Statement of Gary D. Bass, Ph.D. Executive Director OMB Watch Before the Subcommittee on Regulatory Reform and Paperwork Reduction of the House Committee on Small Business On Congressional Office of Regulatory Analysis Creation Act July 10, 1997 My name is Gary Bass and I am executive director of OMB Watch, a nonprofit research and advocacy organization that works to encourage greater civic participation in government decision-making and promote a more open, responsive, and accountable federal government. We have been monitoring federal regulatory activities since 1983 and have issued a number of reports on the topic. Pursuant to your request in your letter of July 7, 1997 to have us testify today, OMB Watch has not received any federal grants or contracts in the current and two preceding years, nor are we representing any entity today that has received such funds. We appreciate the opportunity to testify. This Committee has played an important role in monitoring the recently-enacted Congressional Review Act (CRA) from the perspective of small business. As Chairwoman Kelly pointed out on May 22, 1997, when introducing H.R. 1704 -- the Congressional Office of Regulatory Analysis Creation Act -- the House has not moved a resolution of disapproval through the expedited track provided for under the law and no rule has been struck down. The reason for this, however, is not that additional analyses need to be done. On that score, there have been many hearings on the CRA and specific rules such as OSHA's methylene chloride standard. The real issue is that supporters of the CRA are nervous about which regulation to consider under the disapproval process, fearful that they could be branded anti-environment or anti-worker. More research will not address these political considerations. H.R. 1704 was introduced with the hopes of helping Congress better utilize the CRA. But for a Congress that prides itself on streamlining government, it is a puzzling piece of legislation. Not only does it create bigger government, but it creates government that duplicates functions already performed, calling into question whether H.R. 1704 could stand up to the sort of rigorous cost-benefit analysis so valued by Members of this Committee. Under Executive Order 12866, OMB's Office of Information and Regulatory Affairs (OIRA) must review all major rules (rules with an annual economic impact of $100 million or more, or rules OMB so designates) and other nonmajor rules that OIRA believes warrant consideration. Last year this amounted to the review of 500 agency rules. The Congressional Office of Regulatory Analysis (CORA), created by H.R. 1704, would take on all the work done by OIRA, including an annual report estimating the total cost of federal regulations on the U.S. economy. Although these responsibilities are time-consuming and expensive -- OIRA operates on an annual budget of $5 million -- H.R. 1704 goes further than simply creating a second OIRA. CORA would also engage in activities currently handled by individual agencies, by performing an additional "Regulatory Impact Analysis" for each major rule, and would be responsible for conducting cost estimates required by the Unfunded Mandates Reform Act of 1995 -- currently a task undertaken by the Congressional Budget Office. Predictably, this new and redundant regulatory review apparatus would cost taxpayers millions, carrying with it few or no benefits. During the 1994 debate over unfunded mandates, Robert Reischauer, Director of CBO at the time, was very skeptical of the legislative branch's ability to conduct these sorts of highly technical and time-consuming cost estimates, calling it "impossible in any practical sense." Reischauer warned that Congress does not have the expertise to engage in such cost estimates, especially since the executive branch had not identified a regulatory approach for the proposed legislation. Congress heeded Reischauer's warning by narrowing the scope of analysis that CBO is to do under the Unfunded Mandates Reform Act. Yet H.R. 1704 would move Congress directly into areas that Reischauer warned would be dangerous. To top it off, H.R. 1704 requires CORA not only to conduct detailed cost-benefit analyses, but also determinations of "potential net benefits" and descriptions of alternative regulatory approaches that could "achieve the same regulatory goal at a lower cost" and cost- benefit analyses of these approaches. These types of requirements are not required by agencies at this time. Furthermore, these requirements put public protections secondary to finding "lower cost" regulatory approaches. Most cost-benefit analyses take considerable time to conduct, even years. Yet, H.R. 1704 seems to imply that the CORA will do the various types of analyses within a 45 day period before reporting to the appropriate committee. Even if CORA gets a head start on its requirements -- say when the agency publishes a Notice of Proposed Rulemaking -- H.R. 1704 still would be unworkable. It has been suggested that through the creation of CORA, Congress would be better informed on agency rules. Yet if you look at the recent case examples, there appears to be little confusion among Members in this regard. Is there anyone here on this Committee who doesn't have an opinion on OSHA's methylene chloride rule or EPA's proposed clean air standards? The level of certainty displayed by Members on these rules is not surprising considering the wealth of information already made available to Congress. The CRA requires that agencies submit all proposed rules to the parliamentarians and leadership in each chamber, in addition to the General Accounting Office, which must prepare a report on each agency rule and submit it to the appropriate congressional committees in both the House and Senate. Thus, the intimate details of each agency rulemaking (e.g., the cost-benefit analysis, risk assessment, and small business panel recommendations) are right there at each Member's finger tips as well as the relevant oversight committees. And if after reviewing all this information Congress still has questions, congressional leaders can hold hearings. Rep. McIntosh, for one, has hosted several recent hearings on EPA's clean air standards in his Subcommittee. Summary of Concerns with H.R. 1704 It would create a costly new government apparatus that would duplicate functions already performed by OIRA. Under Executive Order 12866, OMB's Office of Information and Regulatory Affairs (OIRA) must review all major rules (rules with an annual economic impact of $100 million or more, or rules OMB so designates) and other nonmajor rules that OIRA believes warrant consideration. Last year this amounted to the review of 500 agency rules; the content of these reviews is readily available to Congress. CORA would similarly review all major rules and any nonmajor rules that members of Congress and congressional staff request. In explaining the necessity for this duplication, the bill states that "in order for the legislative branch to fulfill its responsibilities ... it must have accurate and reliable information on which to base its decisions." This is certainly true, but it assumes two things that may not necessarily be true. First, that information coming to Congress from OIRA, the agencies, and GAO is unreliable, which Congress has yet to prove is the case. And second, that information from CORA would be more reliable than that of the previously stated governmental entities. It runs counter to current efforts to streamline the government. Members of this Committee have often raised objections to agencies that perform apparently redundant functions. The administration has responded to such criticism through E.O. 12866 and the Vice President's "Reinventing Government" initiatives, both of which have attempted to increase government efficiency. H.R. 1704 goes in exactly the opposite direction by duplicating functions at OIRA and the individual agencies. Further, the bill authorizes the appropriation of whatever funds are necessary for CORA to carry out these duties -- the sky's the limit. Considering that OIRA operates on an annual budget of $5 million, it can be expected that CORA would carry a substantially steeper price tag since it must not only engage in OIRA activities but also conduct cost-benefit analyses as well as cost estimates required under the Unfunded Mandates Reform Act. Are you prepared to waive CORA's requirements if Congress does not fully fund the Office? Or are we to create an unfunded mandate? It contains no language requiring CORA to operate in the sunshine. During the 1980s, OMB was permitted to operate in secret with little public accountability. Rules would go to OMB, changes could be made, and no one would know exactly why. Similarly at CORA, significant decisions on agency rules affecting everything from small business to the environment to children's health could be made without ever providing a proper explanation to the public. This is especially significant if Congress is going to use CORA findings as a basis to reject agency rules. As the Freedom of Information Act has been advanced, OMB has opened up slightly, though some of its problems still remain since it is not subject to the same statutory requirements as federal agencies. But H.R. 1704 doesn't touch the subject of whether or not FOIA would apply to CORA, nor does it spell out any other mechanisms to bring CORA into the sunshine to ensure greater public accountability. More importantly, CORA raises serious concerns involving the Administrative Procedure Act. Under the APA, agencies are required to take a number of steps (e.g., public notice and comment) to ensure openness. Agencies can also be sued if the agency decision is "arbitrary and capricious" providing important checks and balances. CORA would have to conduct cost-benefit analyses just like federal agencies, but unlike federal agencies it would not be bound to the APA. This means important decisions at CORA that could lead to the defeat of public protections (and ignoring of public comments) might be made without any input from the public. In the absence of public accountability, it is possible that CORA could be used as a tool to advance a political agenda rather than a source of objective analysis on agency rules. It raises serious Constitutional questions over the separation of powers. The bill moves in the direction of subordinating the powers granted to the executive branch to execute the laws of the land. Congress has every right to establish laws and revise them, but H.R. 1704 places the legislative branch in the process of describing regulatory alternatives for the way the executive branch is to execute. Even if the bill does not violate separation of powers issues, it is bad public policy. Congress has enough trouble passing thirteen appropriations bills each year, let alone reviewing 500 major rules and a significant number of nonmajor ones. It contains the unreasonable expectation that CORA conduct its own cost-benefit analyses for all major rules. Not even OIRA does this, and for good reason. Cost-benefit analyses are extremely time-consuming, require significant expertise, and are done within the context of each rulemaking. Without being a part of that rulemaking (e.g., without being involved in the agency's public comment period, SBREFA panels, etc.), it would be impossible for CORA to make a credible, independent estimate at both cost and benefits. CORA could essentially copy agency findings, but if that's the case, the bill does not meet its stated purpose. Or it could use analyses produced by the regulated community, which the federal agency has rejected. It would politicize the rulemaking process. It's not hard to imagine a body like CORA, which would function as an arm of Congress, being influenced by the expectations of individual lawmakers looking to push an ideological agenda. Upon approval from OMB and the agency head, CORA may utilize executive branch facilities and personnel without reimbursement to carry out work it needs done. Thus, a process is opened up in which Committees can lean on CORA and then CORA can lean on agencies, potentially with significant effects on agency rules. And why might this happen? Because powerful special interests that give campaign contributions lean on Committees. This would spell danger for the rulemaking process which is better off operating detached from the political arena and in the interest of sound science. It contains a regulatory accounting provision that could be an attempt to create a congressional regulatory budget. There are many problems with the bill's requirement that CORA do an annual report on the "total cost of Federal regulations" on the U.S. economy. First, this will require significant work. CORA will not be able to review every rule generated by the executive branch. Thus, CORA will need to establish a process for determining costs for every rule. Currently, OMB does not keep such information either. There have been many recent attempts to quantify the cumulative costs of federal regulations by independent organizations and other researchers, yet in virtually every case, these studies vary by hundreds of millions of dollars -- likely influenced by the various ideological underpinnings of the researchers. Second, the bill's regulatory accounting provision does not define what is meant by total costs. Does this include indirect costs? In the past, business has used such vague language to create opportunities for showing significant cost (e.g., lost business opportunity) relative to benefit, justifying a decision not to regulate. Third, the requirement does not instruct CORA to provide an annual estimate of the total benefit of federal regulations, including the economic benefit of regulation. This creates a one-sided figure that could be greatly misused. Finally, as an annual requirement, the regulatory accounting provision raises serious concerns that it could become a backdoor approach to creating a regulatory budget -- something strongly opposed by the public interest community but called for in the Contract with America. It assumes that agencies never issue the most cost-effective regulatory alternative. The bill states that CORA must provide "a description of alternative approaches that could achieve the same regulatory goal at a lower cost..." But it is entirely possible that an agency will have taken the appropriate, most cost-effective action. In fact, it is unlikely that an agency would move forward with a rule if it believed there was another more cost-effective alternative that could be used to achieve the exact same result. Rather, H.R. 1704 provides an excuse to focus more on cost and less on public protections. It is not necessary. Under the CRA, GAO must provide an analysis of each agency rule to the appropriate congressional committees. Furthermore, information on OIRA's regulatory review and the agency's rulemaking is also delivered to Congress. This gives lawmakers all the tools they need to exercise necessary executive branch oversight. Supporters of H.R. 1704 have failed to identify why there is a need to transfer GAO's functions to a new congressional agency. Although H.R. 1704 purports to enhance congressional knowledge of agency rulemaking, members have exhibited little confusion in this regard. For instance, most members have formed well-developed opinions on OSHA's rule on methylene chloride and EPA's proposed clean air standards without an expensive apparatus like CORA. In summary, the fact that Congress has not used the CRA is a function of political will, not a lack of information, and therefore CORA would not lead to more resolutions of disapproval as the Chairwoman hopes. But it would create a costly new government apparatus to perform a myriad of functions already performed by other government entities. This is not a wise use of resources and contradicts recent efforts to streamline government. In addition, an array of problematic side-effects would result from CORA's creation, such as its license to operate in secret and questions regarding the separation of powers between the executive and legislative branches of government. Furthermore, there are questions about CORA's mandated requirements and why they exceed those imposed on agencies. OMB Watch therefore strongly opposes H.R. 1704.