Statement of Gary D. Bass, Ph.D. Executive Director OMB Watch Before the Subcommittee on National Economic Growth, Natural Resources, and Regulatory Affairs of the House Committee on Government Reform and Oversight On Congressional Office of Regulatory Analysis Creation Act March 11, 1998 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 federal decision-making and promote a more open, responsive, and accountable government. We have been monitoring federal regulatory activities since 1983 and have issued a number of reports on the topic. Pursuant to your request Mr. Chairman, 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. The bill before this Subcommittee, H.R. 1704 -- the Congressional Office of Regulatory Analysis Creation Act -- would set up a congressional office to review agency rulemakings and conduct its own cost-benefit analysis for every major rule (and nonmajor rule upon the request of Members). It has been suggested that through the creation of CORA, Congress would be better informed on agency rules, and more likely to use the recently-enacted Congressional Review Act (CRA). As Rep. Kelly pointed out on May 22, 1997, when introducing H.R. 1704, 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. Yet if you look at the recent case examples, there appears to be little confusion among Members. Is there anyone here on this Subcommittee who doesn't have an opinion on OSHA's methylene chloride rule or EPA's new clean air standards? Most, if not all, Members know exactly how they feel about these rules, which is not surprising considering the wealth of information already made available to Congress. The CRA requires that agencies submit all proposed rules to the parliamentarian and leadership in each chamber. In addition, the General Accounting Office must prepare a report on each agency rule and submit it to the appropriate congressional committees in both the House and Senate. (In fact, this information can be viewed by anyone who has access to the world wide web -- www.gao.gov) 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 the finger tips of each Member and readily available to the relevant oversight committees. And if after reviewing all this information Congress still has questions, congressional leaders can hold hearings. There have been many hearings on the CRA and on specific regulations such as OSHA's methylene chloride rule. Mr. Chairman, you, for one, have hosted several hearings on EPA's clean air standards in this Subcommittee. The true reason that these rules -- which have been vocally opposed by some Members -- have not been considered under the disapproval process is political. There is a fear among those who might vote to strike down rules that they would be branded anti-environment or anti-worker as a result. More research will not address these political considerations. But apart from whether H.R. 1704 would accomplish its stated purpose and lead to more resolutions of disapproval, the bill has many other problems: It would create a costly new government apparatus that would duplicate functions already performed by OIRA and the individual agencies. 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 502 agency rules; the content of these reviews is readily available to Congress. CORA would duplicate 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, performing an additional "Regulatory Impact Analysis" for each major rule, and conducting cost estimates required by the Unfunded Mandates Reform Act of 1995 -- currently a task undertaken by the Congressional Budget Office. 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. Predictably, this new and redundant regulatory review apparatus would cost taxpayers millions, carrying with it few or no benefits. This bill was recently reported out of the Judiciary Committee. And precisely because CORA has the potential to be so outrageously expensive, it was amended to limit its annual appropriation to the same level as OIRA's. But considering that the scope of CORA's activities would be far greater than OIRA's, it's difficult to see how this could possibly be enough. We believe that -- regardless of funds -- information generated by CORA would be unreliable, for reasons explained below. But without proper funding, this certainly would be the case. 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. Some have suggested to properly fund CORA would cost at least as much as CBO at $25 million. And if all the studies are done to fulfill the requirements of the bill, it could cost upwards of $60 million. If this Subcommittee is true to its beliefs, then CORA's requirements should be waived if Congress does not fully fund the office. Otherwise, you will create another unfunded mandate. If Members are truly concerned about the quality of analysis coming out of the agencies, perhaps Congress should use the funding that some seem ready to apply to CORA and appropriate it to the agencies. Just within the last two years the President has signed into law the Small Business Regulatory Enforcement Fairness Act, the Unfunded Mandates Reform Act, and amendments to the Paperwork Reduction Act -- all of which require agencies to perform rigorous new regulatory cost assessments. The obligations under these laws would be more easily fulfilled with greater resources, and the results would likely be better as well. It runs counter to current efforts to streamline the government. For a Congress that prides itself on streamlining government, H.R. 1704 goes in exactly the wrong direction. Not only would it create bigger government, but it would create government that duplicates functions already performed -- which calls into question whether this bill could stand up to the sort of rigorous cost-benefit analysis so valued by Members of this Subcommittee. This Congress has often raised objections to agencies that perform apparently redundant functions. And 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 would run counter to this by duplicating functions at OIRA and the individual agencies. 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 and might paint an unfair and inaccurate picture for Congress. This is especially dangerous because of CORA's lack of pubic accountability. When agencies choose a regulatory option that is "arbitrary and capricious," they can be sued. But the public would have no recourse for sloppy work produced by CORA. Although cost-benefit analyses often take years to conduct, H.R. 1704 seems to imply that CORA would 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. 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." 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 assessments are not required of agencies at this time. Furthermore, they put public protections secondary to finding "lower cost" regulatory approaches and don't take into account the reality of regulation. It is well documented that the costs of regulatory compliance decrease dramatically over time for a number of reasons (e.g., regulated entities adapt to new rules and learn to comply in more cost-effective ways; and technological advances improve the ability of regulated entities to comply). If CORA is not required to take these factors into consideration, you would create an institutional bias in the scoring of rules. 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 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 could utilize executive branch facilities and personnel without reimbursement to carry out work it needs done. Thus, a process would be 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 would require significant work. CORA would not be able to review every rule generated by the executive branch, and therefore would need to establish a process for determining costs for every rule. Currently, OMB does not keep such information either. Second, the 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, inflating burdens and justifying a decision not to regulate. Third, 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 -- influenced by the various ideological underpinnings of the researchers. Likewise, it is easy to see how CORA's study could be influenced by Members of Congress looking to push an ideological agenda. Fourth, 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 would create 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 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 would place the legislative branch in the role of describing regulatory alternatives for the way the executive branch is to execute. Moreover, Congress has enough trouble passing 13 appropriations bills each year without reviewing 500 major rules and a significant number of nonmajor ones. 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 Chairman 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.