Rep. Doug Ose (R-CA) recently introduced legislation (H.R. 2432) that would test regulatory budgeting at five agencies, including EPA and the departments of Labor and Transportation. Under these “pilot projects,” the participating agencies -- including two to be designated by OMB -- must present the “varying levels of costs and benefits to the public that would result from different budgeted amounts” for at least one of their “major regulatory programs.” OMB is to include these regulatory budgets in the president’s budget submission to Congress for fiscal year 2007. At this point, these pilot projects appear designed to test the preparation of agency regulatory budgets, and would not actually implement them. The idea of a government-wide regulatory budget has been around since the Reagan administration, and emerged as a key component of Newt Gingrich’s Contract with America. Under the Contract with America proposal -- which was rejected as too extreme -- federal agencies were to cap regulatory costs at a certain percentage of GDP; if costs exceeded that cap, agency rules would have to be eliminated and no new regulations could be issued. In fact, this proposal actually required cuts in regulatory costs by reducing the cap by a set percentage each year. Ose’s bill does not create a regulatory budget, but rather lays the groundwork for creating one in the future. The bill directs OMB to issue a report by February of 2009 on the pilot projects and “recommend whether legislation requiring regulatory budgets should be proposed...” In addition to the pilot programs, the bill directs each agency to prepare its own annual estimates of the costs and benefits of federal rules and paperwork for “each agency program” and in the aggregate -- a presumed prerequisite for regulatory budgeting. Each of these “accounting statements” is to cover not only the current fiscal year and the year prior, but also each of the five subsequent fiscal years. In other words, agencies must predict the future regulatory impacts of rules that are either still in development or haven’t yet been considered. Needless to say, this is next to impossible. Since 1997, OMB has been charged with providing annual estimates of cumulative regulatory costs and benefits across government. The results should give proponents of regulatory budgeting pause. Specifically, OMB has continually disavowed its own numbers, pointing out enormous analytical uncertainties in such an exercise. “We still believe that the limitations of these estimates for use in making recommendations about reforming or eliminating regulatory programs are severe,” OMB stated in its second report. “Aggregate estimates of the costs and benefits offer little guidance on how to improve the efficiency, effectiveness, or soundness of the existing body of regulations.” For example, OMB bases its estimates largely on prospective analysis, conducted by agencies prior to formal adoption of a rule. Yet predicted costs frequently prove overblown in the real world. This is because of adaptive responses to regulation, such as technological advances or “learning by doing,” which drive down costs over time. Notably, regulatory budgeting assumes the precision of such prospective cost-benefit analysis even though it consistently misses the mark. With an artificial cap on costs, agencies could be prohibited from taking protective action based on these predictions, representing a significant departure from most current health and safety statutes, such as the Clean Air Act and the Occupational Safety and Health Act, which require a high level of protection regardless of costs. In addition, Ose’s bill includes several other notable provisions. In particular, it would mandate that OMB’s Office of Information and Regulatory Affairs assign at least two staff to review IRS paperwork under the Paperwork Reduction Act. Health and safety agencies have a disproportionate number of OIRA “desk officers” overseeing their work compared to the amount of paperwork they actually produce, reflecting OIRA’s current and historical anti-regulatory bent. For instance, EPA’s paperwork burden is less than 2 percent of total government paperwork, yet it has six desk officers overseeing its work. By contrast, the Treasury Department, which accounts for more than 80 percent, has only one assigned desk officer. The bill would also permanently authorize funding for an office within the Government Accounting Office to evaluate agency rulemakings at the request of Congress. Originally, this office was conceived as a three-year pilot project in legislation signed by President Clinton in the fall of 2000. However, Congress has never appropriated funding for the office. With President Bush in office, the Republican Congress has shown no desire to create a new office to look over his shoulder -- especially since it broadly agrees with his anti-regulatory agenda.