarily because OMB did not include efficiency losses from
economic regulations in its 1998 summary table. Virtually all of the
increase in the benefits estimate was due to the inclusion of an EPA
estimate of the benefits associated with the Clean Air Act. The experts that
GAO consulted generally said that OMB’s 1997 and 1998 cost estimates
were reasonable, but most of the experts said the upper-bound benefits
estimate in the 1998 report was questionable or implausible. Most of the
experts criticized OMB for accepting agencies’ cost and benefit estimates
without adjustment or standardization and were particularly critical of
OMB’s unadjusted use of EPA’s benefit estimate. However, most of the
experts also said that OMB faced political constraints in adjusting
agencies’ cost and benefits estimates, noting that an independent
assessment of those estimates would potentially require OMB to criticize
its own administration’s policy positions.
The second statutory requirement was that OMB provide estimates of the
costs and benefits of each rule likely to have a gross annual effect on the
economy of $100 million or more in increased costs. OMB interpreted this
requirement broadly to include rules that were “major” or “economically
significant,” even if they did not necessarily result in $100 million in
increased costs. However, OMB narrowly focused on rules issued during
specific 1-year periods and did not include rules issued by independent
regulatory agencies in its summary tables. Also, OMB did not include all
rules that met its criteria and did not provide cost-benefit data for all of the
rules it included. Most of the cost-benefit experts that GAO consulted said
OMB should have included rules from independent regulatory agencies.
Several experts also said OMB should not have simply accepted the cost
and benefit estimates provided by the executive agencies, but some of
them also recognized that it was politically difficult for OMB to alter
agencies’ estimates in its report to Congress.
The third statutory requirement was that OMB provide an assessment of
the direct and indirect impacts of federal rules on the private sector, state
and local governments, and the federal government. Although OMB did not
separately assess the direct and indirect effects of federal regulation on
these sectors, OMB indicated that it believed it had discussed the direct
effects through the overall cost and benefit estimates that it provided in
relation to the first statutory requirement. OMB discussed the difficulty in
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Executive Summary
determining indirect regulatory effects in its first report but did not
provide any description of those effects in either report. The cost-benefit
analysis experts that GAO consulted were generally sympathetic toward
OMB’s treatment of this requirement, describing it as a lower priority than
the other requirements and difficult for anyone to satisfy.
The fourth statutory requirement was that OMB provide recommendations
to reform or eliminate any federal regulatory program or program element
that is inefficient, ineffective, or is not a sound use of the nation’s
resources. OMB’s 1997 report contained no such recommendations, with
OMB stating that existing data were inadequate. The 1998 report contained
an endorsement of 10 previously announced regulatory or statutory
changes and a discussion of restructuring the electrical generation
industry. All of the cost-benefit experts were dissatisfied with OMB’s
response to this requirement, and several said sufficient cost-benefit data
existed to support making some recommendations. However, several of
the experts also said that it was politically difficult for OMB to make
recommendations to Congress to eliminate or reform existing
administration programs.
GAO is making no recommendations in this report.
Recommendations
It is politically difficult for OMB to provide Congress with an independent
Matter for assessment of executive branch agencies’ regulatory costs and benefits. If
Congressional Congress wants an independent assessment, it may wish to consider
Consideration assigning that responsibility to an organization outside of the executive
branch. That organization could include a congressional office of
regulatory analysis, which would have to be established, or an organization
outside of the federal government.
GAO requested comments on a draft of this report from the OMB Director.
Comments and GAO’s OMB’s Office of Information and Regulatory Affairs (OIRA) said the report
Evaluation raised a number of useful analytical issues regarding how regulatory costs
and benefits can most appropriately be estimated and reported. However,
OIRA stated that it disagreed fundamentally with several of the statements
attributed to the experts in the report, saying their comments reflect a
significant misunderstanding of OMB’s role in developing, overseeing, and
coordinating the administration’s regulatory policies. OIRA also said that it
had provided original estimates of regulatory costs and benefits, that the
EPA estimate of the benefits associated with the Clean Air Act had been
peer reviewed, and that it had provided Congress with the estimates that
Congress directed it to prepare.
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Executive Summary
GAO believes OIRA’s comments buttress its conclusions and matter for
congressional consideration. It is politically difficult for OMB to disagree
publicly with agencies’ statements of regulatory policy, particularly
because OIRA staff typically participates in developing those policies.
GAO also obtained the views of six of the seven cost-benefit experts that it
consulted on the draft report. The experts generally said the report
accurately reflected their statements, but some of them suggested
particular clarifications, which GAO has incorporated into this report
where appropriate.
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Contents
Executive Summary 4
Chapter 1 14
Background 15
Introduction Objectives, Scope, and Methodology 23
Chapter 2 27
OMB’s 1998 Upper-Bound Benefits Estimate Was 12 27
Experts Questioned Times the 1997 Estimate
OMB's 1998 Estimate Experts Said OMB Should Have Done More, but Political 34
Environment Limits OMB’s Role
of Regulatory Benefits
Chapter 3 39
OMB Provided Data for Only Certain Rules in Both 39
OMB Did Not Provide Reports
Cost-Benefit Estimates Experts Suggested Changes in OMB Major Rule 44
Information
for All $100 Million
Rules
Chapter 4 47
OMB Reports Contained Little Discussion of Third 47
OMB Did Not Statutory Requirement
Separately Assess Experts Were Sympathetic to OMB’s Treatment of 48
Requirement
Direct and Indirect
Impacts of Rules
Chapter 5 49
OMB Provided No New Recommendations 49
Experts Criticized Experts Criticized OMB, but Noted “Constraints” 51
Lack of New
Recommendations in
OMB Reports
Chapter 6 53
Matter for Congressional Consideration 56
Conclusions Comments and Our Evaluation 56
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Contents
Appendixes Appendix I: Individual Views of Members of Congress 60
Regarding Regulatory Accounting Requirements
Appendix II: Biographical Information of Regulatory 65
Experts
Appendix III: Rules Meeting Specific Statutory 69
Requirements for OMB's 1997 Report
Appendix IV: Rules Meeting Specific Statutory 73
Requirements for OMB's 1998 Report
Appendix V: Major Contributors to This Report 76
Tables Table 2.1: Cost and Benefit Estimates From OMB’s 1997 30
Report (in 1996 dollars)
Table 2.2: Cost and Benefit Estimates From OMB’s 1998 33
Report
Table 3.1: Rules That Met OMB’s Criteria but Were Not in 42
OMB’s 1997 Report
Table 3.2: Rules Meeting OMB’s Criteria But Not Included 44
in the 1998 Report
Table III.1: Rules Likely to Have Gross Impact On 70
Economy of $100 Million in Increased Costs
Table IV.1: Rules Likely to Have Gross Effect on the 74
Economy of $100 Million in Increased Costs
Figures Figure 2.1: EPA’s Section 812 Data Substantially 34
Increased Upper-Bound Benefit Estimate Between
1997 and 1998
Page 11 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Contents
Abbreviations
AEI American Enterprise Institute
CORA Congressional Office of Regulatory Analysis
EPA Environmental Protection Agency
FCC Federal Communications Commission
HHS Department of Health and Human Services
NPRM notice of proposed rulemaking
OIRA Office of Information and Regulatory Affairs
OMB Office of Management and Budget
OSHA Occupational Safety and Health Administration
RISC Regulatory Information Service Center
SBREFA Small Business Regulatory Enforcement Fairness Act of 1996
SEC Securities and Exchange Commission
UMRA Unfunded Mandates Reform Act of 1995
USDA United States Department of Agriculture
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Chapter 1
Introduction
Regulations serve as the means by which statutory requirements are
implemented and specific requirements are established. Like taxing and
spending, the process of issuing and enforcing regulations is a basic tool of
government. Although the cost of operating federal regulatory agencies is
captured in the federal budget process, the budget does not reflect the
costs that nonfederal entities pay to comply with federal regulations. Some
researchers have estimated that the direct cost of complying with all
1
federal regulations is in the hundreds of billions of dollars. Some
estimates of the benefits that federal regulations provide to society are
2
even higher than the costs.
Conceptually, cost-benefit analysis is a rigorous procedure that involves
weighing the costs and benefits of various alternatives to a proposed
action and underlies most if not all attempts to assess the cumulative
3
effects of regulations on society. Both Congress and the executive branch
have required certain federal agencies to conduct cost-benefit analyses on
their most significant rules. Cost-benefit analysis is generally recognized as
an important and useful tool in making decisions about particular
regulations. However, applying cost-benefit analysis to major regulations
can be a complex and controversial undertaking. Also, there is
disagreement regarding the weight that the analyses should receive in the
decisionmaking process.
Although cost-benefit analysis for a single rule can be controversial,
estimating the costs and benefits of all federal regulations can be even
more controversial. Some questions center on whether certain types of
regulatory costs or benefits should be included in the totals. Other
questions are even more basic, focusing on whether developing accurate
estimates of total federal regulatory costs and benefits is feasible or, if so,
how policymakers should use those estimates.
Congress decided that it needed more information on total regulatory
costs and benefits, so in 1996 and 1997 it required the Director of the
Office of Management and Budget (OMB) to submit reports to Congress
providing (1) estimates of the total annual costs and benefits of federal
1
See, for example, Thomas D. Hopkins, Regulatory Costs in Profile, Policy Study 132, Center for the
Study of American Business, August 1996.
2
For example, in “Regulatory Reform: What Do the Government’s Numbers Tell Us?” in Risks, Costs,
and Lives Saved (Washington, D.C.: The AEI Press, 1996, pp. 208-253), Robert W. Hahn states that
“using government agency data, it would appear that there is a present value of about $280 billion in
net benefits to government regulation” in the areas of environment, health, and safety.
3
Cost-benefit analysis is also referred to as benefit-cost analysis and regulatory impact analysis.
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Chapter 1
Introduction
regulatory programs; (2) estimates of the costs and benefits of each rule
likely to have a gross annual effect on the economy of $100 million in
increased costs; (3) an assessment of the direct and indirect effects of
federal rules on the private sector, state and local governments, and the
federal government; and (4) recommendations to reform or eliminate any
federal regulatory program or program element that is “inefficient,
ineffective, or is not a sound use of the Nation’s resources.” On September
30, 1997, OMB published its Report to Congress On the Costs and Benefits
of Federal Regulations in response to the 1996 requirement. On February 5,
1999, OMB published its second report to Congress in response to the 1997
requirement. Both the OMB reports and the requirements that generated
them have been the subject of considerable controversy.
The federal government has long regulated economic activity, often
Background through independent regulatory agencies such as the Securities and
Exchange Commission (SEC) and the Federal Communications
Commission (FCC). Social regulation in such areas as environmental
quality, workplace safety, and consumer protection grew dramatically in
the 1960’s and 1970’s with the creation of such agencies as the
Environmental Protection Agency (EPA) and the Occupational Safety and
Health Administration (OSHA). However, by the 1980’s, concerns began to
be raised about whether the benefits that these regulations and regulatory
agencies were attempting to achieve were worth the costs associated with
compliance.
Executive and Legislative Every president in recent years has taken steps intended to reduce the
burden of federal regulations. Those presidential initiatives often involve
Branch Efforts to Control OMB, whose stated mission is to help the president carry out his
Regulatory Burden responsibilities. For example, in 1981, President Reagan issued Executive
Order 12291, which required executive departments and agencies to
prepare cost-benefit analyses identifying the benefits, costs, and
alternatives of all proposed and final “major” rules, and to submit those
analyses to OMB. A major rule was defined in the executive order as any
regulation that was likely to result in (1) an annual effect on the national
economy of $100 million or more; (2) a major increase in costs or prices
for consumers, industries, governments, or geographic regions; or (3)
significant adverse effects on competition, employment or investments,
productivity, innovation, or the international competitiveness of U.S.
enterprises. The executive order also required agencies to submit all of
their proposed and final rules to OMB for review before being published in
the Federal Register to ensure consistency with administration policies. To
the extent permitted by law, the order said agencies should not issue
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Chapter 1
Introduction
regulations unless the potential benefits “outweigh” the potential costs to
society.
In 1993, President Clinton issued Executive Order 12866 revoking
Executive Order 12291 but reaffirming the legitimacy and basic framework
of OMB’s regulatory review process. Like its predecessor, the executive
order explicitly excludes from OMB review regulatory actions issued by
independent regulatory agencies such as the FCC or the SEC. The order
states that OMB’s review is “necessary to ensure that regulations are
consistent with applicable law, the President’s priorities, and the principles
set forth in this Executive order,” and that OMB’s Office of Information
and Regulatory Affairs (OIRA) is the “repository of expertise concerning
regulatory issues . . . .” The order also says OMB shall provide guidance to
the agencies and assist the President, the Vice President, and other
regulatory policy advisors to the President. Noting that some costs and
benefits are difficult to quantify, the order says agencies should adopt
regulations only if the benefits “justify” the costs. Also, one of the order’s
stated objectives is “to reaffirm the primacy of Federal agencies in the
regulatory decision making process.”
Executive Order 12866 states that agencies should submit detailed cost-
benefit analyses to OIRA for all economically significant regulatory
actions. The order defines an “economically significant” regulatory action
as one “that is likely to result in a rule that may have an annual effect on
the economy of $100 million or more or adversely affect in a material way
the economy, a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or tribal governments
or communities.” The agency issuing the regulation must submit an
assessment, including the underlying analysis, of the anticipated benefits
associated with the action, the anticipated costs, and the costs and
benefits of reasonably feasible alternatives to the action (e.g., economic
incentives instead of “command and control” regulations).
In January 1996, OMB issued guidance to federal agencies on “best
practices” for preparing cost-benefit analyses under Executive Order
12866. Developed by a group that was co-chaired by the OIRA
Administrator and a Member of the Council of Economic Advisors, the
guidance says cost-benefit analyses should be guided by the principles of
full disclosure and transparency regarding their data, models, and
assumptions, but it allows analysts to use their professional judgment in
precisely how the studies should be conducted. The guidance also says
that agencies should focus on incremental changes—i.e., the costs and
benefits that are solely attributable to the regulation at issue.
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Chapter 1
Introduction
Congress has also taken steps intended to reduce regulatory burden
through oversight and increased analytical requirements. For example,
Congress passed the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612),
which requires federal agencies to analyze the anticipated effects of rules
they plan to propose on small entities or they certify that the rules will not
have a “significant economic effect on a substantial number of small
entities.” Also in 1980, Congress passed the Paperwork Reduction Act,
which created OIRA within OMB to provide central agency leadership and
oversight of governmentwide efforts to reduce unnecessary paperwork
burden and improve the management of information resources. The act
also made the OIRA Administrator subject to Senate confirmation.
More recently, title II of the Unfunded Mandates Reform Act of 1995
(UMRA) says that, unless otherwise prohibited by law, agencies must
assess the costs and benefits of any rule containing a federal mandate that
may result in the expenditure of $100 million or more in any 1 year by
4
state, local, and tribal governments, in the aggregate, or the private sector.
Also, the congressional review provisions of the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA) require agencies to submit all
of their rules to Congress and us before they become effective. On the date
of submission, SBREFA also requires the agency issuing the rule to submit
to us and make available to each House of Congress a copy of any cost-
benefit analysis and the agency’s actions relevant to certain provisions of
5
UMRA and other analytical requirements. For “major” rules, we are
required to provide a report to the committees of jurisdiction in each
House within 15 calendar days, assessing the agency’s compliance with
required procedural rulemaking steps.
Between 1994 and 1998, Congress considered a number of other bills that
would have increased requirements for agencies to conduct cost-benefit
analyses, but none of them were enacted. For example, the Regulatory
Improvement Act of 1998 (S. 981) would have required agencies to
prepare, among other things, a cost-benefit analysis and to place that
analysis in the rulemaking file before publishing a notice of proposed
rulemaking (NPRM) for any major rule. The bill also would have required
agencies to prepare a similar analysis before publishing the final rule. (In
4
However, our analysis of title II indicated that these requirements do not apply to most economically
significant rules. See Unfunded Mandates: Reform Act Has Had Little Effect on Agencies’ Rulemaking
Actions (GAO/GGD-98-30, Feb. 4, 1998).
5
The statute defined a “major” rule in essentially the same manner as Executive Order 12291. Copies of
our major rule reports can be obtained at www.gao.gov.
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Chapter 1
Introduction
March 1999, the Regulatory Improvement Act was reintroduced as S. 746,
again requiring cost-benefit analysis of major rules.)
Another bill introduced during the 105th Congress (H.R. 1704, 105th Cong.
2d Sess [1998]) would have established a “Congressional Office of
Regulatory Analysis” (CORA). The bill would have required CORA to
provide a report to the committees of jurisdiction in each House for each
major rule that would include an assessment of the issuing agency’s
compliance with certain analytical requirements and an analysis of the
rule’s benefits, costs, and net benefits. According to the bill, CORA would
allow the legislative branch to obtain accurate and reliable information on
which to base its decisions as it carried out its responsibilities for
congressional review under SBREFA. CORA would have also been
required to issue an annual report including estimates of total costs and
benefits of all existing and anticipated federal regulations. The bill’s
principal sponsor said CORA was needed to provide Congress with
independent analyses of regulations and to supplement what she believed
to be unreliable information being provided by executive branch agencies.
However, critics of the proposal said it would duplicate functions
preformed by agencies in the executive branch.
Congress Requires One of the more recent regulatory reform initiatives has been a series of
requirements for an accounting of regulatory costs and benefits. Section
Regulatory Accounting 645(a) of the Treasury, Postal Services and General Government
Appropriations Act for fiscal year 1997, enacted on September 30, 1996,
required OMB to provide a report to Congress by September 30, 1997, that
included several specific elements:
(1) estimates of the total annual costs and benefits of federal regulatory
programs, including quantitative and nonquantitative measures of
regulatory costs and benefits;
(2) estimates of the costs and benefits (including quantitative and
nonquantitative measures) of each rule that is likely to have a gross annual
effect on the economy of $100 million or more in increased costs;
(3) an assessment of the direct and indirect impacts of federal rules on the
private sector, state and local government, and the federal government;
and
(4) recommendations from the Director and a description of significant
public comments to reform or eliminate any federal regulatory program
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Chapter 1
Introduction
that is inefficient, ineffective, or is not a sound use of the nation’s
resources.
Section 645(b) of the act directed OMB to obtain comments on the draft
report before submitting it to Congress. On July 22, 1997, OMB published
the draft report for comment, and on September 30, 1997, OMB issued its
first Report to Congress on the Costs and Benefits of Federal Regulation.
On October 10, 1997, OMB was required to produce a second report on the
cost and benefits of federal programs by September 30, 1998. The
requirement was in section 625(a) of the Treasury and General
Government Appropriations Act for fiscal year 1998 and contained the
same four requirements that were in section 645(a) of the 1997 act. OMB
published a draft of the 1998 report in the Federal Register on August 17,
1998, and established a 30-day comment period. Because of requests from
both the public and Members of Congress, OMB extended the comment
period until October 16, 1998. On February 5, 1999, OMB published its
second regulatory accounting report.
On October 21, 1998, legislation was enacted requiring regulatory
accounting for another year. Section 638 of the Treasury and General
Government Appropriations Act for fiscal year 1999 requires OMB to
provide Congress with a regulatory accounting statement and report for
calendar year 2000 that is similar to the previous requirements. The
statement and report are to be submitted with the budget and the report is
to include “an estimate of the total annual costs and benefits . . . of Federal
rules and paperwork, to the extent feasible (A) in the aggregate; (B) by
agency and agency program; and (C) by major rule.” Section 638 also
requires OMB to issue guidelines to agencies standardizing agencies’
measures of costs and benefits and the format of their accounting
statements. Finally, it requires OMB to provide for independent and
external peer review of the guidelines and each accounting statement and
associated report.
Views of Individual Members The regulatory accounting provisions that required OMB to provide the
Regarding Regulatory 1997 and 1998 reports to Congress have limited legislative histories. A
Accounting Requirements Senate Appropriations Committee report for the Treasury, Postal Service,
and General Government Appropriations Act for fiscal year 1997 stated
that “[r]egulatory costs and benefits should be quantified to the extent
feasible and, where applicable, should be based on most plausible
estimates. Most of the needed information is already available to the OMB.
Executive Order 12866 requires cost-benefit analysis of significant rules,
and private studies are available.” These general comments are of limited
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Chapter 1
Introduction
value in determining how Congress intended OMB to carry out its
responsibilities under the provision or what types of regulations OMB
should include in its reviews.
During consideration of the provision that established the first of these
regulatory accounting requirements, several Members of Congress
expressed their individual views regarding OMB’s responsibilities to carry
out this provision in comments recorded in the Congressional Record. (See
app. I for a more complete discussion of these Members’ comments.) Some
of the Members indicated that OMB should simply compile existing
information about regulatory costs and benefits. For example, during
Senate consideration of this provision, one Member said the sponsors of
the amendment were aware of OMB’s resource constraints and intended
that the report be based on a compilation of existing information rather
than new analysis.
However, other Members indicated that OMB should not simply rely on
existing cost and benefit information. For example, the principal sponsor
of the first regulatory accounting provision said “OMB should use the
valuable information already available, and supplement it where needed”
when preparing the estimates of total annual costs and benefits.
Subsequently, during the Senate debate, another Member said “(w)here
there are gaps, OMB must supplement existing information.” He also said
OMB should “quantify costs and benefits to the extent feasible, and
provide the most plausible estimate.”
Several Members of Congress also commented on OMB’s final and draft
reports in letters to the OMB Director, expressing their view that OMB
should not have simply relied on existing information to carry out its
responsibilities. For example, on October 29, 1997, the Chairmen of the
Senate Committees on Governmental Affairs and Appropriations said that
OMB should “exercise leadership to assure the quality and reliability of
information reported” by, among other things, providing an “independent
assessment” of the information provided by the agencies. They also said
OMB staff should be directed to “critique the quality of the estimates
provided to them, not to simply compile data presented by the agencies.”
On the same day, the Chairmen of the House Committees on Commerce
and Transportation and Infrastructure and the Chairman of the House
Committee on Government Reform and Oversight’s Subcommittee on
National Economic Growth, Natural Resources, and Regulatory Affairs
wrote that “Congress expected OMB to assure the reporting of meaningful
information and provide an independent assessment of regulatory effects,”
Page 20 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Chapter 1
Introduction
not merely to perform the “ministerial function of reporting information
provided by other agencies.”
Nongovernmental Groups A number of organizations outside of the federal government are also
examining federal regulatory programs and issues. Some of these
Also Study Federal organizations have taken public stands for or against federal regulatory
Regulatory Programs activity. Other organizations are affiliated with academic institutions or
public policy research organizations. For example, Carnegie Mellon
University, with the cooperation of the University of Washington, in
Seattle, WA, has established a Center for the Study and Improvement of
Regulation housed within its Department of Engineering and Public Policy.
According to its mission statement, the Center intends to combine studies
to obtain a deeper understanding of particular issues and synthesize
research to, among other things, (1) elaborate a framework for considering
the risks to health, safety, and the environment; and (2) help improve
health, safety, and environmental regulation at the federal, state, and local
level. The Center is funded by grants from the National Science
Foundation and from several corporations, foundations, and trade
associations.
In 1998, the American Enterprise Institute (AEI) and the Brookings
Institution established a Joint Center for Regulatory Studies with four
primary missions:
• to publish timely, objective analyses of a number of important regulatory
proposals before they are formally adopted;
• to publish analyses of existing regulations and approaches to regulatory
reform, with recommendations for modifications (including proposals to
strengthen rules where the benefits appear to justify the costs as well as
proposals to eliminate or relax rules where the reverse may be true);
• to publish essays that evaluate the impact of regulatory policies and
suggest ways to improve the regulatory process; and
• to publish an annual report on the state of federal regulation, including an
independent assessment of both the total and marginal costs and benefits
of federal regulation, broken down into useful categories.
According to the Center’s mission statement, both AEI and Brookings
“believe that the media and the policy community will look to the Joint
Center as an objective, highly respected source of information on
regulatory policy issues.” The Joint Center is funded solely by foundation
grants.
Page 21 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Introduction
Our Previous Reports on We have issued a number of reports examining the costs and benefits of
agencies’ rules and estimates of total regulatory costs. For example, in
Regulatory Costs/Benefits April 1984, we said that cost-benefit analysis is a useful tool for estimating
6
the costs and benefits of various regulatory actions. We also said that its
role might become increasingly critical because complying with federal
environmental regulations could mean billions of dollars in costs and
benefits. However, we also said that gaps in underlying scientific data,
legal restrictions, and EPA’s partial implementation of Executive Order
12291 had hampered cost-benefit analysis.
In December 1993, we reported that none of the studies released by the
federal banking agencies and several of the major banking industry trade
associations provided a comprehensive discussion of regulatory burden or
7
the cost-benefit trade-offs associated with particular regulations. We also
found that estimates of regulatory compliance costs reported in the
industry were of little value due to serious methodological deficiencies.
In March 1995, we reported that there was a great deal of uncertainty
about the costs and benefits of regulations, with estimates varying,
8
depending on assumptions about what constitutes regulatory cost. For
example, we noted that many economists argue that economic “transfers,”
such as the added cost a consumer pays for goods in the marketplace
because of agricultural price supports, should not be included in aggregate
cost estimates. We also said that some economists are concerned about
including process costs because of measurement concerns and because
any change associated with this category may be difficult to achieve (since
most of the estimate derives from completing tax forms). Finally, although
one researcher estimated that total regulatory costs increased between
1977 and 1994, we noted that the percentage of the gross domestic product
devoted to the costs of federal regulations decreased during this period.
In November 1996, we concluded that, although perhaps not impossible, it
is very difficult to measure the incremental cost of all federal regulations
9
on individual businesses. Therefore, we said, users of aggregate regulatory
6
Cost-Benefit Analysis Can Be Useful In Assessing Environmental Regulations, Despite Limitations
(GAO/RCED-84-62, Apr. 6, 1984).
7
Regulatory Burden: Recent Studies, Industry Issues, and Agency Initiatives (GAO/GGD-94-28, Dec. 13,
1993).
8
Regulatory Reform: Information on Costs, Cost-Effectiveness, and Mandated Deadlines for
Regulations (GAO/PEMD-95-18BR, Mar. 8, 1995).
9
Regulatory Burden: Measurement Challenges and Concerns Raised by Selected Companies
(GAO/GGD-97-2, Nov. 18, 1996).
Page 22 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Chapter 1
Introduction
cost studies need to be aware of the inherent difficulties and assumptions
involved in producing such measures. We said questions need to be raised
and answered regarding which regulations are included in such studies
and whether they focus on incremental costs before policy makers use
them to make decisions.
In May 1998, we reported that some of the 20 economic analyses that we
reviewed did not incorporate the best practices set forth in OMB’s
10
guidance and often did not disclose why the guidance was not followed.
We also found that only 1 of the 20 analyses received an independent peer
review. Nevertheless, agency officials said the cost-benefit analyses played
a valuable role in regulatory decisionmaking.
Our objectives in this review were to describe, for each of the four
Objectives, Scope, and statutory requirements underlying OMB’s 1997 and 1998 reports to
Methodology Congress, (1) how OMB addressed the requirements and (2) the views of
noted economists in the field of cost-benefit analysis regarding OMB’s
responses in these reports. As noted previously, Congress required OMB to
submit reports in 1997 and 1998 providing (1) estimates of the total annual
costs and benefits of federal regulatory programs; (2) estimates of the
costs and benefits of each rule likely to have a gross annual effect on the
economy of $100 million in increased costs; (3) an assessment of the direct
and indirect effects of federal rules on the private sector, state and local
governments, and the federal government; and (4) recommendations to
reform or eliminate any federal regulatory program or program element
that is “inefficient, ineffective, or is not a sound use of the Nation’s
resources.”
To describe how OMB addressed each of these four requirements, we
analyzed the reports’ contents and interviewed officials from OIRA.
Specifically, to determine how OMB addressed the first statutory
requirement, we reviewed chapter II of the 1997 report and chapter I of the
1998 report, focusing on such issues as the data sources and methodology
used to prepare the two reports. To determine how OMB addressed the
second statutory requirement, we reviewed chapter III of the 1997 report
and chapter II of the 1998 draft report as well as relevant tables and
appendixes. In both reports, OMB interpreted the statutory requirements
to include all final rules on which OIRA concluded its review in the 1-year
time periods that OMB specified and that were either (1) “economically
significant” under Executive Order 12866, (2) “major” under the
10
Regulatory Reform: Agencies Could Improve Development, Documentation, and Clarity of Regulatory
Economic Analyses (GAO/RCED-98-142, May 26, 1998).
Page 23 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Chapter 1
Introduction
congressional review requirements of SBREFA, or (3) met the threshold
under title II of the Unfunded Mandates Reform Act of 1995. To determine
whether OMB reported cost/benefit information on all rules that met its
own criteria, we compared OMB’s list to (1) our database of major rules
submitted pursuant to the congressional review provisions of SBREFA and
(2) a list of economically significant rules provided by the Regulatory
11
Information Service Center (RISC) for the same time periods. To
determine which rules were “likely to have a gross annual effect on the
economy of $100,000,000 or more in increased costs,” we identified only
those rules in either databases that the agencies indicated had an annual
estimated cost of $100 million or more (excluding those rules that were
either “economically significant” or “major” because they had benefits of
$100 million or for other reasons).
To determine how OMB addressed the third requirement, we reviewed
chapter II from OMB’s 1997 report and chapter I of its 1998 report. In both
reports, OMB stated that the direct impacts of the regulations were
accounted for in the total annual cost and benefit estimates, so we also
reviewed those sections of the reports. To determine how OMB addressed
the fourth requirement, we reviewed chapter IV of both the 1997 report
and 1998 reports. We also examined the Unified Agenda of Federal
Regulatory and Deregulatory Actions to determine when the agency
12
initiatives listed in OMB’s 1998 report were first announced.
To describe the views of noted economists in the field of cost-benefit
analysis regarding OMB’s 1997 and 1998 reports and the four statutory
requirements, we first selected the experts with whom we wanted to
consult. We made our selections based on how frequently authors were
cited in the bibliographies of OMB’s 1997 report and its August 1998 draft
report and in a computer-generated literature search of books and articles
on cost-benefit analysis. Then, based on a suggestion from OMB officials,
we noted which authors on this list participated on EPA’s Science
Advisory Board and in developing the AEI publication, “Benefit-Cost
Analysis in Environmental, Health, and Safety Regulation: A Statement of
11
RISC works closely with OMB to provide information to the President, Congress, and the public about
federal regulatory policies. Its primary role is to coordinate the development of the Unified Agenda of
Federal Regulatory and Deregulatory Action, a comprehensive listing of proposed and final regulations.
12
The Unified Agenda is compiled by RISC for OIRA and has been published twice each year since 1983.
It is used to satisfy the requirements in the Regulatory Flexibility Act and other requirements that
agencies identify rules that they expect to propose or promulgate.
Page 24 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Chapter 1
Introduction
13
Principles,” and the AEI-Brookings Institution publication “An Agenda for
14
Federal Regulatory Reform.”
We developed a preliminary list of 12 experts, based on those who had the
most citations in the OMB reports and the literature search, had served on
the EPA panel, and/or had helped develop the AEI and Brookings
publications. However, five of these experts declined to participate
because of time constraints or because they said they did not have
expertise in the areas covered by the OMB reports. The remaining seven
experts that we interviewed and their affiliations were the following:
• Robert W. Crandall, Senior Fellow, Brookings Institution, Washington,
D.C.;
• Robert W. Hahn, Director, AEI-Brookings Joint Center for Regulatory
Studies, Washington, D.C.;
• Thomas D. Hopkins, Professor of Economics, Rochester Institute of
Technology, Rochester, NY;
• Lester B. Lave, Professor of Economics, Carnegie Mellon University,
Pittsburgh, PA;
• Robert E. Litan, Co-Director, AEI-Brookings Joint Center for Regulatory
Studies, Washington, D.C.;
• Paul R. Portney, President, Resources for the Future, Washington, D.C.;
and
• Murray L. Weidenbaum, Chairman, Center for the Study of American
Business, Washington University, St. Louis, MO.
Biographical information of these experts and citations of some of their
relevant work are provided in appendix II of this report.
OMB officials reviewed our final list of cost-benefit analysis experts and
had no objections to those included. The officials did not suggest
additional experts that they believed we should consult and said that the
experts we consulted are among the leading economists in the field of
cost-benefit analysis research. However, the list of experts that we
contacted is not the only such list that could have been developed. At the
direction of the requesters, we focused on economists and did not include
experts in other professions that have examined cost-benefit issues (e.g.,
legal experts or statisticians). Also, we focused our literature search on
those economists who are knowledgeable about cost-benefit analysis in
13
Kenneth J. Arrow, et. al., 1996.
14
Robert W. Crandall, et. al., 1997.
Page 25 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Introduction
the federal government. Therefore, other experts with an extensive
background in cost-benefit analysis were not included in our initial list.
We first obtained the experts’ comments in late 1998 on OMB’s 1997 report
and on OMB’s August 1998 draft report and obtained additional
information from them after the final 1998 report was published in
February 1999. We also consulted with them during the preparation of our
report to ensure that we had accurately characterized their views. The
views attributed to them are their own and do not necessarily reflect those
of the organizations with which they are affiliated or our views.
We conducted our work between June 1998 and March 1999 at OMB in
Washington, D.C., and at the sites of our interviews with the cost-benefit
experts (Washington, D.C.; Rochester, NY; Pittsburgh, PA; and St. Louis,
MO), in accordance with generally accepted government auditing
standards. At the end of our review, we sent a draft of this report for
comments to the Director of OMB. On April 7, 1999, we met with the
Acting Administrator of OIRA to obtain OMB’s comments, which are
presented in chapter 6, along with our evaluation.
Page 26 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Experts Questioned OMB's 1998 Estimate of
Regulatory Benefits
OMB said in both its 1997 and 1998 reports that it had to confront a
number of intractable problems in developing estimates of the total annual
costs and benefits of federal regulatory programs. Those problems
included (1) determining the baseline against which regulatory costs and
benefits should be measured (i.e., what costs and benefits would have
occurred if the regulations had not been issued) and (2) the “apples and
oranges” problem of adding together the diverse (and sometimes dated)
set of previously conducted regulatory studies. OMB qualified the
estimates in both reports by stating that “it remains difficult, if not
impossible, to estimate the actual total costs and benefits of all existing
Federal regulations with any degree of precision.”
In its 1997 report, OMB estimated federal regulatory costs at $279 billion,
and benefits at $298 billion. In its 1998 report, OMB estimated regulatory
costs at between $170 billion and $230 billion, and estimated regulatory
benefits at between $260 billion and $3.5 trillion. The increase in the
benefits estimate between 1997 and 1998 was almost entirely due to the
inclusion of an EPA estimate of the benefits associated with the Clean Air
Act. The decrease in the cost estimate was primarily because OMB did not
include efficiency losses from economic regulations in its 1998 summary
1
table. The experts we consulted generally said that OMB’s 1997 and 1998
cost estimates were reasonable but said the upper-bound benefits estimate
in the 1998 report was questionable or implausible. All of the experts
criticized OMB for accepting agencies’ cost and benefit estimates without
adjustment or standardization and were particularly critical of OMB’s use
of EPA’s benefit estimate. However, most of the experts also said that
OMB faced “political constraints” in adjusting agencies’ cost and benefits
estimates, noting that an independent assessment of those estimates
would require OMB to criticize its own administration’s policy positions.
OMB used similar but, somewhat different, data sources and methods of
OMB’s 1998 Upper- presentation in its 1997 and 1998 reports. The 1997 report presented the
Bound Benefits cost and benefit estimates in four categories, but in its 1998 report OMB
Estimate Was 12 Times used somewhat different categories of regulation. In the 1997 report, OMB
included costs associated with paperwork and disclosure requirements,
the 1997 Estimate whereas in the 1998 report that information was reported separately
without an estimate. However, the biggest difference between the reports
was OMB’s use of an EPA study on the costs and benefits of the Clean Air
Act, which increased OMB’s upper-bound benefit estimate in its 1998
report to 12 times what it had been in the 1997 report.
1
OMB said efficiency losses associated with economic regulations result from higher prices and
inefficient operations that often occur when competition is prevented from developing.
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Experts Questioned OMB's 1998 Estimate of Regulatory Benefits
OMB’s 1997 Report In its 1997 report, OMB presented its estimates of federal regulatory costs
2
and benefits in four categories and in total. The four categories were:
• Environmental regulations that focus on improving the quality of the
environment and include those issued by EPA (which has issued the vast
majority of these regulations) and the Departments of Transportation,
Energy, and the Interior;
• Other Social regulations that are designed to advance the health and safety
of consumers and workers, promote social goals such as equal
opportunity, equal access to facilities, and protect the public from fraud
and deception. They also include the disclosure of information about a
product, service or manufacturing process where inadequate information
might place consumers or workers at a disadvantage;
• Economic regulations that directly restrict business’ pricing and output
decisions as well as limit the entry or exit of businesses into or out of
certain types of industries. These regulations often affect the agriculture,
trucking or communications industries; and
• Process regulations that involve paperwork, such as filling out income tax
forms and immigration papers.
In its table summarizing the cost and benefits estimates, OMB did not
include estimates for one other category of regulation—the “transfer”
costs and benefits of economic regulations. Transfers refer to regulations
that move payments from one group in society to another, (e.g., federal
Social Security payments and agricultural price supports). OMB estimated
those transfers at $140 billion in costs and benefits but said it did not
include these estimates in its totals because it considered transfers to be
payments that reflect a redistribution of wealth rather than social costs to
3
society as a whole.
OMB used a variety of academic and agency studies to develop estimates
of the costs and benefits associated with the four regulatory categories
included in the 1997 report. Those sources were
• a 1991 article by Robert W. Hahn and John A. Hird that reviewed and
synthesized the work of more than 25 prior studies assessing the impact of
2
These categories had been previously used in a series of studies of federal regulatory costs by Thomas
D. Hopkins of the Rochester Institute of Technology. For the most recent of these studies, see Thomas
D. Hopkins, “Regulatory Costs in Profile,” Policy Sciences, 31 (Dec. 1998), pp. 301-320).
3
OMB noted that its 1996 “best practices” guidance states that transfers should not be added to the cost
and benefit totals included in cost-benefit analyses but should be discussed and noted for
policymakers.
Page 28 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Experts Questioned OMB's 1998 Estimate of Regulatory Benefits
4
regulations. The authors refined the results of these studies and created
their own estimates of the costs and benefits of regulation. OMB said its
review of the literature indicated that this was the only comprehensive
study that attempted to estimate the total costs and benefits of all federal
regulations. However, OMB pointed out in its 1998 report (p. 14) that there
are gaps and weaknesses in underlying studies that Hahn and Hird rely on
for their estimates and that not all the costs and benefits of social
regulation are captured in these estimates;
• a 1990 EPA report (known as the Cost of Clean report) responding to
requirements in section 312(a) of the Clean Air Act and section 516(b) of
the Clean Water Act that presented data on environmental pollution
5
control costs between 1972 and 1987. The data used in this report were
based primarily on surveys of actual spending conducted by the
Department of Commerce and others;
• agencies’ cost-benefit analyses (1987 through 1996) prepared pursuant to
Executive Orders 12291 and 12866;
• a 1996 study by Hahn estimating the cost and benefits of major
6
environmental, health, and safety regulations from 1990 through mid-1995;
and
• a 1992 study of the costs associated with economic regulations, prepared
7
by Thomas D. Hopkins.
To develop its cost estimates, OMB first established an estimate of the cost
of environmental regulations and other social regulations, as of 1988 based
on information contained in the Cost of Clean report and the 1991 Hahn
and Hird article, respectively. OMB then updated those figures with the
results of agencies’ cost-benefit analysis conducted between 1987 and 1996
to develop the total environmental and other social cost and benefit
estimates. To develop the cost estimate for economic regulations, OMB
used the results of Hopkins’ 1992 study ($81 billion) but reduced the
Hopkins estimate by $10 billion to take into account the deregulation of
financial services and telecommunications that occurred after Hopkins’
4
Robert W. Hahn and John A. Hird , “The Costs and Benefits of Regulations: Review and Synthesis,”
Yale Journal on Regulation, 8 (Winter 1991), pp. 233-278.
5
“Environmental Investments: The Cost of a Clean Environment, Report of the Administrator of the
Environmental Protection Agency to the Congress of the United States.” (1990).
6
“Regulatory Reform: What Do the Government’s Numbers Tell Us?” in Risks, Costs, and Lives Saved:
Getting Better Results From Regulation (Washington, D.C.: The AEI Press, 1996, pp. 208-253).
7
“Cost of Regulation: Filling the Gaps,” Report Prepared for the Regulatory Information Service Center,
Washington, D.C., (Aug. 1992).
Page 29 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Experts Questioned OMB's 1998 Estimate of Regulatory Benefits
8
estimate. OMB’s estimate for the cost of federal paperwork and disclosure
requirements focused only on those costs imposed by independent
regulatory agencies because it said the costs associated with other
agencies’ paperwork was already included in the environmental and other
social estimates. Estimates of the independent agencies’ paperwork costs
were drawn from their burden-hour estimates (390 million hours at the end
of fiscal year 1997) multiplied by an estimate of the cost per hour to
9
complete the paperwork ($26.50 per hour).
To estimate the benefits of environmental and other social regulations in
the 1997 report, OMB used data from the 1991 Hahn and Hird article as the
1988 baseline and updated that baseline with information from Hahn’s
1996 article. OMB did not provide estimates of the benefits of economic
regulations or of federal paperwork and disclosure requirements, saying
“significant benefits remain to be quantified.”
Table 2.1 presents the cost and benefit estimates that OMB presented in its
1997 report in total and for each of the four categories of regulation. OMB
noted that “other social” regulations have large net benefits (i.e., benefits
minus costs) and said most of these net benefits were produced by
highway safety regulations.
Table 2.1: Cost and Benefit Estimates
Type of Rule Costs (billions of dollars) Benefits (billions of dollars)
From OMB’s 1997 Report (in 1996
dollars) Environmental $144 $162
Other social 54 136
a
Economic (efficiency costs) 71
a
Paperwork/disclosure for 10
independent regulatory
agencies
Total 279 298
a
OMB said that the benefits of economic and paperwork/disclosure “remain to be quantified.”
Source: Report to Congress on the Costs and Benefits of Federal Regulations, OMB, 1997.
As noted previously, OMB did not include $140 billion in estimated transfer
costs and benefits in these totals. OMB also excluded (1) tax paperwork
costs (also estimated at $140 billion) because, OMB said, “the burden of
filling out income tax forms . . . are not what one usually thinks about
when worrying about the cost of regulation;” and it excluded (2) the costs
of regulations issued between 1987 and 1996 with impacts on the economy
8
Hopkins, in turn, had updated an estimate of the cost of economic regulations in Hahn and Hird’s 1991
article.
9
Burden-hour estimates were presented in OMB’s Fiscal Year 1998 Information Collection Budget of
the U. S. Government.
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Experts Questioned OMB's 1998 Estimate of Regulatory Benefits
of less than $100 million (and therefore were not covered by the executive
order’s cost-benefit analysis requirements).
OMB’s 1998 Report OMB presented regulatory cost and benefit information somewhat
differently in its 1998 report, and also used some additional data that it had
not used in preparing the 1997 report. For example, OMB broke out the
costs and benefits of the “other social” category of regulations into three
separate categories for the 1998 report: labor, transportation, and other
social regulations (mainly regulations from the Departments of Health and
Human Services, Energy, and Agriculture). However, OMB dropped two
categories of regulations from its summary table in 1998 that it had used in
its 1997 report—economic regulations and paperwork/disclosure
requirements. OMB said that including the indirect costs of economic
regulations with the direct costs of social regulations in its 1997 report was
“more misleading than helpful.” OMB listed estimates of disclosure costs
($7 billion) and benefits (“expected to be significant”) with other types of
regulations that it did not consider “true regulations” or did not believe
should be considered in the same category as social regulations.
Therefore, OMB presented cost and benefit information for four categories
of regulations in its summary table: environmental, labor, transportation,
and other social rules. OMB reported other types of regulatory costs and
benefits separately, including
• efficiency costs of economic regulations (estimated at $71 billion but
benefits “not estimated but expected to be small”);
• tax compliance costs (estimated at $140 billion in the August 1998 draft
report but not estimated in the final report);
• transfer costs and benefits (estimated at $140 billion in costs and benefits);
and
• federal expenditures for social regulations (estimated costs of $13 billion,
benefits of between $30 billion and $3.3 trillion) and economic regulations
(estimated costs of $3 billion, benefits “likely to be significant”).
The data and methodology that OMB used to develop its 1998 estimates in
these categories were similar in some respects to the way OMB prepared
the 1997 report. For example, OMB again used Hahn and Hird’s 1991 study
and the EPA Cost of Clean report to establish a 1988 baseline for the cost
estimate. However, OMB changed its methodology in some other ways.
For example, it used new estimates of the regulations that OMB reviewed
between 1995 and 1998 to update the baseline and presented the cost and
benefit information in terms of ranges rather than the point estimates used
in the 1997 report. OMB developed the new estimates by “monetizing” (i.e.,
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Experts Questioned OMB's 1998 Estimate of Regulatory Benefits
converting to dollars) some of the quantified benefits in the agencies’ cost-
benefit analyses (e.g., the number of lives expected to be saved as a result
of the regulations).
EPA’s Section 812 Report A notable change in OMB’s methodology in the 1998 regulatory accounting
report was its use of data from EPA’s 1997 report on The Benefits and
Costs of the Clean Air Act, 1970 to 1990. Prepared because of requirements
in section 812 of the 1990 Clean Air Act Amendments, the EPA report
(hereinafter referred to as the “Section 812 report”) estimated that the
monetized benefits of the Clean Air Act from 1970 to 1990 were between $6
trillion and $50 trillion (present value in 1990 dollars). The report
estimated direct compliance expenditures, research and development
costs, and government costs were roughly $0.5 trillion during this period.
OMB noted that EPA’s Section 812 report was the result of a 6-year effort
and was peer reviewed by EPA’s Science Advisory Board’s Council on
Clean Air Act Compliance Analysis and that the Council said that the
report’s findings “are consistent with the weight of available evidence.”
OMB also noted that the Council’s review closure letter stated that the
report “is a serious, careful study and employs sound methods along with
the best data available. However, OMB also described several elements of
the analysis that it said “deserve further discussion in order to understand
the basis for the benefit estimates.” For example,
• OMB noted that the Section 812 report “assumed that no additional air
pollution controls would have been imposed by any other level of
government or voluntarily initiated by private entities after 1970. OMB said
that “considerable uncertainty” surrounds this assumption and that any
attempt to construct aggregate benefit and cost estimates are “somewhat
10
speculative;”
• OMB also noted that although the monetized benefit estimates associated
with reducing exposure to fine particulate matter accounts for 90 percent
of the report’s total benefits estimate, there is “little discussion” in the
report about the uncertainty associated with the presumed causal
relationship between particulate matter levels and mortality; and
• OMB noted that the Section 812 report assumed that reductions in
particulate matter yields contemporaneous reductions in the mortality and
chronic health risks associated with long-term exposure. However, OMB
noted that it is “quite possible” that there is a lag in these health effects and
10
OMB noted that the Section 812 report acknowledge that this is an obvious oversimplification and
that state and local governments and the private sector were responsible for an important fraction of
the estimated benefits and costs between 1970 and 1990.
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Experts Questioned OMB's 1998 Estimate of Regulatory Benefits
mortality, and that other researchers have assumed that these effects
require 15 years of exposure. Applying a 15-year lag to the report’s
calculations and a 5-percent discount rate would, OMB said, reduce the
estimated present value of the report’s mortality benefits by a factor of
two.
In summary, OMB said the results of the Section 812 report, like other
studies, appeared to be “sensitive to choices made concerning the baseline
for the analysis and the translation of the reduction of air pollution into
human health benefits.” OMB also noted in a footnote that “several
agencies held different views pertaining to several key assumptions” in the
study, but that these concerns were not resolved because of a court
deadline. Therefore, OMB said the Section 812 report “reflects the findings
of EPA and not necessarily other agencies in the Administration.”
Table 2.2 presents the cost and benefit estimates from OMB’s 1998 report.
The ranges in OMB’s estimates of total regulatory costs and benefits reflect
substantial uncertainty regarding the estimates of environmental costs and
benefits. Over 95 percent (or $3,200 billion) of the environmental
category’s upper-bound benefit estimate was drawn from EPA’s Section
812 report.
Table 2.2: Cost and Benefit Estimates
Type of Regulation Costs (in billions) Benefits (in billions)
From OMB’s 1998 Report
Lower-bound Upper-bound Lower-bound Upper-bound
Environmental $120 $170 $93 $3,300
Transportation 15 18 84 110
Labor 18 19 28 30
Other 17 22 53 58
Total 170 230 260 3,500
Note: Numbers are as reported in OMB’s report.
Source: Report to Congress on the Costs and Benefits of Federal Regulations, OMB, 1998.
OMB’ s estimate of the cost of federal regulations declined by between $49
billion and $109 billion between its 1997 and 1998 reports. This decline was
largely because OMB excluded $71 billion in costs associated with
economic regulations that had been in the 1997 summary table and
presented it in a separate table in the 1998 report. As figure 2.1 shows,
OMB’s upper-bound benefit estimate increased by about $3.2 trillion
between 1997 and 1998, virtually all of which was because of the inclusion
of estimates from EPA’s Section 812 report.
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Experts Questioned OMB's 1998 Estimate of Regulatory Benefits
Figure 2.1: EPA’s Section 812 Data
Substantially Increased Upper-Bound
Benefit Estimate Between 1997 and 1998
Source: Report to Congress On the Costs and Benefits of Federal Regulations,OMB, 1997 and 1998.
According to most of the cost-benefit analysis experts that we consulted,
Experts Said OMB OMB should have done more than simply record the costs and benefits
Should Have Done from the various sources it consulted. Most of the experts expressed
More, but Political particular concern about OMB’s unadjusted use of the Section 812 report’s
benefit estimate. However, the experts also said that OMB faced political
Environment Limits constraints in adjusting agencies’ estimates. Most of the experts agreed
OMB’s Role with OMB’s decision to report the costs and benefits of transfers and tax
paperwork separately from the summary tables but differed as to whether
economic benefits and federal expenditures should have been included in
the totals.
Experts Said OMB Should The experts that we consulted all indicated that OMB faced a daunting
task estimating the costs and benefits of all federal regulation. Most of the
Not Be “Clerk,” but Doing experts said that OMB’s general approach of aggregating the results from
More Is Politically Difficult diverse studies was the only real option available. For example, Hopkins
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said that although one would ideally like to have consistency in the studies
aggregated, he also said he did not think that consistency was obtainable.
However, Crandall said using different studies to derive a total figure is
“problematic,” and that the data in some of the studies forming the basis of
OMB’s estimates was “pretty thin” and unreplicated. Lave expressed
similar concerns, saying that OMB should have used studies with uniform
approaches.
Several of the experts said that OMB’s cost estimates were reasonable—in
Litan’s words, “in the ballpark.” However, most of the experts said that
OMB’s upper-bound benefits estimate in the 1998 report was questionable
or even “implausible.” Lave said the major increase in the benefits estimate
between the 1997 and 1998 reports “is an indication that these numbers are
not very good.” Weidenbaum said that when the benefits of regulations are
so large in comparison to the costs, “it stretches that credibility of the
report.”
Noting that the 1998 benefits estimate was driven, in large part, by the
inclusion of data from EPA’s Section 812 report, many of the experts
voiced specific concerns about that report’s assumptions and conclusions.
Virtually all of those concerns were similar to the concerns that OMB
discussed in its report—(1) the assumption that air quality would have
deteriorated significantly between 1970 and 1990 in the absence of the
Clean Air Act, (2) the assumed health effects from limiting exposure to
particulate matter, and (3) the methods used to estimate the value that
individuals would place on reducing health and mortality risks. Therefore,
all of the experts said they believed that the benefits estimate in the
Section 812 report (and therefore in the OMB report for 1998) was too
high. For example, Portney said that although he believed that the benefits
of the Clean Air Act are greatly in excess of its costs, EPA’s (and OMB’s)
assertion that those benefits are as much as one-sixth of the gross
domestic product “doesn’t pass the common sense test.” Weidenbaum said
OMB’s use of the Section 812 report’s upper-bound benefits estimate
“makes a mockery of the whole exercise.”
Because of these concerns about the accuracy of the benefits estimate,
most of the experts said they believed that OMB should have adjusted the
Section 812 report’s benefits estimates before including them in its report.
For example, Hahn said that OMB could have followed the procedure it
outlined in its report and accounted for the likely time lag between
reducing particulate matter and any health effects (which he said would
have reduced the benefits by a factor of two).
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The experts’ views regarding adjustment of the Section 812 report’s
benefits estimate were part of an overall view by most of the experts that
OMB should have played a more assertive and independent role in the
preparation of its aggregate benefit and cost estimate. Several of the
experts said that OMB had simply played the role of “clerk,” transcribing
the estimates from previous studies by academicians and agencies without
adjustment. For example, Weidenbaum said that agencies would naturally
emphasize the good that their regulations are doing and that OMB should
have done a “serious evaluation” of the agencies’ figures before including
them in its report. He said the “spirit” of the statutory requirement was for
OMB to come up with its own estimates of regulatory costs and benefits
and the absence of independent review of the benefit estimate of the Clean
Air Act by OMB “puts a cloud over the report.” Similarly, Litan said he
believed the intent of the statutory requirements was for OMB to be more
than a “clerk,” and that Congress was asking for OMB’s “own judgment”
regarding regulatory costs and benefits. Hopkins said OMB should
encourage agencies to provide independent assessments, and make
adjustments where needed to account for “overblown” estimates. Lave
said OMB should have monetized those benefits and costs that the
agencies did not monetize (e.g., when agencies provided quantified, but
11
not monetized, estimates of lives saved).
Despite their view that OMB be more than a “clerk” and exercise
independent judgment in adjusting agencies’ cost and benefit estimates,
many of the experts also indicated that it was politically difficult if not
impossible for OMB to make such adjustments. In general, they indicated
that agencies’ regulations are ultimately approved by agency heads and, in
some cases, the President or the Vice President. OMB’s responsibility in
the rule-review process is to ensure that agencies’ regulations are
consistent with applicable law, the President’s priorities, and the principles
in Executive Order 12866, including the cost-benefit analysis requirements.
Although there may be great deliberation within and among agencies
during their development, once a rule is promulgated it becomes a public
statement of the administration’s policy. At that point, OMB’s
responsibility is to support and defend that statement of policy. Therefore,
requiring OMB to provide an “independent” view of those rules and their
associated estimates of costs and benefits, altering those estimates when
appropriate, would significantly change OMB’s current role of supporting
the administration’s position and initiatives. In general, the experts said
that it was politically difficult to ask OMB to criticize the administration of
which it is a part.
11
As noted previously, OMB did monetize some of the agencies’ quantified estimates.
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Hahn said that he did not believe the report reflects the collective wisdom
that resides at OMB on these issues. Although OMB staff had the technical
expertise needed to develop its own “best estimate” of the effects of the
Clean Air Act, he said it would be politically very difficult to publish such
an estimate. Hahn also said that it would be more likely for OMB staff to
say what they think if there were competition from some other group that
would also examine agencies’ cost and benefit estimates.
Litan said adjustment of the Section 812 report’s benefit estimate was a
“dicey issue,” and that OMB was in “an inherently difficult position” on
whether to use EPA’s widely varying estimate. He said the reality of the
situation is that the President and the Vice President are ultimately
responsible for anything that comes from an executive branch agency and
that “OMB will always be politically constrained in this process.” Crandall
said that OMB “responds within a political environment,” and was not in a
position to make an independent judgment contrary to that of EPA.
Likewise, Hopkins said it was politically difficult for OMB to adjust the
cost-benefit estimates “if OMB is supposed to be representing a President,
a unified administration, a common party line.” He said this is true
regardless of which party occupies the White House.
Experts Differed Regarding All but one of the experts we consulted believed that OMB’s exclusion of
transfer costs and benefits from the summary tables was appropriate. For
Inclusion of Certain Costs example, Portney said that transfers should be presented separately
and Benefits in Summary because they are not a social cost like environmental, health, and safety
Tables regulations. Hahn said such transfers should not be included in regulatory
cost or benefit totals but said estimating the size of such transfers can be
12
useful for other reasons. Hopkins said that although basic economic logic
says efficiency and transfer costs should not be mixed, he believes OMB
should have included transfer costs in the totals to illustrate the magnitude
of federal regulatory activity.
The experts also generally agreed with OMB that tax paperwork should
not be included in the summary tables. Portney said including such costs
would have been inappropriate and said he does not think of IRS as a
regulatory agency. Weidenbaum said he believes that tax paperwork
should be reported separately because the taxing power of the federal
government is separate from its power as a regulator. Hahn said such costs
should not be included because one cannot talk about the costs of the
12
See Robert W. Hahn, “Government Analysis of the Benefits and Costs of Regulation,” Journal of
Economic Perspectives, 12 (Fall 1998), pp. 201-210 for a complete discussion of Hahn’s views on this
issue.
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current tax system without knowing the alternative to that system.
However, Hopkins said the costs of tax paperwork should have been
included in OMB’s report. He indicated that the alternate to the current tax
system could be a flat tax system and that OMB claimed in an earlier
report that “[w]hen people speak of regulatory burden, they are usually
13
referring to record keeping or reporting requirements—i.e., paperwork.”
The experts were divided about whether the costs and benefits of
economic regulations should have been included in the OMB report’s total
cost and benefit estimates. Crandall said it does not make sense to include
economic regulations with the total. Similarly, Lave said that these
regulations differ from the social regulation should be reported separately.
However, Hopkins and Litan said economic regulations should be
included. Litan said that if economic regulations constitute a “deadweight
efficiency loss, then it is a cost.” He said it is particularly important that
they be included “when we know the benefits are likely to be zero.” Hahn
said that estimating the costs and benefits of economic regulations was
useful, but whether they are combined with social regulations “depends on
what you want to do.” Although price and entry regulations are generally
considered different from social regulations, he said there is “no right or
wrong way to go.” Still others cited difficulties associated with these rules.
For example, Portney said that it is difficult to measure the effect of
regulations that affect the entrance to a market or, in the case of FCC
regulation, to measure the benefits of public airwaves. Crandall said it was
difficult for OMB to include these effects in its reports when agencies are
not conducting the analyses.
With regard to federal regulatory expenditures, both Lave and Crandall
said the amount involved is so small in comparison to other regulatory
costs and benefits that it doesn’t make much difference whether the costs
are included in OMB’s summary totals. However, Weidenbaum and Litan
said federal expenditures should be included as regulatory costs.
Weidenbaum said such costs are the “hardest” data available—straight out
of the federal budget. However, he said OMB’s presentation of the benefits
of these expenditures (up to $3.3 trillion) was already captured in the other
categories, so presenting them as OMB did could be double counting.
Hopkins, however, said it makes more sense to show federal expenditures
as part of the fiscal budget, not in an accounting of off-budget regulatory
costs.
13
OMB, OIRA, More Benefits Fewer Burdens: Creating A Regulatory System that Works for the
American People, Dec. 1996, p. 28.
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for All $100 Million Rules
The second statutory requirement was that OMB provide estimates of the
costs and benefits of each rule likely to have a gross annual effect on the
economy of $100 million or more in increased costs. OMB interpreted the
requirement broadly to include rules that were “major” or “economically
significant” even if they did not necessarily have $100 million in increased
costs. However, OMB narrowly focused on rules issued during specific 1-
year periods and did not provide cost or benefit data for rules issued by
independent regulatory agencies. Also, OMB did not include all rules that
met its criteria and did not provide cost-benefit data for all of the rules it
included. Most of the cost-benefit experts that we consulted said OMB
should have included rules from independent regulatory agencies and
several said OMB should not have simply accepted the cost and benefit
estimates provided by the executive agencies. Nevertheless, several of the
experts also noted that it was politically difficult for OMB to alter agencies’
estimates in its report to Congress.
The statutory provisions mandating both the 1997 and 1998 reports
OMB Provided Data required OMB to provide “estimates of the costs and benefits (including
for Only Certain Rules quantitative and non-quantitative measures) of each rule that is likely to
in Both Reports have a gross annual effect on the economy of $100,000,000 or more in
increased costs.” The requirements did not exempt rules issued by
independent regulatory agencies or only apply to rules issued within a
specific time frame. However, the requirements only applied to rules with
expected regulatory effects of $100 million or more in increased costs.
In the 1997 and 1998 reports, OMB interpreted these statutory
requirements to include all final rules promulgated by executive
departments and agencies and reviewed by OIRA under Executive Order
12866 during 1-year time frames that met any of the following criteria:
• Rules designated as economically significant under Executive Order 12866;
• Rules designated as major under the congressional review provisions of
the Small Business Regulatory Enforcement Fairness Act (SBREFA)1; or
• Rules designated as meeting the threshold under title II of the Unfunded
2
Mandates Reform Act of 1995 (UMRA).
1
The congressional review provisions of SBREFA define a major rule as one that the Administrator of
OIRA finds has resulted in or is likely to result in (1) an annual effect on the economy of $100 million
or more; (2) a major increase in costs or prices for consumers, individual industries, government
agencies, or geographic regions; or (3) significant adverse effects on competition, employment,
investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-
based enterprises in domestic and export markets.
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For the 1997 report, the 1-year time frame was between April 1, 1996, and
March 31, 1997; for the 1998, report the time frame was between April 1,
1997, and March 31, 1998. OMB did not include any rules issued by
independent regulatory agencies because those agencies’ rules are not
reviewed by OIRA pursuant to Executive Order 12866. Neither did OMB
include any rules that were issued outside of the specific 1-year time
frames it established. Therefore, in these respects, OMB’s criteria were
narrower than those set forth in the statute. In other respects, OMB’s
criteria were broader than the statute’s requirements because they
included rules that were economically significant or major for reasons
other than requiring $100 million in increased costs. For example, a rule
may be economically significant or major because it has $100 million in
benefits to the economy or because it adversely affects in a material way a
sector of the economy, productivity, competition, jobs, or state and local
governments, not because it requires $100 million in increased costs.
OMB’s 1997 Report In its 1997 report, OMB identified 41 rules that met its criteria, of which it
said 21 were social rules and 20 were transfer rules. The Department of
Agriculture (USDA) issued the largest number of these rules (12), followed
by the Department of Health and Human Services (HHS) (8), and the
Environmental Protection Agency (EPA) (7). OMB reported the cost and
benefits data that the issuing agencies included in the 21 social rules but
did not provide any cost or benefit information for the 20 transfer rules.
OMB said it did so because these transfers represent payments from one
group to another that redistribute wealth and are not social costs.
Although OMB recognized that these rules may have some associated
costs and benefits, it said estimates of those costs and benefits are
typically not available.
OMB noted in the report that there was “a wide variety in the type, form,
and format of the data generated and used by the agencies” in their cost-
benefit analyses for the social rules. For example, some of the analyses
contained monetized cost and benefit estimates, some contained
quantified but not monetized estimates (e.g., the number of deaths or
injuries expected to be avoided or tons of a particular pollutant expected
to be eliminated), and some contained qualitative estimates (e.g., increased
efficiency or improved product quality). OMB said most of the analyses
contained a combination of these estimates. OMB also said that agencies
used a variety of reporting formats within these categories, including
2
The threshold under title II is for any proposed rule or any final rule for which a proposed rule was
published that included any federal mandate that may result in the expenditure of $100 million or more
in any one year by state, local, and tribal governments, in the aggregate, or the private sector.
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3
annualized values, present values, and constant annual values. To present
the information in a more consistent way, OMB made some basic
adjustments to the agencies’ data. However, OMB did not adjust the
underlying information in the agencies’ estimates and did not impose
uniform assumptions across the agencies.
As noted previously, OMB did not include any rules in its report that had
been issued by independent regulatory agencies. OMB said it did not
believe the exclusion of independent agencies’ rules was significant
because “we believe that few of their individual regulations meet the
statutory criteria of section 645(a)(2).” However, between April 1, 1996,
and March 31, 1997, independent regulatory agencies submitted a total of
23 major rules to us pursuant to the congressional review provisions of
SBREFA. The FCC issued the largest number of these major rules (13
rules), followed by the SEC (5 rules), and the Federal Energy Regulatory
Commission and the Federal Reserve Board (each with 2 rules).
Independent regulatory agencies are not covered by the cost-benefit
requirements in Executive Order 12866, and the agencies did not conduct
cost-benefit analyses for 20 of these 23 rules. However, in one SEC rule,
the agency estimated that the rule would have nearly $160 million in
benefits.
To determine whether OMB had identified all of the rules that met its
criteria, we obtained a list from the Regulatory Information Service Center
of economically significant final rules on which OMB had completed its
review between April 1, 1996, and March 31, 1997. We also developed a list
of final major rules that agencies submitted to us pursuant to our review
responsibilities under SBREFA that OMB reviewed during this period. We
did not attempt to identify rules that met the UMRA threshold because
4
those rules are a subset of economically significant rules. We identified
nine rules that met OMB’s criteria but were not in OMB’s 1997 report—five
social rules and four transfer rules. Those nine rules are listed in table 3.1.
3
According to OMB, “annualized values” spread out variable effects into yearly sums that are financially
equivalent to the actual temporal schedule. “Present values” convert effects over time into an
immediate lump sum. “Constant annual values” reflect effects that have been estimated (or are
assumed) to be fixed each year over the time horizon in which the regulation applies.
4
See Unfunded Mandates: Reform Act Has Had Little Effect on Agencies’ Rulemaking Actions
(GAO/GGD-98-30, Feb. 4, 1998).
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Table 3.3.1: Rules That Met OMB’s
Type of Department or
Criteria but Were Not in OMB’s 1997
rule Agency Rule
Report
Social Department of Migratory Bird Hunting; Late Seasons and Bag and
rules the Interior Possession Limits for Certain Migratory Game Birds
Migratory Bird Hunting; Final Rule on the Establishment of a
Youth Waterfowl Hunting Day for the 1996-1997 Migratory
Bird Hunting Season
Migratory Bird Hunting; Seasons and Bag Limits for the 1996-
1997 Youth Waterfowl Hunting Day
Migratory Bird Hunting Regulations on Certain Federal Indian
Reservations and Ceded Lands for the 1996-97 Late Season
Environmental Control of Air Pollution: Final Rule for New Gasoline Spark-
Protection Ignition Marine Engines; Exemptions for New Nonroad
Agency Compression-Ignition Engines at or Above 37 Kilowatts and
New Nonroad Spark-Ignition Engines at or Below 19 Kilowatts
Transfer Department of Food Stamp Program; Child Support Deduction
rules Agriculture
Department of Medicare Program; Physician Fee Schedule Update for
Health and Calendar Year 1997 and Physician Volume Performance
Human Standard Rates of Increase for Federal Fiscal Year 1997
Services Medicare Program; Inpatient Hospital Deductible and Hospital
and Extended Care Services Coinsurance Amounts for 1997
Department of Compensation for Disability Resulting From Hospitalization,
Veterans Treatment, Examination, or Vocational Rehabilitation
Affairs
Source: OMB’s 1997 Report to Congress on the Costs and Benefits of Federal Regulations (OMB,
September 30, 1997); Regulatory Reform: Major Rules Submitted for Congressional Review During
the First 2 Years (GAO/GGD-98-102R, Apr. 24, 1998); and Economically Significant Rules (RISC).
We then reviewed the agencies’ cost and benefit estimates for all 50 of the
rules issued during the 1-year period that met OMB’s criteria and
determined that 20 rules met the specific requirements of the statute—i.e.,
rules that the agencies believed were likely to have a gross annual effect
on the economy of $100 million in increased costs. Ten of these 20 rules
were social rules and 10 were transfer rules. (App. IV lists these 20 rules by
agency with their cost and benefit estimates.)
OMB’s 1998 Report OMB used essentially the same criteria to identify rules for its 1998 report
as it had in its 1997 report—rules on which OMB concluded its review
during a 1-year period that were either “economically significant” under
Executive Order 12866, “major” under the congressional review provisions
of SBREFA, or that met the threshold under title II of UMRA. The 1-year
period that OMB focused on in its 1998 report was from April 1, 1997, until
March 31, 1998.
As was the case in its 1997 report, OMB did not provide cost or benefit
data for rules that were issued by independent regulatory agencies
because OMB did not review them under the executive order. However,
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OMB included in its 1998 report a discussion of major rules issued by these
agencies between April 1, 1996, and March 31, 1998, based on data
provided to us under the congressional review provisions of SBREFA.
5
Citing our report on the major rules submitted under SBREFA, OMB noted
that independent regulatory agencies submitted 44 major rules to us during
this period, 41 of which were issued by 5 agencies (FCC, SEC, the Federal
Reserve Board, the Nuclear Regulatory Commission, and the Federal
6
Energy Regulatory Commission). Of these 41 rules, OMB said 12 had some
discussion of costs or benefits, 4 had monetized cost information, and 1
had monetized benefit information. Because only one of these rules
contain an estimate of costs or benefits exceeding $100 million (an SEC
rule allowing electric storage for brokers or dealer reporting, which the
industry estimated would reduce costs by $160 million), OMB concluded
that our reports on the 41 rules contained “no information useful for
estimating the aggregate costs and benefits of regulations.” However, OMB
relied on the information in our major rules reports; it did not ask these
agencies if they had any other information about the costs or benefits of
these rules.
OMB identified 33 rules that met its criteria—22 social rules and 11
transfer rules. EPA issued the largest number of the social rules (nine),
followed by USDA and HHS (three each). As it did in its 1997 report, OMB
reported the cost and benefits data that the issuing agencies included for
the 22 social rules but did not report cost or benefit information for the
transfer rules.
To determine whether OMB identified all of the rules that met its criteria,
we obtained a list of economically significant rules on which OMB
concluded its review between April 1, 1997, and March 31, 1998, and
developed a list of major rules that OMB reviewed during the same period
of time. We identified five rules that met OMB’s criteria but were not in
OMB’s 1998 report—four social rules and one transfer rule. Those rules are
shown in table 3.2.
5
Regulatory Reform: Major Rules Submitted for Congressional Review During the First 2 Years
(GAO/GGD-98-102R, Apr. 2, 1998).
6
Actually, all 44 rules were issued by these 5 agencies.
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Table 3.2: Rules Meeting OMB’s Criteria
Type Department or
But Not Included in the 1998 Report
of rule agency Rule
Social Department of Migratory Bird Hunting; Early Seasons and Bag and
rules the Interior Possession Limits for Certain Migratory Game Birds in
the Contiguous United States, Alaska, Hawaii, Puerto
Rico, and the Virgin Islands
Migratory Bird Hunting; Regulations on Certain Federal
Indian Reservations and Ceded Lands for the 1997-1998
Early Season
Migratory Bird Hunting; Late Seasons and Bag and
Possession Limits for Certain Migratory Birds
Migratory Bird Hunting; Regulations on Certain Federal
Indian Reservations and Ceded Lands for the 1997-1998
Late Season
Transfer Department of Child Nutrition and WIC Reauthorization Act
rules Agriculture Amendments
Source: OMB’s 1998 Report to Congress on the Costs and Benefits of Federal Regulation; our 1998
report,Regulatory Reform: Major Rules (GAO/GGD-98-102R, Apr. 24, 1998); and RISC.
We then reviewed the agencies’ cost-benefit estimates for all 38 of the
rules issued during the 1-year period that met OMB’s criteria and
determined that 22 rules met the specific requirements of the statute—
rules that the agencies estimated were likely to have a gross annual effect
on the economy of $100 million in increased costs. Thirteen of these 22
rules were social rules and 9 were transfer rules. (App. V lists these 22
rules by agency with their cost and benefit estimates.)
Most of the cost-benefit analysis experts that we consulted had few
Experts Suggested comments about OMB’s listings of individual rules in relation to the second
Changes in OMB Major statutory objective. They most frequently said that OMB should have
Rule Information included rules issued by independent regulatory agencies in its listings.
Several also indicated that OMB should have made adjustments to the
agencies’ cost-benefit estimates, particularly to provide a consistent
monetary estimate of the value associated with the reduction of mortality
rates. However, they also recognized political difficulties associated with
adjusting agencies’ estimates.
Experts Said Include Most of the experts that we consulted indicated that OMB should have
included cost and benefit estimates in its reports for the major rules issued
Independent’s Rules, Adjust by the independent regulatory agencies. For example, Weidenbaum said
Agencies Estimates there was no reason to exclude these agencies’ rules, and described their
exclusion as a “shortcut.” However, several of the experts noted that
Executive Order 12866 does not cover these agencies, thereby limiting the
information that OMB receives from them and what could be included in
OMB’s reports. Similarly, Hopkins and Hahn said that if Congress wanted
OMB to include independent regulatory agency’s rules in its reports,
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Congress could require those agencies to produce cost and benefit
analyses. Weidenbaum said that despite the limitations in the statutes and
the executive order, OMB interacts with independent regulatory agencies
through the budget process and through its responsibilities in carrying out
the Paperwork Reduction Act. Therefore, he said, OMB could have gone to
these agencies and asked them to provide their best estimates of the costs
and benefits associated with their major rules.
Similar to their comments on OMB’s response to the first statutory
requirement, several of the experts that we consulted indicated that OMB
should have conducted more independent analysis of the agencies’ cost
and benefit estimates instead of simply performing as a “clerk” and
including the estimates without adjustment. These experts said that OMB
should have provided its own analysis and adjusted those estimates that it
considered to be in need of refinement. In particular, Hopkins, Lave, Litan,
and Weidenbaum said OMB should have monetized some of the data when
the agencies did not do so (e.g., converting the number of lives saved into
monetized estimates). Weidenbaum said it did not make sense for some
agencies to provide monetized estimates of the benefits associated with
reductions in mortality while other agencies do not. Hopkins said that if
OMB were to make its own critical judgements regarding the agencies’
estimates, the agencies would be more likely to provide good estimates in
the first place. He said OMB should place its own critical appraisals of
agencies’ estimates in the public record. As a result, he said, the agencies
would improve their estimates because they do not want to be publicly
criticized for overstating regulatory benefits.
However, Hahn, Hopkins, and Weidenbaum also noted political and
organizational difficulties associated with OMB adjusting agencies’ cost or
benefit estimates. Hopkins said OMB’s “clerical” function in this regard
was driven by OMB’s organizational placement within the Executive Office
of the President and the interplay between the President, OMB leadership,
and the political appointees in the executive agencies. He said that OMB
could have been more aggressive regarding agencies’ cost and benefit
estimates if the President wanted an energetic OMB pressing on the
agencies. In the absence of such direction, Hopkins said those wanting a
critical analysis of agencies’ cost or benefit estimates will need to look
outside of OMB. Weidenbaum said that OMB is trapped between two
roles—one in which it challenges agencies to do better cost-benefit
estimates and the other in which it is forced to defend those agencies’
estimates after they have been approved. Hahn said that the report does
not reflect the collective wisdom that OMB staff has regarding regulatory
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Chapter 3
OMB Did Not Provide Cost-Benefit Estimates for All $100 Million Rules
costs and benefits, and the problem is “how do you get them to really tell
you what they think.”
Several of the experts also questioned why OMB limited its presentation of
major rules to those it reviewed within selected 1-year periods. For
example, Weidenbaum said he did not interpret the statutory requirement
to be limited to 1-year’s worth of regulations. However, he said OMB may
have done so because of data limitations and because including all $100
million rules would have been a “big chore.” Hopkins said it was “curious”
that OMB established a time frame for these rules despite the absence of
any such time limits in the statute. Lave said it would have been better to
include more data than for just 1 year, but he added that this issue was
“not high on my list of concerns” about OMB’s report.
None of the experts expressed concerns about OMB including
economically significant and major rules that did not have $100 million in
increased costs. Weidenbaum and Hopkins said they preferred the
inclusive definition that OMB used because it included a larger set of rules
than would have been included by sticking strictly to the statutory
language. Lave said he also agreed with OMB’s approach.
Overall, Hopkins said it was “astonishing” how little information executive
branch agencies had on regulatory costs and benefits despite 17 years of
executive orders requiring agencies to provide such information. Crandall
said that a “selection bias” might be in operation here, with agencies not
conducting cost-benefit analysis or not placing a value on certain elements
in the analyses when doing so would demonstrate that the rule would not
pass a cost-benefit test. In order to overcome this problem, he said, OMB
would need a lot of expertise in each of the regulatory areas—expertise
that he doubted OMB possessed.
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OMB Did Not Separately Assess Direct and
Indirect Impacts of Rules
The third statutory requirement was that OMB provide an assessment of
the direct and indirect impacts of federal rules on the private sector, state
and local governments, and the federal government. OMB indicated that it
believed it had satisfied the “direct” portion of this requirement through
the overall cost and benefit estimates that it provided in relation to the first
statutory requirement. OMB discussed the difficulty in determining
indirect regulatory effects in its first report but did not provide any
description of those effects in either report. The cost-benefit analysis
experts that we consulted were generally sympathetic toward OMB’s
treatment of this requirement, describing it as a lower priority than the
other requirements and perhaps impossible for anyone to satisfy.
Unlike the first two statutory requirements, OMB did not have a separate
OMB Reports chapter of its 1997 report devoted to the third requirement on the direct
Contained Little and indirect costs and benefits of federal rules on the private sector, state
Discussion of Third and local governments, and the federal government. Instead, OMB
included a brief discussion of this requirement within the chapter that
Statutory Requirement addressed the first requirement on total regulatory costs and benefits.
OMB indicated that its estimates of the direct costs and benefits of all rules
in relation to the first requirement satisfied the portion of the third
requirement regarding an assessment of direct impacts. The report then
discussed indirect effects by first noting that several studies have found
those effects to be significant, and then describing several problems
associated with using those studies (e.g., they only examine indirect costs,
and it is impossible to validate models or view their assumptions). Overall,
OMB emphasized the methodological difficulties associated with
determining the indirect effects of federal rules.
OMB had less discussion of the third statutory requirement in its 1998
report. In the introduction to the report, OMB said that the first chapter on
the total annual costs and benefits of federal regulatory programs also
discusses such factors as economic efficiency losses, federal on-budget
regulatory expenditures, and “the possible indirect effects of regulation on
the economy as directed by Section 625(a)(3).” For example, in that
chapter OMB explained that it did not include the “indirect, mostly
consumer surplus, losses of economic regulation” in its summary table
because it concluded that those indirect losses may have significantly
different long term effects than direct compliance costs. However, other
than these types of references, OMB did not specifically discuss the direct
or indirect effects of federal regulations on the private sector, state and
local government, or the federal government in its 1998 report.
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OMB Did Not Separately Assess Direct and Indirect Impacts of Rules
In its response to comments on the first report, OMB acknowledged that
its summary of the literature on the direct and indirect effects of regulation
on the economy “did raise more questions than it answered,” but said that
it was a fair summary of the existing knowledge in the area. OMB also
noted that Executive Order 12866 calls on agencies to examine and
consider the distributional and equity effects of regulations and said that
both OMB and the agencies could do a better job in estimating those
effects. Responding to comments on the second report, OMB again said
that more information about indirect effects is needed and said it planned
to do more searching for next year’s report.
Most of the cost-benefit analysis experts we consulted were generally
Experts Were sympathetic to OMB’s admittedly sketchy treatment of this statutory
Sympathetic to OMB’s requirement. For example, Litan said that it would be “horrendously
Treatment of difficult” to obtain any other data besides direct compliance costs from the
private sector. Although Hahn said this requirement was useful, he said
Requirement OMB “punted” with regard to the requirement because data on indirect
costs by sector are extremely limited, and suggested that this analysis be
completed for only a select number of regulations to increase this
requirement’s usefulness and feasibility. Hopkins said that it would be
difficult to be literally responsive to the requirement, but said more work
needed to be done in this area. Several of the experts said that this
requirement was a low priority and/or should not have been required of
OMB. For example, Weidenbaum said he would not have included it in the
legislation because the requirement itself “probably would not now pass a
cost-benefit test.” Portney said OMB’s treatment was the best it could do
given the time and resources available and said he was not sure how
reasonable it was to impose this requirement. Crandall said that OMB’s
lack of response to this requirement “does not seem to be a bad trade-off
given their resources.”
However, Lave said OMB’s approach to this requirement was “clearly not
right,” and did not believe that OMB had satisfied this requirement. He said
determining the distributional effects (who bears the costs, who receives
the benefits) of some types of regulations is very important and noted that
studies already conducted on provisions of the Clean Air Act indicated that
it is possible to make these types of estimates.
Page 48 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Experts Criticized Lack of New
Recommendations in OMB Reports
The fourth statutory requirement was that the OMB Director provide
recommendations to reform or eliminate any federal regulatory program or
program element that is inefficient, ineffective, or is not a sound use of the
nation’s resources. The 1997 report contained no such recommendations,
but the 1998 report contained an endorsement of 10 previously announced
regulatory or statutory changes and a discussion of restructuring the
electrical generation industry. All of the cost-benefit experts disagreed
with OMB’s response to the requirement, and several said sufficient cost-
benefit data existed to support making some recommendations. However,
several of the experts also said that it was politically difficult for OMB to
make recommendations directly to Congress to eliminate or reform
existing administration programs.
In its 1997 report, OMB concluded that it could not make any
OMB Provided No New recommendations that would meet the statutory requirement. In
Recommendations explanation, OMB said
“[W]e do not…believe that the existing evidence on aggregate costs and benefits rises to
the level that would support a recommendation to eliminate any regulatory program.
Virtually all of the evidence . . . is based either on dated studies of existing regulation or on
estimates for proposed regulations. These data are not appropriate for determining whether
existing regulations should be repealed or significantly modified because of the sunk costs
and rising baseline problems discussed above. Before supportable recommendations are
made to eliminate existing regulatory programs or elements of programs, empirical
evidence based on analytical techniques designed to solve the methodological problems
discussed above must be developed.”
However, OMB did include in the report a number of recommendations to
improve the quality of regulatory data and analysis, including (1) that OIRA
lead an effort to improve agencies’ regulatory analysis by promoting
greater use of its January 1996 “best practices” guidance, (2) that an
interagency group conduct a peer review of a selected number of agency
regulatory analyses, and (3) that OIRA continue to develop a database on
the costs and benefits of major rules.
In its 1998 report, OMB again indicated that data quality problems
prevented it from making definitive recommendations on specific
regulatory programs. However, OMB said it had identified some general
themes during its review of the academic literature and analysis of data on
the economic impacts of regulations and noted the general success of large
scale procompetitive regulatory reforms. Within that theme, OMB then
described the Clinton Administration’s legislative recommendation for
reform of electricity generation. OMB said this electricity restructuring
proposal was an illustration of how regulatory reform can achieve “the
Page 49 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Experts Criticized Lack of New Recommendations in OMB Reports
economic benefits of competition in a manner that is fair and improves the
environmental performance of the electricity industry.”
OMB also said that agencies continue to reform their regulatory programs,
which are described in the Regulatory Plan located in the fall edition of the
Unified Agenda of Federal Regulatory and Deregulatory Actions. OMB said
these initiatives were important to the administration and then listed nine
such efforts that it endorsed in its 1998 report. We examined the Unified
Agenda and discovered that many of these initiatives had been announced
by the agencies years before the issuance of the OMB report. For example,
• the Department of Agriculture’s Food Safety and Inspection Service first
indicated that it was determining whether to convert some of its
“command and control” regulations to performance standards in 1995 and
issued an NPRM to convert those regulations to performance standards in
May 1996;
• HUD issued an NPRM to provide consumers with increased disclosure
concerning mortgage brokers’ function and fees, and to provide greater
clarity regarding the application of the Real Estate Settlement Procedures
Act to mortgage broker fees in September 1995;
• the Department of Transportation began reviews of its side impact
protection and heavy truck conspicuity regulations in October 1994 and
September 1995, respectively; and
• the Department of Labor’s Office of Federal Contract Compliance
Programs issued an advance notice of proposed rulemaking in July 1981 to
streamline, clarify, and reduce the paperwork burden of the regulations
that govern the nondiscrimination and affirmative action obligations of
federal contractors, and issued an NPRM in May 1996.
OMB also noted in its 1998 report that the Clinton Administration offered
“Remediation Waste Legislative Specifications” in early 1998 to provide
changes to the Resource Conservation and Recovery Act land disposal
restrictions, minimum technology requirements, and permitting
requirements for hazardous remediation waste. Although this appeared to
be a new legislative proposal, EPA issued an NPRM related to this issue in
May 1992. However, OMB officials told us during this review that the
administration determined that EPA could not take this action
administratively, so additional statutory authority was needed.
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Experts Criticized Lack of New Recommendations in OMB Reports
All the experts that we consulted indicated that OMB’s responses to this
Experts Criticized statutory requirement did not adequately address the requirement. For
OMB, but Noted example, Weidenbaum said he was “amazed” that OMB could not come up
“Constraints” with a single program or regulation that it believed needed changing.
Similarly, Portney said the lack of any recommendations “strains
credulity.” Hopkins said OMB’s practice of citing the lack of perfect data is
“a recipe for complete inaction.” He said government always has
incomplete and uneven data but that does not stop it from preparing fiscal
budgets or implementing the tax laws.
Several of the experts specifically said that they did not believe OMB’s
endorsement of agencies’ previously announced regulatory reform
initiatives in its 1998 report addressed the statutory requirement. For
example, Weidenbaum said that it was difficult to see how initiatives put
forward by the agencies can be seen as recommendations from the OMB
Director. Because these initiatives had already been proposed by the
agencies, he said they should not be considered recommendations. Hahn
said OMB needs to use its own expertise and institutional knowledge to
help reform regulations, not simply rely on agencies for initiatives.
Some experts were also critical of the report’s discussion of electricity
restructuring in the 1998 report. For example, Hopkins said this discussion
was “ridiculous,” and found it interesting that OMB would include this
proposal regarding an issue over which it has very little influence or data
after asserting that it could not make recommendations with regard to
issues that it can exert influence and has at least some data.
Several of the experts also said that enough cost-benefit data existed to
support the reform or elimination of particular regulations or regulatory
programs. For example, Hahn pointed to one of his recent articles in which
he suggested a number of laws and regulations that could be eliminated,
including certain international trade restrictions, USDA milk, average fuel
1
economy standards, marketing orders, and the Davis-Bacon Act.
Weidenbaum suggested reform of agricultural marketing orders and the
Maritime Commission. Portney said current regulations on coal-fired
power plants should be replaced with performance standards. Portney
noted that some regulations are in place in which the costs exceed the
benefits because of statutory requirements that only Congress can change.
1
Robert W. Hahn, “Government Analysis of the Benefits and Costs of Regulation,” Journal of Economic
Perspectives , 12 (Fall 1998), pp. 201-210.
Page 51 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Experts Criticized Lack of New Recommendations in OMB Reports
Although most of the experts were critical of the lack of recommendations
in OMB’s reports, several of them also indicated that OMB may be unable
to make recommendations for the reform or elimination of existing
regulatory programs because of the previously discussed “political
constraints.” For example, Lave said he believed that OMB staff would
have relished making recommendations to reform some of the programs
they review, but were unable to do so because of the political environment
that exists within OMB. “In the end,“ he said, “these are political issues and
it lies with the President to make these political decisions.”
Page 52 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Conclusions
Although the precise dimensions of federal regulatory costs and benefits
are unclear, there is general agreement that, in the aggregate, federal
regulations have a substantial impact on the economy. Measuring the costs
and benefits associated with a single rule can be extremely difficult, and
developing accurate estimates of the effects of all federal regulations is
even more complex. OMB’s two reports on regulatory costs and benefits
are notable initial attempts to provide Congress with information that it
needs to gauge the extent of federal regulatory activity and to determine
whether the benefits associated with federal regulations justify the related
costs.
OMB addressed some, but not all, of the specific statutory requirements in
its 1997 and 1998 reports. In both reports, OMB provided estimates of the
costs and benefits of federal regulations both in total and for most (but not
all) major or economically significant rules issued within particular 1-year
time frames. To develop its estimates of total regulatory costs, OMB relied
on previous estimates published in the professional literature, the
agencies’ published estimates for particular rules, and (in the 1998 report)
EPA’s Section 812 report estimate.
However, OMB’s reports did not fully address other statutory
requirements. First, OMB did not, as directed, discuss the direct and
indirect effects of federal rules on particular sectors of the economy. In
OMB’s defense, most of the experts we consulted indicated that OMB’s
reluctance was understandable given the lack of data clearly documenting
those effects. Some of the experts said this requirement was a lower
priority than the other requirements. Second, OMB had no
recommendations in its 1997 report and, although it discussed a number of
previously announced agency and administration initiatives, it did not
provide any new recommendations to eliminate or reform federal
regulations or regulatory programs in its 1998 report.
Most of the cost-benefit analysis experts that we consulted during our
review indicated they would have preferred that OMB provide an
independent estimate of regulatory costs and benefits and not simply
transcribe the estimates provided by federal agencies and others. In
particular, the experts believed OMB should have adjusted EPA’s Section
812 report estimate of the benefits associated with the Clean Air Act
instead of using the unadjusted estimate that dominated the benefits
estimate in OMB’s 1998 report. Although the legislative history of the
statutory provisions that established the reporting requirements is limited
and does not demonstrate the intent of Congress in enacting these
provisions, the comments of some individual Members of Congress
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indicated that they wanted OMB to provide an independent regulatory
accounting statement. Specifically, they said OMB should adjust published
estimates of benefits and costs where necessary to reflect the agency’s
best professional judgment regarding those estimates.
In some cases, OMB used its professional judgment and adjusted the
published estimates that it used to produce its estimates of total regulatory
costs and benefits. For example, in the 1997 report, OMB subtracted $10
billion from Hopkins’ $81 billion estimate of the efficiency losses
associated with economic regulations to account for deregulatory actions
that took place after the estimate was published. OMB performed the same
adjustment in its 1998 report but did not include the efficiency loss
estimate in its summary of total regulatory costs. OMB also monetized
some of the agencies’ quantified estimates for individual rules before using
them to develop the total cost and benefit estimates for the 1998 report.
However, OMB did not materially adjust any of the published cost or
benefit estimates from federal agencies—most notably EPA’s Section 812
report estimates and the agencies’ estimates for individual rules. Although
many of the cost-benefit analysis experts said OMB should have adjusted
the agencies’ estimates, they also recognized that OMB faced political
constraints in doing so. Specifically, they noted that OMB is part of the
administration that issued those estimates and therefore would find it
politically difficult if not impossible to disagree with those estimates in a
report to Congress.
OMB has a responsibility under Executive Order 12866 to review the
agencies’ estimates of the costs and benefits of proposed and final rules
before they are published in the Federal Register. Similarly, with the
Executive Order establishing OIRA as the “repository of expertise on
regulatory issues,” OMB had a responsibility to provide EPA with its
expert opinions during the development of the cost and benefit estimates
in EPA’s Section 812 report. However, after their publication, those rules
and reports (and their associated estimates of costs and benefits)
represent the administration’s policy positions. OMB, as part of the
administration and particularly as the staff office to the President
responsible for regulatory policy, cannot realistically be expected to alter
or dispute the administration’s own estimates of regulatory costs and
benefits in a public report to Congress. Doing so would also unilaterally
substitute OMB’s judgment for the mutually agreed upon results of its
consultations with the agencies during the review process or, in the case of
the section 812 report, reverse the judgment of EPA’s Science Advisory
Board.
Page 54 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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If Congress wants a truly independent analytic perspective on executive
branch agencies’ regulatory costs and benefits, it may have to assign that
responsibility to individuals or organizations located outside of the
executive branch. One such organization could be the Congressional
Office of Regulatory Analysis (CORA) that Congress considered
establishing last year. Under that proposed legislation (H.R. 1704), CORA
would provide a report to Congress on each major rule providing an
independent perspective on the rules’ costs, benefits, and net benefits. The
proposed legislation also would have required CORA to provide an annual
report including estimates of the total costs and benefits of all existing
federal regulations. Although the proposed legislation would not have
required CORA to assess the direct and indirect costs and benefits of
federal regulation on particular sectors of the economy or to provide
recommendations for reform or elimination of existing rules, such
additional responsibilities could be added to future legislation if Congress
believes them desirable.
Another way to obtain an independent perspective of executive branch
agencies’ regulatory costs and benefits is to look to organizations outside
of government that are already engaged in the types of analyses that
Congress envisioned. For example, according to the AEI-Brookings Joint
Center for Regulatory Studies’ mission statement, the Joint Center will
publish an annual report that will include “an independent assessment of
both the total and marginal costs and benefits of federal regulation, broken
down into useful categories.” The Joint Center also intends to publish
objective analyses of selected forthcoming regulations, and
recommendations for modifications or elimination of existing rules based
on their benefits and costs.
An independent perspective on regulatory costs and benefits from outside
of the executive branch could be either a substitute for the current OMB
requirement or a supplement to that requirement. Requiring an
independent perspective in addition to the existing OMB requirement
could be a considerable duplication of effort, with both organizations
obtaining information from regulatory agencies. However, a somewhat
similar dual-track process is currently in place in the federal budgetary
process, with both OMB and the Congressional Budget Office providing
independent estimates of federal revenues, spending, and budget deficits
or surpluses. Federal regulatory agencies and OMB may be prompted to
develop better estimates knowing that another entity outside of the
administration will be providing an independent perspective.
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Regardless of which entity provides those estimates, agreement is needed
among all parties regarding the types of regulations that should be
included and other methodological issues. Agreement on these issues can
prevent (or at least lessen) disputes regarding the accuracy of such
estimates after they are developed. For example, the experts we consulted
generally suggested focusing on the costs and benefits of health, safety,
environmental, and other social regulations, and tallying economic and
transfer rules separately. Other issues in need of agreement include
whether (and if so, how) reductions in mortality risks should be
monetized, whether agencies’ assumptions should be standardized to
permit interagency and interrule comparisons of regulatory costs and
benefits and the degree to which regulatory costs and benefits should be
disaggregated to allow the relative net benefits of regulatory programs to
be compared. Also, although cost-benefit analysis is conceptually a
valuable tool in regulatory decisionmaking, the results of any such
analyses must be carefully examined to ensure that the estimates are
properly developed, and care must be exercised in using any such
estimates in public policy decisionmaking. Finally, whatever entity is
charged with the responsibility of providing this kind of independent
analysis of regulatory costs and benefits, those analyses will be most
useful to policymakers if the entity has sufficient resources to do a proper
job.
It is politically difficult for OMB to provide Congress with an independent
Matter for assessment of executive branch agencies’ regulatory costs and benefits. If
Congressional Congress wants an independent assessment, it may wish to consider
Consideration assigning that responsibility to an organization outside of the executive
branch. That organization could include a congressional office of
regulatory analysis, which would have to be established, or an organization
outside of the federal government.
On April 7, 1999, we met with the Acting Administrator of OIRA and other
Comments and Our OMB staff to discuss a draft of this report, and we had subsequent
Evaluation discussions with OIRA regarding its views on the draft report. OIRA stated
that the draft report reflected a substantial amount of work on our part,
and that it raised a number of useful analytical issues regarding how
regulatory benefits and costs can most appropriately be estimated and
reported.
However, OIRA stated that it disagreed fundamentally with several of the
statements attributed to the experts in the report. OIRA particularly noted
that, at a number of points throughout the draft report, we quoted one or
more experts who expressed strong opinions about what they believe
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OMB should have done in reviewing and evaluating agencies’ cost-benefit
analyses. OIRA fundamentally disagreed with these statements, which it
said reflect a significant misunderstanding of OMB’s role in developing,
overseeing, and coordinating the administration’s regulatory policies.
OIRA said it analyzes and evaluates agency work products and works with
them to develop better quality analyses, evaluations, and policies. It said
the role of OMB is not to play “gotcha” with the agencies but to work
cooperatively with them, ensuring that their economic estimates are
accurate and that administration policies and programs are faithfully
executed.
We believe that OIRA’s comments regarding OMB’s role buttresses our
conclusions and our matter for congressional consideration. It is politically
difficult for OMB to disagree publicly with agencies’ statements of
regulatory policy, particularly because OIRA staff typically participate in
developing those policies. The experts that we consulted indicated that, to
be responsive to the statutory requirement, OMB should have adjusted
agency cost-benefit estimates that it believed were in error. However, the
experts also recognized the political constraints inherent in OMB’s role of
supporting the administration’s position and initiatives, particularly when
operating under an executive order that has as one of its stated objectives
“to reaffirm the primacy of Federal agencies in the regulatory decision
making process.”
OIRA also pointed out that it had provided original, updated, and more
refined estimates of the costs and benefits of regulations and regulatory
programs, which the experts had evidently overlooked. In addition, OIRA
noted that EPA’s Section 812 report had been peer reviewed by the EPA
Science Advisory Board’s Council on Clean Air Act Compliance Analysis
and that OMB had reported its concerns with some of the assumptions
behind the estimates and had used the benefits estimate to establish an
upper bound for the governmentwide estimate.
OIRA’s statement that the experts overlooked original, updated, and more
refined estimates of the costs and benefits for regulations and regulatory
programs is not entirely correct. As we noted in the draft report, OMB did
make some changes to published cost or benefit estimates to derive the
governmentwide estimate in its 1998 report. However, OMB did not adjust
the benefits estimate in the Section 812 report that constituted more than
90 percent of the governmentwide estimate. Neither did OMB adjust any of
the agencies’ cost or benefit estimates in relation to the second statutory
requirement regarding rules with $100 million in increased costs. Also, we
noted in the draft report that EPA’s Section 812 report had been peer
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reviewed by EPA’s Science Advisory Board and that OMB reported its
concerns with some of the assumptions behind the report’s estimates.
OIRA stated that Congress recognized, when it directed OMB to prepare
these reports, that OMB would be relying for the most part on existing,
available information, including the agencies’ cost-benefit analyses. OIRA
therefore believes that OMB presented Congress with the estimates that
Congress had directed it to prepare. However, OIRA did not specifically
comment on our matter for congressional consideration.
Contrary to OIRA’s assertion, neither the statutory language that required
OMB to provide the 1997 and 1998 reports to Congress nor the limited
legislative history of these provisions specifies that Congress expected
OMB to rely on existing information to prepare its reports on the costs and
benefits of federal rules. Although some individual Members of Congress
indicated that OMB should simply compile existing information about
regulatory costs and benefits, other Members said OMB should
supplement that information where needed and provide an “independent
assessment” of the effects of federal regulation.
OIRA offered comments on several additional points in the draft report.
For example, OIRA disagreed that the recommendations that OMB
provided in the 1998 report were simply a recitation of initiatives that had
previously been put forward by the agencies. OIRA said they were major
administration initiatives and met the statutory requirement that OMB
provide recommendations. OIRA also offered suggestions to improve the
presentation of certain issues, which we incorporated into this report as
appropriate. For example, OIRA noted that some of the experts were
critical of OMB for not assigning a dollar value to the costs and benefits of
certain rules, but pointed out that OMB had, in fact, monetized some of the
agencies’ estimates. We agreed to add a footnote to the experts’ comments
noting that OMB had assigned monetary values to some of these estimates.
We also obtained comments on the draft report from six of the seven cost-
benefit analysis experts that we consulted on the draft report. (Portney
said he was unable to review the draft because of time constraints.) In
general, the experts said the report accurately reflected their statements.
However, some of them suggested particular clarifications or
modifications to their statements and bibliographic references, which we
incorporated where appropriate.
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Appendix I
Individual Views of Members of Congress
Regarding Regulatory Accounting
Requirements
As pointed out in the body of this report, the legislative history of the
regulatory accounting provisions that required OMB to provide the 1997
and 1998 reports is of limited value in determining how Congress intended
for OMB to carry out its responsibilities. However, several Members of
Congress expressed their individual views regarding these requirements
during floor consideration of the legislation. For example, on September
11, 1996, Senator Ted Stevens (the sponsor of the first regulatory
accounting provision) said “OMB should use the valuable information
already available, and supplement it where needed” when preparing the
estimates of total annual costs and benefits called for in subsection
645(a)(1). He also said that “(w)here agencies have, or can produce,
detailed information on the costs and benefits of individual programs, they
should use it. I expect a rule of reason will prevail.”
On September 12, 1996, Senators John Glenn and Carl Levin also discussed
their views regarding subsection 645(a)(1). Senator Glenn said OMB
should compile “existing analyses and estimates of regulatory costs and
benefits.” He said that the sponsors of the amendment “are aware of
OMB’s resource constraints and intend that the report be based on a
compilation of existing information, rather than new analysis.” Senator
Levin said the amendment would ask OMB to “come up with its best
estimate” of the costs and benefits of regulatory programs, but he noted
that the amendment
“does not require OMB to conduct new studies or analyses or develop new data or information. That
would be a time-consuming, and expensive use of taxpayer money. . . . (T)his amendment simply
directs OMB to put together the already available information that it has on existing Federal regulatory
programs and use that to estimate the total annual costs and benefits of each.”
Similarly, on September 30, 1996, Senator William V. Roth, Jr. said OMB
“should draw upon the wealth of studies and reports already done” to
generate the estimate of total costs and benefits. However, he also said
that “(w)here there are gaps, OMB must supplement existing information.
To conserve its resources, OMB should issue guidelines to the agencies to
gather the needed information, as OMB does for the fiscal budget process.”
He also said OMB should “quantify costs and benefits to the extent
feasible, and provide the most plausible estimate.”
In relation to the requirements in subsection 645(a)(2), Senator Levin said
that “reporting on the costs and benefits of major rules is expected to
require no more than reporting, in an organized and readable manner, the
cost-benefit analyses of the major rules in effect that were already done
prior to promulgation.” However, he also said that “(t)o the extent there is
Page 60 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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Individual Views of Members of Congress Regarding Regulatory Accounting Requirements
updated information that would change the estimates in those analyses,
such updates should be included in this part of the report if it is available.”
Regarding the requirements in subsection 645(a)(3) for an assessment of
the direct and indirect impact of the rules on different sectors, Senator
Stevens said he believed that regulation “creates a drag on real wages,
economic growth, and productivity,” and that OMB “should discuss the
serious problem of unfunded Federal mandates and inform Congress”
about the problem. However, he also said that “OMB should use available
information, where relevant, to assess the direct and indirect effect of
federal rules.” Senator Levin said the assessment of impacts
“is intended to be a narrative discussion of OMB’s opinion on this subject. It does not require
additional information gathering; rather, the intent, here, is that the Director use the information
contained in the report on the costs and benefits of Federal regulatory programs and describe the
expected impacts of such programs on State and local governments, business, and individuals.”
Senator Glenn said the recommendations for reform required by
subsection 645(a)(4) should include programs that should be eliminated or
altered because they are too burdensome “as well as programs that should
be strengthened to more effectively implement public policy.” Senator
Roth said that OMB should “highlight those programs or program elements
that are inefficient, and it should provide recommendations to reform
them.”
Overall, Senator Stevens said he expected OMB to produce “a credible and
reliable picture of the regulatory process—a picture that highlights the
costs and benefits of regulatory programs and that allows Congress to
determine which programs and program elements are working well, and
which are not.” Likewise, Senator Roth said OMB “must provide Congress
with a credible and reliable accounting statement on the regulatory
process.
The legislative history accompanying the second set of reporting
requirements in section 625 of the fiscal year 1998 appropriations act is
even more limited than for the first requirements. However, during Senate
consideration of the legislation on July 17, 1997, Senator Fred Thompson
expressed his support for the new requirements and suggested that certain
information sources be used (e.g., existing studies by nonfederal experts
and agencies’ cost-benefit analyses conducted under Executive Orders
12291 and 12866). He said “regulatory accounting should not create a
resource drain for OMB. OMB should issue guidelines requiring the
agencies to compile needed information, just as OMB does in the fiscal
budget process.” In relation to the requirement in subsection 625(a)(1) that
Page 61 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix I
Individual Views of Members of Congress Regarding Regulatory Accounting Requirements
OMB estimate total annual costs and benefits, Senator Thompson said
OMB should “do its best to estimate and quantify that figure on the cost
side,” and explain what benefits are being achieved for those costs. Where
agencies such as EPA can provide detailed information on particular
programs, he said OMB should make full use of this information. In
relation to subsection 625(a)(3) requirement to assess the direct and
indirect effect of federal rules, Senator Thompson said OMB need not
“devote vast resources” to the development of complex economic models,
but rather “may use available reports, studies, and other relevant
information. . . .” In particular, he said OMB should discuss the “serious
problems posed by unfunded federal mandates for State, local and tribal
governments.”
Senator Thompson also offered some specific suggestions regarding what
costs and data should be included in OMB’s reports. First, he said OMB
should estimate the total costs of paperwork, including tax paperwork.
Second, he said OMB’s estimate of indirect effects should include costs
associated with product bans and marketing limitations; the benefits
associated with preservation of endangered species; and the impact of
regulation on wages, innovation, employment, and income distribution. To
do these analyses, he said, OMB could leverage the expertise and
resources of other agencies, especially the President’s Council of
Economic Advisors. Finally, Senator Thompson said OMB’s
recommendations to improve the regulatory process and particular
programs and regulations “do not have to be based on perfect empirical
data.”
Congressional Responses to On October 29, 1997, Senator Thompson and Senator Stevens, acting as the
OMB’s Initial Regulatory Chairmen of the Senate Committees on Governmental Affairs and
Accounting Reports Appropriations, respectively, sent a letter to the Director of OMB saying
that the first regulatory accounting report was “an important foundation
for improving the regulatory system.” However, they also said they
believed there were several opportunities for improvement. First, they
recommended that the report adhere to the specific statutory requirements
by recommending improvements and assessing the indirect impacts of
federal regulation. Second, they said the report should more fully
implement the legislation, breaking down costs and benefits by program or
program element where feasible and estimating transfer costs and the
costs of all paperwork requirements, including tax paperwork. Finally, the
Chairmen said OMB should “exercise leadership to assure the quality and
reliability of information reported” by, among other things, providing an
“independent assessment” of the information provided by the agencies.
They said OMB staff should be directed to “critique the quality of the
Page 62 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix I
Individual Views of Members of Congress Regarding Regulatory Accounting Requirements
estimates provided to them, not to simply compile data presented by the
agencies.”
On the same day, Representatives Thomas J. Bliley, Jr. and David
McIntosh, the Chairmen of the House Committee on Commerce and the
House Committee on Government Reform and Oversight’s Subcommittee
on National Economic Growth, Natural Resources, and Regulatory Affairs,
respectively, wrote a similar letter to the OMB Director. They said the
OMB report fell short of their expectations in that it (1) did not fully
comply with specific statutory requirements (e.g., lacked
recommendations); (2) reflected a narrow interpretation of the
congressional mandate (e.g., provided estimates for only a small number of
major rules issued during the previous fiscal year); (3) revealed the lack of
any systematic approach to collecting, analyzing, and reporting data on
regulatory impacts; and (4) failed to reflect the leadership role that
Congress intended OMB to play. In relation to the last point, they said
“Congress expected OMB to assure the reporting of meaningful
information and provide an independent assessment of regulatory effects,”
not merely to perform the “ministerial function of reporting information
provided by other agencies.
On August 28, 1998, Representative McIntosh provided his Subcommittee’s
comments on OMB’s August 1998 draft report. He said the Subcommittee
continued to have some of the same concerns mentioned in its October
1997 letter and said it was difficult to believe that OMB could not
recommend any regulatory programs for reform or elimination other than
electricity restructuring. He also said that OMB should have monetized
costs for all rules issued by independent regulatory agencies and should
have sought out research or reports on the direct and indirect impacts of
federal rules on the private sector, state and local governments, and the
federal government.
On October 10, 1998, Senators Thompson and Stevens, again acting as the
Chairmen of the Senate Committees on Governmental Affairs and
Appropriations, respectively, also provided comments on OMB’s August
1998 draft report. They said they remained concerned that OMB had “not
sufficiently used its expertise” in the draft report, and said OMB should not
simply compile data presented by the agencies but should synthesize and
evaluate the information “and provide an independent assessment.” They
indicated that OMB should prepare its best estimates of costs and benefits
in the aggregate and for individual rules and programs and compare those
estimates with agency estimates. In particular, they noted that OMB did
not provide an independent assessment of EPA’s estimates of the costs
Page 63 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix I
Individual Views of Members of Congress Regarding Regulatory Accounting Requirements
and benefits of the Clean Air Act. They also said that OMB should have
done more to provide recommendations for the reform or elimination of
federal rules, and “provide guidance on programs where the costs
outweigh the benefits using its best judgment and input from regulatory
scholars.
Page 64 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix II
Biographical Information of Regulatory
Experts
Robert W. Crandall Robert W. Crandall is a senior fellow in the Economic Studies Program at
the Brookings Institution, Washington, D.C., where he has worked since
1978. He is a former deputy director of the Council on Wage and Price
Stability during the Ford and Carter administrations, and a former faculty
member at the Massachusetts Institute of Technology, the University of
Maryland, and George Washington University. He also has been a
consultant to the Environmental Protection Agency (EPA), the Antitrust
Division of the Federal Trade Commission, and the Treasury Department.
He has written widely in such fields as antitrust, the automobile industry,
competitiveness, deregulation, environmental policy, mergers, regulation,
and telecommunications policy.
Selected Publications An Agenda For Federal Regulatory Reform, with Christopher DeMuth,
Robert W. Hahn, Robert E. Litan, Pietro S. Nivola, and Paul R. Portney
(Washington, D.C.: American Enterprise Institute for Public Policy
Research and the Brookings Institution, 1997).
Regulating the Automobile, with Howard Gruenspecht, Ted Keeler and
Lester Lave (Washington, D.C.: Brookings Institution, 1986).
“What Ever Happened to Deregulation?” in David Boaz (ed.) Assessing the
Reagan Years (Washington, D.C.: Cato Institution, 1988).
Economic Deregulation and Customer Choice: Lessons for the Electric
Industry, with Jerry Ellig (Center for Market Processes, George Mason
University, 1997).
Robert W. Hahn Robert W. Hahn is director of the American Enterprise Institute (AEI)-
Brookings Joint Center for Regulatory Studies, Washington, D.C. He is also
a resident scholar at AEI and a research associate at Harvard University.
He also served as a senior staff member of the President’s Council of
Economic Advisers for 2 years and has served as a consultant to
government and industry on a variety of issues involving regulation and
privatization. His research interests include the reform of regulation in
developed and developing countries and the design of new institutions for
reforming regulation.
Selected Publications “The Costs and Benefits of Regulation: Review and Synthesis,” with John
A. Hird, Yale Journal on Regulation (Vol. 8, No.1 (Winter 1991)).
Improving Regulatory Accountability, with Robert E. Litan, (Washington,
D.C.: AEI and the Brookings Institution, 1997).
Page 65 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix II
Biographical Information of Regulatory Experts
Risks, Costs, and Lives Saved: Getting Better Results from Regulation
(ed.), (Washington, D.C.: Oxford University Press and AEI Press, 1996).
“Regulatory Reform: Assessing the Government’s Numbers” in Revising
Regulatory Reform: A Global Perspective, (AEI-Brookings Institution,
forthcoming).
“Policy Watch: Government Analysis of the Benefits and Costs of
Regulation,” Journal of Economic Perspectives (Vol.12, No. 4 (Fall 1998)).
Thomas D. Hopkins Thomas D. Hopkins is Interim Dean of the College of Business and Arthur
J. Gosnell Professor of Economics at the Rochester Institute of
Technology in Rochester, NY. He is also Adjunct Fellow for the Center for
the Study of American Business, Washington University, St. Louis, MO.
From 1975 to 1984, he served on the staff of the Council on Wage and Price
Stability and as Deputy Administrator of the Office of Information and
Regulatory Affairs in the Office of Management and Budget. His published
work includes a series of policy projects for the Organization for
Economic Cooperation and Development, the Regulatory Information
Service Center, and the Small Business Administration.
Selected Publications “Regulatory Costs in Profile,” Policy Study 132 (St. Louis: Washington
University, Center for the Study of American Business, Aug. 1996).
“Progress in Developing Standards for Review of Government
Regulations,” Business & the Contemporary World (Vol. IX, No. 4 (1997)).
“OMB’s Regulatory Accounting Report Falls Short of the Mark,” Policy
Study 142, (St. Louis: Washington University, Center for the Study of
American Business, Nov. 1997).
“Regulatory Costs in Profile,” Policy Sciences (Vol. 31, No. 4 (Dec. 1998)).
Lester B. Lave Lester B. Lave is University Professor and the Higgins Professor of
Economics in the Graduate School of Industrial Administration and
professor of engineering and public policy in the College of Engineering
and Public Policy at Carnegie Mellon University, Pittsburgh, PA. He has
consulted to EPA, the Office of Safety Administration, and other federal
agencies on the theory and application of cost-benefit analysis.
Selected Publications Benefit-Cost Analysis in Environmental, Health, and Safety Regulation: A
Statement of Principles, with Kenneth J. Arrow, Maureen L. Cropper,
George C. Eads, Robert W. Hahn, Lester B. Lave, Roger G. Noll, Paul R.
Page 66 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix II
Biographical Information of Regulatory Experts
Portney, Milton Russell, Richard Schmalensee, V. Kerry Smith, and Robert
N. Stavins (Washington, D.C.:AEI, 1996).
“Benefit-Cost Analysis: Do The Benefits Exceed the Costs?” in Robert W.
Hahn, ed., Risks, Costs, and Lives Saved: Getting Better Results from
Regulation (Washington, D.C.: Oxford University Press and AEI Press,
1996).
Robert E. Litan Robert E. Litan is the codirector of the AEI-Brookings Joint Center for
Regulatory Studies and serves as director of Economic Studies Program
and Cabot Family Chair in Economics at the Brookings Institution. He has
served as deputy assistant attorney general in the Antitrust Division of the
Department of Justice, as Associate Director of the Office of Management
and Budget, and as a regulatory and legal staff specialist for the President’s
Council of Economic Advisors. He has also consulted for numerous
organizations, public and private, and testified as an expert witness in a
variety of legal and regulatory proceedings.
Selected Publications Reforming Federal Regulation, with William D, Nordhaus (New Haven, Ct.:
Yale University Press, 1983).
An Agenda For Federal Regulatory Reform, with Robert W. Crandall,
Christopher DeMuth, Robert W. Hahn, Pietro S. Nivola, and Paul R.
Portney (Washington, D.C.: American Enterprise Institute for Public Policy
Research and the Brookings Institution, 1997).
Paul R. Portney Paul R. Portney is president of Resources for the Future, Washington, D.C.
He was previously the organization’s vice president and director of its
Center for Risk Management and its Quality of the Environment Division.
He also has been a visiting professor at the graduate school of public
policy at the University of California at Berkeley and a visiting lecturer at
Princeton University’s Woodrow Wilson School. He previously served as
chief economist at the Council of Environmental Quality in the Executive
Office of the President, as a member of the Board on Environmental
Studies and Toxicology of the National Research Council, and as a
member of the National Oceanic and Atmospheric Administration’s Panel
on Contingent Valuation. From 1994 to 1997, he was a member of the
Executive Committee on EPA’s Science Advisory Board and was chairman
of the Board’s Environmental Economics Advisory Committee.
Selected Publications “Economics and the Clean Air Act,” Journal of Economic Perspectives
(Vol. 4 (1990), pp. 173-181).
Page 67 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix II
Biographical Information of Regulatory Experts
Benefit-Cost Analysis in Environmental, Health, and Safety Regulation: A
Statement of Principles, with Kenneth J. Arrow, Maureen L. Cropper,
George C. Eads, Robert W. Hahn, Lester B. Lave, Roger G. Noll, Milton
Russell, Richard Schmalensee, V. Kerry Smith, and Robert N. Stavins
(Washington, D.C.: AEI, 1996).
Murray Weidenbaum Murray Weidenbaum is the Mallinckrodt Distinguished University
Professor and Chairman of the Center for the Study of American Business
at Washington University in St, Louis, MO. Before joining Washington
University, he served as Corporate Economist at the Boeing Company. He
was Assistant Secretary of the Treasury for Economic Policy during the
Nixon administration. In 1980, he chaired the Task Force on Regulatory
Reform for President-Elect Ronald Reagan. In 1981 and 1982, he was
Chairman of the Council of Economic Advisers, and subsequently served
as a member of the President’s Economic Policy Advisory Board.
Selected Publications Government-Mandated Price Increases (Washington, D.C.: AEI, 1975).
The Cost of Federal Regulation of Economic Activity, with Robert DeFina
(Washington, D.C.: AEI, 1978).
“Regulatory Process Reform,” Regulation (Winter 1997).
A New Approach to Regulatory Reform (St. Louis: Washington University,
Center for the Study of American Business, 1998).
Page 68 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix III
Rules Meeting Specific Statutory
Requirements for OMB's 1997 Report
Section 645(a) of the Treasury, Postal Services and General Government
Appropriations Act for fiscal year 1997 required the Office of Management
and Budget (OMB) to estimate the costs and benefits of each rule “that is
likely to have a gross annual effect on the economy of $100,000,000 or
more in increased costs” in a report to Congress. In its September 30, 1997,
report, OMB interpreted this requirement broadly to include all final rules
promulgated by an executive branch agency and reviewed by OMB’s Office
of Information and Regulatory Affairs (OIRA) between April 1, 1996, and
March 31, 1997, that met any of the following:
• Rules designated as “economically significant” under section 3(f)(1) of
Executive Order 12866;
• Rules designated as “major” under 5 U.S.C. 804(2); and
• Rules designated as meeting the threshold under title II of the Unfunded
Mandates Reform Act (2 U.S.C. 1531-1538).
A rule could meet one or more of these criteria and not have a gross
annual effect on the economy of $100 million or more in increased costs.
For example, a rule may be economically significant because it has a $100
million beneficial effect on the economy, or because it has material effect
on a sector of the economy, the environment, or state or local
governments.
Table III.1 lists the 20 rules that OIRA reviewed during the 1-year time
frame that we determined had met the specific requirements of the
statute—i.e., rules that the agencies believed were likely to have a gross
annual effect on the economy of $100 million in increased costs. Ten of the
rules were “social” regulations (which include environmental, health and
safety rules) and 10 were “transfer” rules (which involve payments from
one group to another that redistribute wealth).
Two of these rules were not included in OMB’s 1997 report to Congress but
met OMB’s criteria for inclusion in its report: (1) the Department of
Veterans Affairs’ rule on disability compensation and (2) EPA’s rule on
control of air pollution for new gasoline spark-ignition marine engines.
Page 69 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix III
Rules Meeting Specific Statutory Requirements for OMB's 1997 Report
Table III.1: Rules Likely to Have Gross
Impact On Economy of $100 Million in Type Department Costs Benefits
Increased Costs of rule or agency Rule (millions/year) (millions/year)
Social Department Conservation Reserve $970 $2,200
rules of AgricultureProgram—Long Term
Policy
Pathogen Reduction: $100-$120 $70-$2,800
Hazard Analysis and
Critical Control Point
(HACCP) Systems
Department Regulations Restricting $180 $9,900-$11,000
of Health and the Sale and Distribution
Human of Cigarettes and
Services Smokeless Tobacco to
Protect Children and
Adolescents
Department Occupational Exposure to $110 $90
of Labor Methylene Chloride
Environmental Accidental Release $100 $170
Protection Prevention Requirements:
Agency Risk Management
Programs Under Clean Air
Act Section 112(r)(7)
Regulation of Fuels and $150 $120-$350
Fuel Additives:
Certification Standards for
Deposit Control Gasoline
Additives
Acid Rain Program; $190 $430-$2,000
Nitrogen Oxides Emission
Reduction Program
Motor Vehicle Emissions $200-$250 $130-$760
Federal Test Procedure
Revisions
Control of Air Pollution $640 $230-$1,000
From New Motor Vehicles
and New Motor Vehicles
Engines: Voluntary
Standards for Light-Duty
Vehicles
Control of Air Pollution: $270 $$150-$680
Final Rules for New
Gasoline Spark-Ignition
Marine Engines;
Exemptions for New
Nonroad Compression-
Ignition Engines at or
Above 37 Kilowatts and
Nonroad Spark-Ignition
Engines at or Below 19
Kilowatts
Page 70 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix III
Rules Meeting Specific Statutory Requirements for OMB's 1997 Report
Transfer Department Food Stamp Program: $7-$207
rulesa of Agriculture Certification Provisions of
the Mickey Leland
Childhood Hunger Relief
Act
Food Stamp Program; $125-$145
Child Support Deduction
Department Medicaid Program: $1,105
of Health Limitations on Aggregate
and Human Payments to
Services Disproportionate Share
Hospitals; Federal Fiscal
Year 1996
Individual Market Health $50-$200
Insurance Reform;
Portability From Group to
Individual Coverage;
Federal Rules for Access
in the Individual Market;
State Alternative
Mechanisms to Federal
Rules
Medicare Program; $250
Physician Fee Schedule
Update for Calendar Year
1997 and Physician
Volume Performance
Standard Rates of
Increase for Federal Fiscal
Year 1997
Medicare Program; $610
Inpatient Hospital
Deductible and Hospital
and Extended Care
Services Coinsurance
Amounts for 1997
Department Inspection and Expedited $205
of Justice Removal of Aliens;
Conduct of Removal
Proceedings; Asylum
Procedures
Department Compensation for $166.5-$504.3
of Veterans Disability Resulting From
Affairs Hospitalization, Treatment,
Examination, or Vocational
Rehabilitation
Departments Interim Rules for Health $50-$200
of Health and Insurance Portability for
Human Group Health Plans
Services,
Labor and
the Treasury
Page 71 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix III
Rules Meeting Specific Statutory Requirements for OMB's 1997 Report
Social Security Supplemental Security $90-$185
Administration Income; Determining
Disability for A Child
Under Age 18
a
According to OMB, transfer rules are payments from one group to another that redistribute wealth.
Therefore, OMB said, there are no real costs to society as a whole; the "benefits" of these rules are
equal to the "costs."
Source: Regulatory Information Service Center and Federal Register.
Page 72 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix IV
Rules Meeting Specific Statutory
Requirements for OMB's 1998 Report
Section 625(a) of the Treasury and General Government Appropriations
Act for fiscal year 1998 required OMB to estimate the costs and benefits of
each rule “that is likely to have a gross annual effect on the economy of
$100,000,000 or more in increased costs” in a report to Congress. In its
February 5, 1999, report, OMB interpreted this requirement broadly to
include all final rules promulgated by an executive branch agency and
reviewed by OIRA between April 1, 1997, and March 31, 1998, that met any
of the following:
• Rules designated as “economically significant” under section 3(f)(1) of
Executive Order 12866;
• Rules designated as “major” under 5 U.S.C. 804(2); and
• Rules designated as meeting the threshold under title II of the Unfunded
Mandates Reform Act (2 U.S.C. 1531-1538).
A rule could meet one or more of these criteria and not have a gross
annual effect on the economy of $100 million or more in increased costs.
For example, a rule may be economically significant because it has a $100
million beneficial effect on the economy or because it has material effect
on a sector of the economy, the environment, or state or local
governments.
Table IV.1 lists the 22 rules that OIRA reviewed during the 1-year time
frame that we determined had met the specific requirements of the
statute—i.e., rules that the agencies believed were likely to have a gross
annual effect on the economy of $100 million in increased costs. Thirteen
of the rules were “social” regulations (which include environmental, health
and safety rules) and nine were “transfer” rules (which involve payments
from one group to another that redistribute wealth).
Page 73 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix IV
Rules Meeting Specific Statutory Requirements for OMB's 1998 Report
Table IV.1: Rules Likely to Have Gross
Effect on the Economy of $100 Million in Type Department Costs Benefits
Increased Costs of rule or agency Rule (in millions) (in millions)
Social Department Environmental Quality Incentives $200 $290
rules of Agriculture Program
Department Energy Conservation Program for $260 $700-$760
of Energy Consumer Products: Energy
Conservation Standards for
Refrigerators, Refrigerator-
Freezers, and Freezers
Department Quality Mammography $40 $200-$280
of Health and Standardsa
Human
Services
Department Respiratory Protection $120 $590-$2,700
of Labor
Departments Interim Rules for Mental Health $464 Not
of Health and Parity estimated
Human
Services,
Labor and
the Treasury
Environmental Emission Standards for $80 $230-$900
Protection Locomotives and Locomotive
Agency Enginesb
Control of Emissions of Air $140 $220-$990
Pollution from Highway
Heavy-Duty Engines
Effluent Limitations Guidelines: $250 $10-$250
Pulp and Paper
National Emission Standards for $120 ($970)-$1,100
Hazardous Air Pollutants for
Sources Category: Pulp and
Paper Production
Standards of Performance for $71-$146 Not
New Stationary Sources and estimated
Emission Guidelines for Existing
Sources:
Hospital/Medical/Infectious
Waste Incinerators
National Ambient Air Quality $17,000 $11,000-
Standards for Particulate Matter $59,000
National Ambient Air Quality $4,500 $770-$4,300
Standards for Ozone
Page 74 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix IV
Rules Meeting Specific Statutory Requirements for OMB's 1998 Report
Addition of Facilities in Certain $143-$226 Not
Industry Sectors, Toxic Chemical estimated
Release Reporting, Community
Right-to-Know
Transfer Department Child and Adult Care Food $857-$876
rulesc of Agriculture Program: Improved Targeting of
Day Care Home Reimbursement
Amendments to the Peanut
Poundage Quota Regulationsd
Department Medicaid Program; Coverage of $340-$1,540
of Health Personal Care Services
and Human Medicare Program; Changes to $6,000
Services the Inpatient Prospective
Payment Systems and Fiscal
Year 1998 Rates
Medicare Program; Fee $160-$780
Schedule for Calendar Year
1998; Payment Policies and
Relative Unit Adjustments
Medicare Program; Limit on the $91-$114
Valuation of a Depreciable Asset
Recognized as an Allowance for
Depreciation and Interest After
Change of Ownership
Medicare Program: Schedule of $570
Limits on Home Health Agency
Costs Per Visit for Cost
Reporting Periods Beginning on
or after October 1, 1997
Medicaid Program: State $200-$400
Allotment for Payment of
Medicare Part B Premiums for
Qualifying Individuals: Federal
Fiscal Year 1998
Department Affidavit of Support on Behalf of $301-$1,701
of Justice Immigrants
a
Although the annualized costs for this rule is less than $100 million, according to the agency, initial
costs will exceed $100 million and then decrease. This rule is also an unfunded mandate.
b
Although the annualized costs for this rule are less than $100 million, according to the agency there
are a number of years where the associated costs will be more than $100 million. In addition, this rule
is an unfunded mandate.
c
According to OMB, transfer rules are payments from one group to another that redistribute wealth.
Therefore, OMB said, there are no real cost to society as a whole; the "benefits" of the rules are equal
to the "costs."
d
The cost estimate for this rule is reported only in the aggregate. The total cost associated with the
Amendments to the Peanut Poundage Quota Regulations are $1.75 billion (1996-2002). In order to
compare and summarize the annual costs of all the rules, the cost associated with this rule will not be
included.
Source: Regulatory Information Service Center and Federal Register.
Page 75 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
Appendix V
Major Contributors to This Report
Curtis W. Copeland, Assistant Director, Federal Management and
General Government Workforce Issues
Division Steven G. Lozano, Evaluator-In-Charge
Joseph L. Santiago, Senior Evaluator
Joseph D. Kile, Assistant Director
Office of the Chief
Economist
Alan K. Belkin, Assistant General Counsel
Office of the General
Counsel
Page 76 GAO/GGD-99-59 Analysis of OMB’s Cost and Benefit Reports
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(410325)
Regulatory Accounting: Analysis of OMB's Reports on the Costs and Benefits of Federal Regulation
Published by the Government Accountability Office on 1999-04-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)