1. FEBRUARY 24, 1995 QUESTIONS FROM SENATOR HOWELL HEFLIN ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS Outline for the subcommittee your concerns about the "major rule" definition of S. 343. How would you change this provision found in Section 621? Answer: As I indicated in my written statement, it is important that the resources devoted to regulatory analysis should be commensurate with the significance of the decision to be made. We believe that the threshold for requiring cost-benefit analysis should be raised from the $50 million in S. 343 to $100 million (the amount selected by every President since President Ford). - We also believe that you should delete the non-numerical factors i.e., "substantial increase in costs or prices" and "significant adverse effects" - from the definition of "major rule." These phrases are appropriate for an executive order that is not subject to judicial review. But once written into statute, to be interpreted by the courts, they could start down a slippery slope of uncertainty which may cause courts to require analysis in situations that would overwhelm the benefits to be derived from such analysis. 2. What should S. 343 contain with regard to requiring ... .... Answer: On February 21st, the President specifically instructed Federal regulators "to go over every single regulation and cut those regulations which are obsolete We should ask ourselves Do we really need this regulation? Could private businesses do this just as well with some accountability to us? Could state or local government do the job better, making federal regulation not necessary?" On March 4, the President sent a memorandum to the heads of departments and agencies, asking them to deliver to him "by June 1 a list of regulations that you plan to eliminate or modify It may be desirable, at some future point, to consider the need for possible legislation to have agencies, on a long-term, periodic basis, review existing rules (modelled, perhaps, on Section 641 in Title I of S. 291). But given the President's initiative, enactment of any such legislation would seem to be premature at this time. 3. Some environmental and public health and safety groups claim that S. 343 could "gut" major regulations in these areas in a "back door" approach. How do you react to that criticism and if you do, which particular provisions "gut" these regulations? Answer: Section 623 of S. 343 states that unless an existing statute "contains explicit textual language prohibiting the consideration" of the decision criteria specified in the bill, The We They these criteria "shall supplement the decisional criteria for rulemaking" under the statute authorizing the rulemaking. significance of these 21 line should not be underestimated. have the potential to change underlying statutory standards without even identifying precisely what is being changed. believe that it is inappropriate to change underlying standards - standards that were vigorously debated and that implicate a myriad of social and economic policies in the guise of procedural reform. Moreover, as I indicated in my written testimony, certain provisions related to judicial review Section 624 (d) as reinforced by Section 628 -- would make federal courts responsible for sorting out the effect of the new decision criteria upon existing statutory standards. This would make judges, rather than Congress, responsible for deciding what changes in social and economic policy will be made. 4. Which of the bill's judicial review provisions have merit, in your judgement, and which, if any, should be deleted or modified? Answer: The Administration opposes judicial review of what are essentially management tools to aid agencies in producing more cost-beneficial and cost-effective regulations. The objective of regulatory reform legislation should be to improve the regulatory decisionmaking process, not to create unproductive paper record requirements or additional opportunities for litigation. We should think twice before inviting generalist judges to evaluate the quality of science and scientific judgment used in reaching regulatory decisions; before we give economists the opportunity to serve as expert witnesses opining on the sufficiency or accuracy of the cost or cost-effectiveness estimates an agency made before promulgating a regulation; and before requiring Federal agencies to spend added time satisfying (with the extra margin needed to assure affirmance in court) each step, producing even more paper and an even larger record efforts that would consume a great deal of time and resources without producing sounder regulations. Accordingly, we believe that there should be an explicit prohibition on judicial review, similar to that adopted in the last Congress in the Johnston Amendment to the Safe Drinking Water Act. - 5. Section 626 of the bill allows that major rules lay over in Congress for 45 days awaiting a potential legislative override. You have some problems with this, but isn't this preferable than allowing judicial review by unelected Federal judges? Could some of your concerns be satisfied by extending the lay-over period from 45 days to say 90 days? Rather, Answer: Our concerns are not with the period of time. we do not think a congressional lay over would improve the rulemaking process. As I indicated in my written testimony, adding a congressional lay over would encourage interests affected by proposed regulations to take their concerns not to the appropriate agency, but to Congress, which has neither the time nor the resources to resolve the specific factual contentions that are likely to be raised by affected interests. Congress presently has sufficient authority to oversee agency implementation of statutes and issuance of regulations through the traditional means of oversight hearings and informal discussions with agency heads and staff. QUESTIONS FROM SENATOR STROM THURMOND ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS 1. Ms. Katzen, I understand that your office is responsible now for reviewing all significant agency rules to ensure that the benefits justify the costs of the rule. Could you please explain how your office currently handles that responsibility, including the number of rules you review on average, the scope of your review, and how often you reject the cost-benefit analysis done by the agency? Answer: Last year, in 1994, my Office reviewed a total of 831 draft regulations in proposed and final form. of this total, 135 were considered to be "economically significant." As a result of our review, 444 did not change; 310 did change; 36 were withdrawn by the agency; 10 were determined to have been sent improperly; one was cleared on an emergency basis; and 30 were cleared quickly in response to a statutory or judicial deadline. The scope of our review varies, depending on the importance, potential controversy, and interagency interest pertinent to the regulation being reviewed. As general matter, we do not reject the cost-benefit analysis that an agency may submit for our review. Rather, we will review it and if we discover possible methodological weaknesses or have other concerns with the analysis, my staff and I will discuss our concerns with the agency and seek needed clarification or improvement. 2. Ms. Katzen, could you please describe any differences you see between the scope of cost-benefit analysis that agencies conduct under the Executive Order now, and the type of analysis that would be required by legislation such as S. 343? Answer: Compared to E.O. 12866, S. 343 would require agencies to prepare regulatory impact analyses for a significantly larger number of regulations, and would also substantially increase the number of regulatory reviews that OIRA must conduct. This is because S. 343 has a lower dollar threshold than E.O. 12866 ($50 million rather than $100 million). Also, given judicial review of the non-numerical criteria for determining what is a "major" rule, we anticipate that agencies, uncertain as to what the courts might require, will designate a larger number of regulations as "major" than they now do. The type of cost-benefit analysis that would be required by S. 343 is very similar to what agencies now prepare. Given the broad range of complexity and impact of the regulations issued by the many different agencies, the agencies would most likely continue to adapt the kind and scope of analysis that they undertake to the varying kinds of regulations that they issue. 3. Ms. Katzen, some assert that despite the current Executive Order, many agencies are reluctant to use risk assessment and market-based incentives. Do you believe that this is the case, and if so, do you think that legislation establishing judicial review will help overcome agency reluctance? Answer: I am not aware that agencies are reluctant to use risk assessment if it appears appropriate. Instead, it may be that the agency does not have the statutory discretion to make the kinds of choices that a risk assessment may assist, or it may be that the kind of risk being regulated -- i.e., the safety characteristics for a properly functioning jet engine not benefit from the detailed biological studies that are normally part of a risk assessment. would Again, I do not think that agencies are reluctant to use marketbased incentives. I would note instead that while the habitual pattern for agencies in the past 30 to 40 years has been often to rely on command-and-control, rather than performance standards or market-based incentives, agencies are making progress in changing their approach, and are increasingly moving toward performance standards. The objective would be to allocate resources to develop better measures of performance and a better understanding of how other market mechanisms work in practice. - Establishing judicial review in legislation would, I believe, be counterproductive. To have agencies move toward the different methods of enforcement and regulatory oversight that use of market-based incentives and performance standards requires, agencies need to make crucial decisions early in the rulemaking process and even before then, when they are designing the whole scope, staffing, and enforcement strategy for the regulatory program involved. If those kinds of decisions are to be second-guessed at the end of this process, the agencies may opt in the first instance for the more conservative, "tried and true" course, rather than engage in more innovative approaches. 4. Ms. Katzen, how do you respond to those who assert that President Clinton's Executive Order relating to costeffective regulations is substantially weaker than similar orders in previous Administrations? Answer: I do not agree. The regulatory principles in E.O. 12866 are just as strong and explicit as those in E.O. 12291 or 12044. 5. Ms. Katzen, you raise important concerns about the definition of "major rule" in S. 343. For purposes of comparison, how do you currently determine which agency rules are "significant" under the Executive Order? Is the determination based simply on having an impact of more than $100 million? Answer: In determining whether a regulation is "significant" and thus appropriate for our review under E.0. 12866, we use a variety of criteria (see Section 3 (f)). To determine whether a regulation is "economically significant" and thus appropriate for a cost-benefit analysis as required by Section 6 (a) (3) (C), our touchstone is the $100 million threshold. We may also rely on the other criteria in Section 3 (f) (1) "adversely affect in a material way the economy," etc. - If As a general matter, we first look to the agencies to designate regulations as "significant" or "economically significant." we have questions about a given designation, we may ask for additional information about the planned regulation, and may, based on our review of that additional information, suggest a redesignation. If there is a disagreement about the appropriate designation, the OMB designation would generally prevail. I want to add that as part of our preparing a review of agency implementation of E.o. 12866 one year after it was signed, we looked at the Federal Register to see if there was any evidence of "gaming" of the categorizations to avoid review. We found none and did not discover any regulation that should have been designated as "economically significant" which we did not know about at the time of our actual reviews. 6: Ms. Katzen, in determining whether the dollar limit is met for a "major rule," do you think that one-time costs of compliance should be amortized, so that only part of the cost of new equipment, for example, is considered in a single year, or should the total amount spent be considered in the year it was incurred? What is the current practice under the Executive Order? - - Answer: I understand our current practice is generally to amortize the one-time costs of compliance. On the other hand for example, for a regulation having particular impact on small business we may also give particular weight to the total amount to be spent in any specific year. In other words, we try to evaluate the economic significance of a regulation based upon the nature and impact that it may have in the real world. Given the variety in regulations and the different kinds of effects that they have, it is important to have flexibility in choosing the methods of weighing the $100 million, so that we can choose the most appropriate under the circumstances of the particular rulemaking involved. The need to preserve such administrative flexibility also suggests that it would be preferable to avoid judicial review of this kind of administrative decision. 7. Ms. Katzen, you raise concerns about allowing the Congress a period within which to disapprove regulations because of concerns about lobbying and similar matters. Based on Congressional experience under the Rules Enabling Act which establishes a similar period for disapproval by the Congress of changes in Federal court rules, it seems likely that only the worst regulations, on which there is a very broad consensus, could be stopped or modified in such a short time frame. My question is whether the Congress should not ultimately be responsible for the regulations that is has authorized in the first place? - Answer: There is no question that Congress should be and is ultimately responsible for the regulations that are promulgated under authorizing legislation. So is the President. The question therefore is not which branch is responsible both are; the issue is which oversight mechanisms are most appropriate and effective for the two branches given their structures and overall responsibilities for governance. they Agencies develop rulemakings through well-established and understood administrative procedures that balance the concerns raised by the public and involve agency career staff, agency management, and the Executive. When that process is finished (when the regulation is promulgated with, as a general matter, a 30-day delay in its implementation), the Congress has its oversight as well as legislative activities to take any corrective action that may be necessary. Were Congress to be involved in the last days of the administrative process, it would encourage interests affected by proposed regulations to take their concerns not to the appropriate agency, but to Congress, which lacks the time and resources necessary to resolve the specific factual contentions that are likely to be raised by affected interests. A comparison with the Rules Enabling Act may not be particularly informative here. Only a handful of changes are made to the Federal Rules of Civil and Criminal Procedure, Federal Rules of Evidence, etc., each year, while administrative agencies issue or amend approximately 800 significant regulations annually. Further, administrative regulations are substantive and affect a broad range of interests, while judicial rules issued pursuant to the Rules Enabling Act are almost purely procedural. |