The House Government Reform committee recently held a hearing on a bill (H.R. 2432), sponsored by Rep. Doug Ose (R-CA), that would test regulatory budgeting at five agencies, including EPA and the departments of Labor and Transportation. John Graham, administrator of OMB’s Office of Information and Regulatory Affairs (OIRA), discussed the administration’s concerns, but was generally supportive, while Lisa Heinzerling, professor at the Georgetown University Law Center, attacked the bill, calling it “deregulation in disguise.” Majority Leader Tom DeLay (R-TX) was originally scheduled to testify -- implying that the bill is a leadership priority -- but did not show. Under the bill’s “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 by setting a hard cap on regulatory expenditures. Graham expressed support for the idea of pilot projects but found the plan outlined in the bill to be overly ambitious. He suggested that the project be scaled back to focus on EPA’s air office and Transportation’s National Highway Traffic and Safety Administration (NHTSA). “OMB does not have adequate staffing to accomplish effective oversight of more than two modest pilots,” Graham testified. Heinzerling took issue with the underlying premise of the bill -- to restrict the amount of money businesses must spend to comply with federal regulatory requirements. She pointed out that agencies impose requirements on private entities in accordance with laws, which generally do not set limits -- or “budget” for -- the costs businesses and others must incur to achieve compliance. A regulatory budget, if fully implemented, would seem to condone legal violations in cases where compliance with the law would exceed artificial caps on expenditures. In addition to the pilot projects, 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. 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. As Heinzerling pointed out in her testimony, costs estimated in advance of regulation frequently prove overblown in the real world. In most cases, regulated entities, which have an incentive to exaggerate costs to avoid regulation, provide cost estimates themselves. These often-inflated estimates also do not account for technological innovation and unanticipated efficiencies associated with regulation -- “learning by doing” -- that allow entities to achieve compliance at a lower cost. Graham raised questions about the exact contents of these accounting statements, which are not described in much detail in the bill. OMB would not support an accounting of all federal rules; nor would it back a requirement for agencies to produce cost-benefit information for non-major rules since this could force agencies to collect extensive information from regulated entities, creating even more paperwork, according to Graham. Overall, however, Graham was supportive of giving greater attention to regulatory accounting and budgeting and suggested that the committee explore ways to measure costs and benefits that are difficult to quantify. Graham also opposed a provision of the bill mandating that OIRA assign at least two staff to review IRS paperwork -- which accounts for more than 80 percent of all government paperwork -- under the Paperwork Reduction Act. This is not surprising since such a requirement would likely force Graham to transfer staff away from scrutinizing and often weakening the actions of health, safety and environmental agencies. For example, EPA, which accounts for two percent of government paperwork, has six staff overseeing its work. Other witnesses included Thomas Sullivan, Chief Counsel for the Small Business Administration’s Office of Advocacy; Fred Smith of the Competitive Enterprise Institute; Wendy Lee Gramm of the Mercatus Center; John Sample representing the National Association of Manufacturers; and Raymond Arth of the National Small Business Association. Not surprisingly, all spoke in strong support of the legislation.