S. 343 currently does not address. Solutions to many of those problems were advanced in S. 1080-solutions which the ABA supported. We urge that if you do not address these problems in S. 343, you do so in separate legislation in the near future. The reforms needed in the APA, and equivalent provisions in other federal statutes, would complement and strengthen S. 343 by making the federal rulemaking process fairer and more rational.

The Association strongly supports regulatory reform. S. 343 is a good start in that direction. Since the late 1970s the American Bar Association has been committed to the following general principles applicable to regulatory reform at the federal level:

• Regulatory analysis should be required by statute and should apply to promulgation of all new major rules by executive branch agencies and the so-called independent agencies.

• Regulatory analysis should include cost/benefit and cost effective evaluation of the proposed major rule and alternatives to it.

• Unless expressly prohibited by the language of the agency's organic statute, the alternative adopted should be the one that produces the greatest net social benefit.

• Regulatory analysis, and comments on it from within the government and by the public, should be part of the record for judicial review of the final rule.

• Existing rules should be reviewed periodically and those with impacts that would make them major rules if newly promulgated should be reevaluated under similar criteria and procedures.

• The standards for review of agency rules on appeal should be clarified to assure that the courts take a hard look at the agency's interpretation and application of the statutes and that the necessary or asserted factual basis for the agency's decision is supported by the record for review.q2

• The Administrative Procedure Act (APA), and any other federal statute that includes an exemption from some or all of the provisions of the APA and substitutes its own procedural requirements, should be amended or supplemented to resolve long standing basic procedural problems involving agency rulemakings.

All of these principles were reflected in provisions in S. 1080, as it passed the Senate 94 to 0 in 1982. The ABA supported the bill in its entirety then, except for its legislative veto provisions which the Association believed to be unconstitutional. The Association still supports these basic principles of regulatory reform, though the translation of these principles into statutory language needs to be reexamined to adapt to the realities of today's administrative law practices. Translating these principles into application to the bill before you today, S. 343, we offer these com

ments:

1. As a general proposition, we support the general approach taken in S. 343 of using concepts reflected in S. 1080 and Executive Order 12291 for (a) defining a major rule, (b) prescribing the contents of a cost-benefits analyses and (c) providing for a cost-benefit based decision with regard to the selection of the final rule. We also ask you to consider possible inclusion of new concepts in Executive Order 12866 in the statutory definition of major rule.

2. We note that in connection with the definition of “major rule" in §621(4)(A)(i) that:

A. The $100 million figure has stood the test of time in the Carter, Reagan, Bush and the Clinton Administrations. Experience has shown that regulatory analysis of rules of that magnitude is practical and not disruptive or overly burdensome. Where followed, it has often produced better rules. We have reservations about decreasing this figure. A substantially lower figure could be counterproductive by diverting limited agency resources into analysis of rules that by definition would be less costly.

B. The criteria in §621(4)(A) (ii) and (iii) are based on S. 1080. While terms like "substantial increase" and "significant adverse effect" are inherently subjective, these criteria have been around for some time and workable. We supported their inclusion in 1982 in S. 1080 and we support their inclusion in new S. 343.

C. We note that the Clinton Executive Order added additional criteria for major rules, which it called "significant regulatory actions".

They are rules that:

• Adversely affect in a material way *** the environmental, public health or safety * * *"; (new § 3(f)(1), picking up an earlier provision in S. 1080.)

• Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (new § 3(f)(2))

• Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; (new §(f)(3)) and • Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive order. (new §3(f)(4))

We urge you to consider adding them to the statutory definition. The rules described would have major impacts that merit the rigorous scrutiny of the regulatory analysis process.

D. The definition of "market-based mechanism" in §621(7) is a relatively new concept that had no parallel in S. 1080. It thus should be scrutinized to assure that it has sufficient flexibility to be workable and effective when applied to concrete decisions.

SECTION 622. RULEMAKING COST-BENEFIT ANALYSIS

This provision generally follows the pattern of S. 1080 which the Association supported and still supports. In this regard we note that in §622(c)(2)(C)(iii) the phrase "market based standards" has been substituted for "other alternatives." It is obviously based on recent favorable experience under the Clean Air Act, but the change in language from that used in S. 1080 could be viewed as limiting rather than broadening the range of available alternatives. As a general proposition, we believe that the agency should consider all reasonably feasible alternatives. We accordingly urge that you clarify that the provision is not intended to narrow the range of alternatives or to preclude adoption of the best alternative.

SECTION 623. DECISIONAL CRITERIA

We support this provision. But we note that the phrases in (b) "except when such statute contains explicit textual language prohibiting the considerations of the criteria set further in this section" needs to be read in conjunction with new §628, which essentially codifies the "hard look" line of decisions under the Chevron Case. Thus where a provision in an agency's organic statute clearly precludes consideration of the costs of a proposed rule, this provision is not intended to amend the statute to require their consideration. At the same time where a statute is silent or ambiguous, then this provision would operate to supplement the decision criteria.

SECTION 624. JUDICIAL REVIEW

We support limited judicial review of an agency's, but not the President's, decision on whether or not a proposed new rule is or is not a major rule. Review of the President's decision would raise a serious separation of powers Constitutional question. But in an agency context, judicial review is an additional "anti-evasion" safeguard to assure that the agency performs the required analysis. But we doubt the efficacy of § 624(b) in this regard. In most instances it would be impossible for potential appellants to marshall sufficient evidence before the agency's classification decision to meet the "clear and convincing" test. Most of the "effects" information is likely to be generated after the rule is proposed, often though the comments of other agencies as well as private persons. We believe that a more effective alternative would be to provide that an agency's classification decision can be the subject of judicial scrutiny in the context of judicial review of the promulgated rule. There the agency decision would be viewed under the revised Chevron test §628, if a question of law, or a "substantial evidence" or "substantial support" test, if a question of fact. The latter would be less burdensome for the appellant than a "clear and convincing" test. If the agency's classification action decision resulted in fundamental deficiencies in the record of decision, the rule would be reversed and remanded. We suggest that you look at a variant of the Clean Air Act §307(d)'s reconsideration procedure for an example of how this might be done. An objection to the classification of the rule would normally be required to be raised with reasonable specificity during the period for public comment. But if a person raising an objection thereafter could demonstrate that it was impractical to raise such an objection during the comment period, and if the objection is of central relevance to the outcome of the rule, the court should reverse and remand the rule for further consideration under the provisions of this bill. Thus, the Agency's action would not be subject to review separate and

apart from the rule, but there would still be a remedy where the agency's erroneous classification resulted in a defective rule.

SECTION 625. PETITION FOR COST-BENEFIT ANALYSIS

As noted above, the Association is on record as supporting periodic review of existing rules. This provision is a variant of provisions in S. 1080 that would have mandated that process, requiring each agency to develop a strategy for when and how. We still support requiring such a process. Section 625 takes a different approach by permitting those persons subject to the rule to initiate such a review of an existing rule that is reasonably likely to meet a “major rule” test for a new rule. A "standings" requirement is reasonable and we support it. We suggest that the provision here authorize anyone with standing to submit such a petition. We note that under the existing Administrative Procedure Act, all persons with standing already have a right to petition an agency for repeal or amendment of an existing rule. The deficiency of the existing process is that there is no statutory deadline for agency action on the petitions. This provision cures that deficiency, which S. 1080 would have done by amending the APA.

SECTION 626. EFFECTIVE DATE OF FINAL REGULATIONS

Subsection (a) provides for an extension of statutory deadlines for promulgation of new rules where such an extension is necessary to enable the agency to comply with the new requirements that would be imposed by this bill. It essentially codifies existing case law. We support it.

As to subsection (b) in 1982 the Association opposed the legislative veto provision in S. 1080. Since then the Chadha decision has indicated that such provisions are unconstitutional. Subsection (b) is designed to avoid the pitfall of the constitutionality defined in Chadha and to substitute a "notice and wait" provision for new major rules. The purpose is to afford Congress an opportunity to exercise its oversight responsibilities by passing a joint resolution of disapproval. Timely Congressional action amending the underlying statute to withdraw authority for promulgation of the rule would, if not vetoed by the President or, if vetoed, overridden, would be constitutional. Further analysis is needed to comment on the internal congressional procedures proposed here. As currently drafted, the bar to effectiveness of a new rule could impose uncertainty as to when or whether it will take effect. This uncertainty could result in hardships on persons potentially subject to the rule or to persons who are its intended beneficiaries. For a practical alternative, you might consider amending the Administrative Procedure Act, and any other acts that exempt an agency from the APA but provide equivalent procedures, to provide that no major rule will become effective for 90 days, or even 120 days, after publication of notice of its promulgation in the Federal Register. Such a window of time should prove adequate for Congress to act expeditiously to amend the organic statute in the relatively rare instance of a rogue major rule.

SECTION 627. UNAUTHORIZED RULEMAKING

We believe that subsection (a) is confusing and is not needed. Section 628 already adequately addresses the basic problem of an agency's seeking to exceed its statutory jurisdiction or authority.

SECTION 628. STANDARD FOR REVIEW OF AGENCY INTERPRETATIONS OF AN ENABLING STATUTE

This section essentially codifies the "hard look" line of Chevron cases. The Association supports it.

Subchapter IV. Executive oversight

The President has constitutional oversight authority to see that federal agencies comply with all statutory requirements. Sections 651 through 655 through line 20 on page 27 recognizes this. The Association supports them.

Page 27, line 21 et seq.: "(b) Judicial review of regulation flexibility analysis.—”

The Association has no present policy that directly addresses the judicial review proposal made here. We are examining the issue and will give you comments later. Amendments of the administrative procedure act

As a general proposition, the Association supports greater procedural rights to participants in rulemaking. We believe that, as in S. 1080, that is better undertaken though a series of general amendments to the Administrative Procedure Act, and

through conforming amendments to other federal statutes that exempt specified federal agencies from some or all of the APA requirements and provide equivalent or parallel procedures for rulemaking. Most of these issues are not, however, before you today. They may be addressed on a separate track or through other legislative approaches. They are, however, worthy of your future consideration because they are directly relevant to overall improvement of the rulemaking process. One example serves to illustrate this point. It is the current exemptions from the notice and comments requirements of the APA found in §553. The ABA has long favored eliminating the exemptions for “public property, loans, grants, benefits, or contracts." In addition, we have been concerned when agencies issue guidance and interpretations that in fact become binding on members of the public. If rulemaking gets more rigorous, as is likely if S. 343 is enacted, then agencies will have even more incentive to regulate via non-rule rules and thereby evade requirements attendant to rulemaking. S. 1080 addressed both of these problems relatively well. It would have amended § 553's exceptions to read:

"(1) a matter pertaining to a military or foreign affairs function of the United States;

“(2) a matter relating to the management and personnel practices of an agency; "(3) an interpretative rule, general statement of policy, or rule of agency organization, procedure, or practice, unless such rule or statement has general applicability and substantially alters or creates rights or obligations or persons outside the

agency; or

“(4) a rule relating to the acquisition, management, or disposal by an agency of real or personal property or of services that is promulgated in compliance with criteria and procedures established by the Administrator for Federal Procurement Policy or the Administrator of General Services."

If you decide to proceed with the long needed review of the APA, we request authorization to supplement our testimony by specific proposals.

In conclusion, the Association stands ready, as it did in the early 1980s in your consideration of S. 1080, to assist the Committee and its staff in any way as you move forward to consider S. 343 and related proposals for regulatory reform.

Senator GRASSLEY. I do have a few questions and each of you can respond, if you want to, even if I direct it to one or the other.

What do you think about Professor Strauss' idea that to ensure private initiative on the major rule question you could permit a petition to OIRA, with a copy to Congress, and then allow some kind of judicial review on the merits?

Mr. CYNKAR. I guess I have two reactions. One is that members of the public being able to deal with OIRA on any particular issue is not a bad idea. I think that is part of the transparency that Administrator Katzen talked about, or should be. Whether you want to have that process subject to separate judicial review seems to me to be an inept application of judicial review; that judicial review would be more appropriate in the context of reviewing a rule, including reviewing the decision about whether a rule should be major when the final rule is being reviewed.

Mr. FREEMAN. I would agree with that.

Senator GRASSLEY. You know, I think, that opponents of risk assessment argue that it is expensive we have heard that today— and that the results many times don't justify the effort. They argue that EPA already spends $70 million a year on just the pesticide programs and new requirements would multiply costs. Do you agree? How do you react?

Mr. FREEMAN. Well, I will go first on that, since I clearly go back to having been around here when NEPA was passed in 1969, which requires agencies to do cost-benefit analysis. I also participated on the part of industry in the famous Calvert Cliffs decision. We thought it was a terrible thing to make the Nuclear Regulatory

Commission do cost-benefit analysis of the licensing of nuclear power plants. We fought it and we lost. After we lost, we thought about it and we thought what a damn good thing it was because it made the agency look at the thing and say what it was doing and balance the costs and the benefits. So I became a convert.

The environmental movement was split in those days, too. Half the people in the environmental movement were all for this kind of analysis. I remember Tony Royceman and I in an article were thought to be the odd ducks because I from an industry point of view, and he from the environmental point of view were all for cost-benefit analysis of these rules.

The agencies have been doing them informally in the Carter administration. They did them in the Ford administration, they did them in the Reagan administration, they did them in the Bush administration, and according to Ms. Katzen they are doing them today in the Clinton administration. These things have become routine.

Again, in these cases that come to us that are reviewed here, we have those kinds of analyses that are available to the courts. What they do, in general, is where the agency does that kind of analysis, we are getting better rules. Boyden cited here earlier the rulemaking under the Clean Air Act amendments that now allows mission trading. This analysis works. It is doable, and if it takes a little more time to make a right decision, it is better than rushing to judgment and then having to undo the bad decision.

Mr. CYNKAR. I would only add one thing to George's comment, Senator, and that is this. There seems to be an assumption with both cost-benefit analysis and risk assessment that it is one thing, and both are analytical tools that I think in terms of expense and scope can be adjusted depending upon the regulation or the decision made. When you have a regulation that is tremendously broad in scope affecting many sectors of the economy, it may be more involved than a regulation that does not involve so many different is

sues.

Senator GRASSLEY. In relation to Chadha and our modified legislative veto provision in section 626, what is your view of the constitutionality?

Mr. CYNKAR. Senator, I think that Chadha clearly said that when Congress acts, it can only act through legislation. That is two Houses passing a bill and presenting it to the President for his veto or approval. As I understand this legislation, that is what the Congressional review provisions do. So I think there is no constitutional issue here.

Mr. FREEMAN. I would agree with that. I will add, however, that from a practical point of view, in our prepared testimony we point out that there is a problem here of certainty and deadlines and when a regulation may or may not become effective under this provision. What we would suggest is that you suggest a much more simplified procedure which, in the case of major rules, would simply be an across-the-board ban of 90 or 120 days on the effectiveness of the rule, with a notice provision to the Senate and the House so that you could have oversight hearings and do the same thing anyway.