complicate it with some ideas in this legislation that, in your opinion, might make it even more difficult. But I think that you want to also think in terms of the fact that maybe legislation like this suggests that there might be a better way out there to do it, or maybe there is a problem with just the massive amount of regulation we have that maybe you could blame the Congress for doing. I don't know whether, when Congress writes a statute, we think in terms of the volumes and volumes of followup regulation that is the natural product because if we could see that in front of us, what you see 2 or 3 years afterwards, a regulation that comes out of the legislation, common sense would have to dictate that we would have to look at our product and say, boy, there has got to be a better way for us to do this. So we are pursuing this subject based upon some of those frustrations, maybe.

Ms. KATZEN. Mr. Chairman, those frustrations are very real, and they are shared not only here in Washington, but clearly outside the Beltway as well. I am very proud of what this administration has done in the last 2 years. We have taken controversy and contention out of the subject of executive review. It had been something which had been fiercely debated and was one of the reasons why it was part of the original S. 1080.

There is little, if any, disagreement now on the legitimacy of centralized review. We have opened the process and made it more transparent, and again in the last 2 years you have heard very little, if any, complaints about inability to provide information, to know what is happening, to understand the status of regulations. We have also produced better regulations. We have been producing more tailored, more focused, more cost-effective regulations. It cannot be done overnight and even with legislation will not be done overnight. We have built a regulatory system in a matter of decades, 10, 20, 30 years, and what we are seeking to do is to change the culture. It is not just how the rules are written; it is also how they are enforced.

It is not just what the paper says; it is the paper that is required to come back and report on what you are supposed to do, how many volumes of paperwork is involved. Those are things on which this President and this administration have moved very aggressively.

We sent up last year a number of proposed revisions to the underlying statutes. One of the areas that is always identified is the environmental area. We had proposed a major overhaul of Superfund legislation which was supported by industry and supported by the environmentalists; a major overhaul of safe drinking water; a major overhaul of pesticide toxics. Those did not get through the Congress in the last days of the Congress, but that is, I think, one of the most important aspects of why the Congress and the President have to work together, and we are prepared to work with you.

Senator GRASSLEY. I think the legislation you mention is legislation that needs changes. I am not sure, though, that it would be right for you to say that that legislation would have resulted in less regulation.

Ms. KATZEN. That was the template we were working with, and I think it was clear that safe drinking water used to require the

existing law currently now requires 25 levels for contaminants to be set every 3 years. Those kinds of things were wiped out of the statute and modified to focus on only the risky ones. I mean, that is how we were looking at the statutes.

Senator GRASSLEY. You mentioned in your statement that you support cost-benefit and risk analysis legislation. Does the administration have any such proposal that they want us to consider before we start marking up this legislation? Will you have any language to us?

Ms. KATZEN. We will be happy to work with you on those points. We set forth our philosophy and our principals in Executive Order 12866. Much of the language that is in section 622 is very clear and is appropriate. As you noticed, I focused on other sections here that go beyond that, but in terms of what you have specified for the guts of a cost-benefit analysis, I think, is clearly a major step in the right direction.

Senator GRASSLEY. Can I go to the President's Executive Order of 1993 which you feel is one of the cornerstones of your effort in regulatory reform? Specifically, has any rule or regulation that you consider to be major been reviewed to make sure that it met the standards of the executive order, and have any changes been made if you found it to be subject to it?

Ms. KATZEN. We use a different definition of "major." We use the term "significant" where you are intending to use the word "major." Our dollar threshold is $100 million instead of the $50 million. That is the threshold that President Reagan had used, and indeed that President Carter and indeed that President Ford had used, and that has been our threshold.

On those rules that we review, each one is reviewed for precisely that analysis to determine whether the agency has thought through the consequences of its actions, if it has assessed the costs, if it has assessed the benefits. If it is permitted by the statute, then those are the criteria that we focus on and that we work with the agencies to enhance the cost-effectiveness, and a number of changes have been made. Provisions of regulations have been dropped, others have been modified, and others have been enhanced.

The Department of Transportation, for example, did a very good, rigorous cost-benefit analysis on side impacts of light trucks and vans, and found that what they wanted to do for the front-seat passengers was highly cost-effective. What they wanted to do for the rear-seat passengers made no sense, and when they saw the analysis and the statistics that were prepared, they modified the rule and thought about different types of safety components that were more cost-effective. That rule was substantially modified in process as a result of this kind of analysis, which is why we support this type of analysis. But the simple answer is, yes, we review and, yes, there are changes made.

Senator GRASSLEY. I want to explore with you the executive order being enforced. If an agency ignores the executive order and doesn't carry out the necessary analysis, don't we need an effective judicial review so that the affected parties have an objective recourse?

Let me follow that on before you answer. Why shouldn't agencies be willing to write rules within the legal framework that gives them some discretion but can also withstand judicial scrutiny? The bottom line is what sort of alternative mechanism, if you don't like judicial review, would you support to get the job done?

Ms. KATZEN. Mr. Chairman, I understand the logic of the question and I can subscribe to the basic principle. My experience in 2 years of administering this for the President is that the heads of the agencies and the heads of the departments are appointed by the President, and when we raise serious questions, they understand their obligations and they do not ignore our recommendations and they do not dismiss our recommendations.

We work with them to produce the most sensible and the most cost-effective regulations that we can, and this is an area in which judicial review will probably be less effective than almost any other. As you know, courts traditionally defer to the agencies on this type of issue. They can't make the tradeoffs. Do they determine that several hundred millions of dollars of costs is worth a certain number of statistical lives? What if, instead of $200, it is $1,000? Is a court going to draw those kinds of lines and decide the rule should be done in a slightly different way?

The courts have traditionally declined to become involved, and yet

Senator GRASSLEY. More so, though, with the regulatory agencies than with the enforcement agencies, like the Cabinet-level ones.

Ms. KATZEN. Well, I think both of them are subject to these constraints, and both of them recognize the importance of not wasting resources. We are all acutely aware that it is not just the Government that has limited resources, and if we ask business to spend money where it is not productive, where it is not achieving the results, we are not able to say that we are doing our job.

So the incentives are there and the force of the Presidency is there. The ability of the courts to do anything on a realtime basis on areas this complicated-you can see a cost-benefit analysis is in inches, and sometimes more, and for the courts, with their workload, you will end up having an economist's full-employment act advising courts on the kinds of analyses that need to be done. This is not the area where traditionally the courts have been the most effective.

Senator GRASSLEY. The administration is on record, though, supporting risk assessment, isn't it?

Ms. KATZEN. Yes, it is.

Senator GRASSLEY. Some see the implementation of guidelines, as opposed to rules, as a method of actually circumventing the requirements of executive orders or any requirements of cost-benefit or risk assessment. Do you see any problem or potential problem

in this area?

Ms. KATZEN. When we drafted Executive Order 12866, we were acutely aware of that problem and made it clear that the executive order would pertain to guidelines which had the effect of a rule. I think this is something that the Administrative Conference has talked about, and scholars in the area have been acutely concerned with that and it is why our executive order would cover them.

Senator GRASSLEY. Does the administration support both OMB and the Administrative Conference's recommendations that would encourage greater reliance upon voluntary standards and conformity assessment systems in regulatory reform, which includes, as an example, audited self-regulation in some areas?

Ms. KATZEN. Yes, this is something which is being explored. Both performance standards and all sorts of market mechanisms that can come to play in this area are very worthwhile. They are more efficient, and we are in favor of efficiency so we have supported those types of activities.

Senator GRASSLEY. I want to ask you a question that was a subject that was brought up at Wednesday's hearing, and it is something that I am very well acquainted with. You may not be specifically acquainted with it, but I think I use it as an example and ask you to comment.

At Wednesday's portion of the hearing, we heard testimony from a constituent of mine, Rick Keith, who is the general manager of a grain elevator at Mallard, IA. Mr. Keith testified that his business will spend $100,000 to comply with EPA regulations promulgated under the Clean Air Act. Yet, there will be absolutely no benefit to the environment or public health as a result of that $100,000 expenditure, and that was basically related to filling out 280 pages of forms that had to be filled out.

You were not present, so I will explain how this could be the case. The EPA requires stationary sources, such as grain elevators, to complete a permit application if the source has a, "potential to emit" 100 tons of particulate matter. In calculating a source's potential to emit, the EPA assumes that the source is producing emissions 365 days per year, 24 hours per day. Using this calculation, all of Iowa's 1,000 grain elevators must file a permit application. In reality, grain elevators are a very seasonable business, operate only 40 days per year, and have an actual emission of about 10 to 20 tons.

None of these emissions are toxic, but each elevator must spend between $20,000 to $50,000 to hire consultants and complete the application. Since their actual emissions are so low, the EPA does not require them to reduce emissions. All the cost and time spent in 99 percent of the cases results in no reduce emissions and no environmental benefit. We would like to avoid absurd regulations such as this in the future.

You testified that you have many concerns about the cost-benefit analysis required in S. 343. What would you suggest Congress should do to prevent the bureaucracy from writing regulations that result in no public benefits, but have a very high cost to business?

Before you answer, and that will be my last question of you, this is a situation where this sort of regulation is going on at our grain elevator. My son operates our family farm. Each fall, he combines the corn and if I have got time, I haul the corn to the local elevator, and we dump it out of the wagons into the pits that take it up into the silos.

You know, I have worked with this sort of dust 61 years now. It is not a problem, and yet we have this sort of regulation. I just use this as an example, and it may not be fair to you to use it as

an example because you are much more broad in approaching this stuff, but I just give you that as one example.

Ms. KATZEN. I think it is an excellent example and I think it proves what all of us have said. There are too many regulations; they are too burdensome, they are too costly. One has to look at what was the basis for this. I happen to be vaguely familiar with this type of situation in which the statute requires or sets forth a particular standard.

The agency will use a conservative assumption in designing the regulation because if there is to be a default one way or the other, they would rather err in protecting the environment and protecting human health and safety than in the opposite direction.

There may be oversight by Congress and the authorizing committees may be working very closely, as they often do, with the agencies as they are crafting these kinds of regulations to encourage them to be aggressive in implementing the intent of Congress, as they see it, even if it produces, as it does in this instance, something which an individual would say this doesn't make any sense. The President was specifically addressing those kinds of regulations on Tuesday when he said, no more, this is silly. I think he said at one point regulators have gotten to the point of so many do's and don't's that they have obscured the objective that we are trying to achieve, and he called for plans by June 1 of a page-bypage review of existing regulations.

What you are talking about is a situation where regulations and paperwork intersect, and 2 days ago the House approved the Paperwork Reduction Act reauthorization. I believe it is expected to come to the Senate floor in the next several weeks or so.

Senator GRASSLEY. It is out of our Governmental Affairs Commit

tee.

Ms. KATZEN. Yes; the paperwork piece reinforces our office's objectives in this area, and, working together, we should be attacking exactly the kind of example that you are giving us because that is a legitimate source of frustration to the American public which is not as productive and as fruitful as we should be striving for. I think it is an excellent example of what is wrong.

Senator GRASSLEY. I thank you very much. You have been kind to be with us this long and we appreciate your testimony. Of course, we are going to be appreciating working with you as we develop this legislation.

Ms. KATZEN. I look forward to working with you also, Mr. Chairman. Thank you.

[The prepared statement of Ms. Katzen follows:]

PREPARED STATEMENT OF SALLY KATZEN

Good morning, Mr. Chairman and Members of the Subcommittee. I am pleased to be here today to discuss with you S. 343, the "Comprehensive Regulatory Reform Act of 1995." The Administration looks forward to working with you in the coming months as we both engage in efforts to improve our regulatory system.

The stated goal of S. 343 is to produce a more rational rulemaking process by increasing the opportunities for public involvement, by focusing agencies' attention on the consequences of their regulations, and by requiring central presidential review of important new regulations. These are laudable goals, which the Administration fully and actively supports. Indeed, we have spoken frequently and forcefully of the importance of basing regulatory decisionmaking on good data and good analysis of costs, benefits, and risk, of the importance of centralized regulatory review, and of