Citizen Health & Safety
OMB Report: Standards and Safeguards Have Produced Vast Benefits at Minimal Cost
by Katie Weatherford, 5/7/2013
In April, the Office of Management and Budget (OMB) released a draft report on the benefits and costs of federal standards and safeguards. The report shows that over the past 10 years, public protections have produced vast benefits at minimal cost. In all, the estimated annual benefits of these rules ranged from $192.7 billion to $799.7 billion, while costs ranged from $56.6 billion to $83.7 billion.
Each year, in compliance with the Regulatory Right-to-Know Act, OMB submits a benefits and costs report to Congress after a public comment period. The report focuses on "major rules" – those anticipated to have an annual economic impact of $100 million or more and subject to review by the Office of Information and Regulatory Affairs (OIRA) at OMB.
Key Findings for 2012
In 2012, OMB estimated that monetary benefits of 14 major rules ranged from $53.2 billion to $114.6 billion, dwarfing costs that ranged from $14.8 billion to $19.5 billion.
Two rules accounted for the majority of monetary benefits and costs in 2012. One rule, issued by the U.S. Environmental Protection Agency (EPA), limits the amount of hazardous air pollutants emitted from coal-fired power plants. Benefits include reductions in cases of childhood asthma, premature deaths from breathing polluted air, and the amount of mercury that finds its way into the fish we and our loved ones eat.
The second rule, issued jointly by EPA and the U.S. Department of Transportation (DOT), requires cars and trucks to meet higher fuel efficiency standards, which will reduce greenhouse gas emissions, generate fuel savings, promote energy security, and provide other economic benefits.
Actual Benefits Likely Much Higher than Reported
OMB’s draft report shows that the benefits of rules issued in 2012, and over the past ten years, have far outweighed the costs. But the actual benefits are likely much higher because many benefits cannot be quantified or easily translated into dollars and cents.
As OMB explains in the report, "If a rule would reduce the incidence of rape, prevent the denial of health insurance to children with preexisting conditions, or allow wheelchair-bound workers to have access to bathrooms, a consideration of dignity is involved, and relevant law may require or authorize agencies to take that consideration into account." Congress has prohibited some agencies from using cost-benefit analysis in making regulatory decisions where such quality-of-life benefits are commonly involved. Likewise, Executive Order 13563 permits agencies to exercise discretion when issuing rules, recognizing that some rules include "values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts."
Additionally, as the Coalition for Sensible Safeguards recently explained, some studies show that actual costs are lower than estimated, including those in OMB’s draft report. (The Center for Effective Government is a co-chair of the coalition.) These overestimates may stem from data being provided by regulated industries, which have an interest in stopping standards from moving forward. In addition, regulated industries frequently receive some benefits from implementing rules, including greater innovation and improved efficiency, which serve to offset the projected costs. Unfortunately, OMB does not adequately or consistently identify the primary beneficiaries of the rules analyzed in its report.
Some opponents of regulation have attempted to spin OMB's findings by focusing solely on the costs of new rules. However, OMB’s draft report shows that despite underestimated benefits and overestimated costs, federal regulations consistently generate more benefits than costs.
OMB’s Proposed Reforms Do Not Address Unique Agency Features and Social Goals
In addition to reviewing the benefits and costs of past federal standards and safeguards, OMB’s draft report provides multiple recommendations for reforms that it believes will lead to more efficient and cost-effective rules.
As in previous reports, OMB recommends agencies continue to perform regulatory reviews, or "look-backs," of existing rules. Retrospective review may provide valuable information to agencies about the actual benefits and costs of existing regulations, but continually looking back at old rules requires agencies to divert precious staff time and resources that may be better spent looking forward by addressing outstanding and emerging risks, completing rules already in the pipeline, and performing critical enforcement activities. Furthermore, OMB should acknowledge in future reports that the timing of retrospective review is critical. If done too early, such review may suggest a rule is not producing benefits, even though it will actually prove to be an efficient and cost-effective rule in the long run.
In past reports, OMB has recommended that agencies increase focus on international harmonization as detailed in Executive Order 13609. The executive order asks agencies to "address unnecessary differences in regulatory requirements between the United States and its major trading partners" as it conducts retrospective reviews of existing rules. In the current draft report, OMB highlights the upcoming negotiations between the United States and the European Union to forge a Trans-Atlantic Free Trade Agreement (TAFTA) as an opportunity to address conflicting standards. However, the focus of harmonization to date has been on eliminating or severely weakening standards that impose costs on businesses. As the Center for Progressive Reform has explained, asking agencies to make decisions based on trade-related factors may violate federal law and compromise public safeguards.
OMB is beginning to recognize that public protections do not impede economic growth, and in many cases can foster innovation and create jobs. OMB recommends agencies look at the effects of technological progress in assessing rules by accounting for the ease of accessing vast amounts of information available on the Internet, which may increase productivity, speed the flow of consumer products, and facilitate innovation. Such information may show benefits that offset the projected costs or economic impacts of a rule. To the extent this information is available, OMB should provide it in its report in a helpful and understandable format.
Since OMB first issued its annual report on the benefits and costs of federal rules in 1997, the office has made great strides in improving the information and underlying analyses contained in the report. Moving forward, OMB must be careful not to focus its attention solely on reducing costs, and it should give adequate consideration to removing unnecessary constraints to agency rulemaking, increasing transparency, and assisting agencies with achieving their missions to protect public health, safety, and welfare. This next year will be especially interesting as Sylvia Mathews Burwell begins her new position as director of OMB and a new OIRA administrator is confirmed.
Editor's Note: This article has been updated since its original publication date.