COMPREHENSIVE REGULATORY REFORM ACT

OF 1995

FRIDAY, FEBRUARY 24, 1995

U.S. SENATE,

SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT

AND THE COURTS,

COMMITTEE ON THE JUDICIARY,

Washington, DC.

The subcommittee met, pursuant to notice, at 9:38 a.m., in room SD-226, Dirksen Senate Office Building, Hon. Charles E. Grassley (chairman of the subcommittee), presiding. Also present: Senator Thurmond.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE STATE OF IOWA

Senator GRASSLEY. I want to welcome everyone to our meeting today. As you probably know, we were here on Wednesday as well, and so we are continuing our hearing on S. 343, regulatory relief legislation. The legislation before us has its foundation in legislation that I and Senator Heflin, who is the ranking Democrat of this subcommittee, introduced in 1983. At that time, it was S. 1080. That legislation passed the Senate unanimously, 94 to 0, so there is a great potential, I think, to have strong bipartisan legislation. I hope that is possible, anyway. The purpose of this hearing is to help us get there, so I look forward to today's witnesses.

Before our first witness begins, if there is no objection, I want to put in the record statements by Professor Cass Sunstein, as requested, as well as a corrected version of the statement that we received Wednesday from Peter Ferrara. We also have a statement from the National Food Processors Association.

[The corrected version of the prepared statement of Mr. Ferrara is located in the hearing of February 22, 1995.]

[The prepared statement of the National Food Processors Association follows:]

PREPARED STATEMENT OF THE NATIONAL FOOD PROCESSORS ASSOCIATION

My name is Juanita Duggan. I am Senior Vice President for Government Affairs of the National Food Processors Association (NFPA). NFPA is the science-based association of the food industry whose 500 members manufacture the nation's processed-packaged fruits and vegetables, juices and drinks, meat and poultry, and specialty products.

NFPA very much appreciates the opportunity to present this testimony in support of S. 343-the "Comprehensive Regulatory Reform Act of 1995." At the heart of the bill is the statutory requirement that for all major rules the responsible agency (79)

must prepare and be guided by a comprehensive and conscientiously prepared costbenefit analysis.

NFPA'S LONG-STANDING SUPPORT FOR COST-BENEFIT ANALYSIS OF REGULATIONS

NFPA has been a vigorous advocate of a statutory cost-benefit requirement for more than 20 years. At the 1974 Agriculture and Food Economic Conference called by the White House in order to address inflation and related economic problems in the food industry, NFPA proposed that for all new government controls the "benefits be evaluated in terms of their real cost to the economy and consumers," and that Congress enact legislation "establishing a mechanism by which the consumer cost of any proposed program can be determined and balanced against the benefits to be achieved."

NFPA and its members were thus quite gratified when President Ford shortly thereafter promulgated the first executive order to require consideration of the cost impact of all major federal regulations. Executive Order 11821 called for the preparation of inflation impact statements, which were to include consideration of the cost impact of proposed rules, their effect on productivity and competition, and their effect on supplies of important products and services. Succeeding executive orders, promulgated by every President thereafter, have built upon these principles to require preparation of regulatory impact analyses for proposed and final regulations that may have major economic consequences for the general economy, or particular segments thereof.

NFPA welcomed these presidential directives requiring a cost-benefit analysis for major rules, but we soon came to realize that the effectiveness of these orders would fall far short of their intent unless agencies could somehow be held accountable for their failure to comply. At an early stage a United States court of appeals held that persons adversely affected by final rules could not object to such action on the grounds that the agency did not adequately comply with the requirements of President Ford's executive order.

Subsequent executive orders refined and made more explicit the regulatory impact analysis requirement, and the obligation to prepare cost-benefit statements, but each of these orders provided, in essentially identical terms, that "this Order is intended only to improve the internal management of the Federal government, and is not intended to create any right or benefit, substantive or procedural, enforceable at law by a party against the United States, its agencies, its officers or any person." See, e.g., Executive Order 12291, ¶9.

In view of our concern that the absence of effective judicial review would substantially mitigate any meaningful impact that these executive orders might have upon agency action, NFPA undertook to propose and support legislation that would write a cost-benefit requirement directly into the Administrative Procedure Act. In 1979, NFPA testified before Senate and House Committees in support of regulatory reform legislation, spelling out in some detail the provisions that we believed should be included in such amendments. Attached to this statement is a 1979 summary of the NFPA testimony on H.R. 3263, detailing the regulatory analysis provisions that we believed to be necessary for meaningful regulatory reform. The Committee will see that there is a remarkable similarity between the provisions that we urged for adoption in 1979, and many of the provisions that are included in S. 343.

THE RELATIVE INEFFECTIVENESS OF THE EXECUTIVE ORDERS

As I have said, the principal shortcoming of the Presidential executive orders over the past 21 years has been that agency compliance with the requirements of assessing the costs and benefits of proposed rules has not been subject to judicial review in proceedings initiated by those who would be affected in some way by the regulations. OMB's supervision of compliance with these executive orders has of course been beneficial, but in our view that executive supervision has been inadequate to assure rigorous preparation of cost-benefit analyses that make a realistic assessment of costs and do not exaggerate benefits in order to justify the proposed regulatory controls.

As long as agencies cannot be held accountable for preparing an inadequate, insupportable or inaccurate cost-benefit assessment, experience teaches that they will carry out their responsibility in such a way as to have no material bearing on promulgation of the rules. We are convinced that unless adversely affected persons can challenge a cost-benefit analysis in the course of judicial review, agencies will continue to get by with little more than lip service to the requirement of these executive orders. In most instances an agency's awareness that its cost-benefit analysis may be subject to judicial review should be enough to assure the integrity of that analysis.

Our conclusion that cost-benefit analysis should be enacted as a statutory requirement, as proposed in S. 343, is perhaps best illustrated by FDA's implementation of the Nutrition Labeling and Education Act (NLEA). In November of 1990 Congress enacted comprehensive amendments to the Federal Food, Drug, and Cosmetic Act to require nutrition labeling on virtually all foods, to define and regulate the use of terms characterizing the amount of nutrients in foods, and to authorize truthful and substantiated statements on labels concerning the relationship between a particular nutrient in the food and a disease. FDA was directed to publish proposed regulations implementing NLEA no later than November of 1991, and final regulations no later than November of 1992.

FDA substantially met the first deadline by publishing proposed regulations with explanatory preambles in many hundreds of pages in the Federal Register of November 27, 1991. The agency undertook compliance with President Reagan's Executive Order 12291, which required the agency to prepare a regulatory impact analysis (RIA) estimating the costs and benefits of the proposed food labeling rule.

NFPA made a conscientious effort to obtain data on the total food industry cost of complying with the new regulations, including administrative costs, food nutrition analysis costs, label redesign costs, capital costs, label inventory losses, and printing costs. The NFPA comments on the RIA set forth the basis for our conclusion that FDA had substantially under-estimated the food industry's costs of complying with the NLEA, and we proposed regulatory alternatives that would lessen the massive burden on the industry, and the costs to consumers.

FDA's final analysis took some account of the food industry's submissions, but we remained convinced-as we do to this day-that the costs to industry and the public have significantly exceeded FDA's estimates. Of even greater concern, however, was FDA's failure to coordinate its RIA with many of the provisions in the final regulations. For example, in its discussion of benefits in the RIA, FDA stated that much of the benefits of the NLEA regulations would depend on how health claims are regulated. 56 Fed. Reg. 60869. FDA acknowledged that a more permissive regulatory approach to health claims would result in more nutritious diets and in greater benefits in terms of estimate life-years saved. A more restrictive approach would discourage health claims on food labels and thus have less impact on consumer health.

The paradox embodied in the RIA accompanying the final rules was that FDA retained its exaggerated estimate of the health benefits that would result from health claims on food labels, in terms of life-years saved, but it adopted an extremely restrictive approach in its regulation of health claims. This total disconnect between the RIA and the rules themselves was apparently of little concern to FDA, since there was no statutory basis for an industry challenge to the validity of the RIA. Another more current example of the need for requiring a cost-benefit analysis by statutory directive rather than by executive order is the proposal just published by the Food Safety and Inspection Service of the Department of Agriculture to adopt a massive new regulatory regime, imposing mandatory hazard analysis and critical control point (HACCP) requirements on the meat and poultry industries. The USDA regulatory impact analysis estimates total costs of over two and a quarter billion dollars and total benefits of between six and twenty-four billion dollars.

NFPA fully supports the use of HACCP principles in food processing, but we question the need or desirability of the comprehensive command and control approach contained in this so-called "mega-rule." In view of the very substantial cost impact that this rulemaking will have on industry and consumers, it is vitally important that USDA be held accountable for preparing a comprehensive and factually supportable cost-benefit impact analysis that accurately estimates costs and does not exaggerate anticipated benefits. The prompt enactment of S. 343 should assure that result.

THE PROVISIONS OF S. 343

In the light of NFPA's experience with these rulemakings, and many others, we strongly support the cost-benefits analysis provisions of S. 343. This analysis would be applicable to all major rules, defined as those having an annual effect of $50 million or more, or having a significant impact on any section of the economy. We believe that this definition is a reasonable compromise between the $100 million minimum in recent executive orders, and a much lower minimum that has been proposed by some that would require cost-benefit analysis for virtually all rules.

An important aspect of the definition of a major rule in section 621(4) of S. 343 is the provision that excludes from the definition of major rules those that authorize the introduction into commerce, or recognizes the marketable status, of products. We strongly support the inclusion of the exception for product approvals from the definition of a major rule, in order to make absolutely clear that a cost-benefit anal

ysis is intended for rules that impose obligations and controls, but not for agency actions that approve, license or permit products or activities.

An extremely important provision of S. 343 is contained in section 623, which prescribes the decisional criteria the agencies will be obligated to apply in promulgating final rules. Before issuing a rule, agencies must find that potential benefits outweigh potential costs of the rule, and that the net benefits of the rule are greater than those which would be realized from any reasonable alternative that was considered in the cost-benefit analysis.

These decisional criteria supplement those contained in specific statutes, so that the statutory standards in such statutes must be applied in conjunction with these cost-benefit criteria, unless the statute contains explicit textual language prohibiting their consideration. Because very few statutes can be read explicitly to prohibit consideration of such criteria, it seems likely that section 623 will have broad application throughout the government, and more specifically to the statutes that regulate the food industry.

S. 343 would thus assure the very judicial review that has so far been unavailable for cost-benefit assessments and regulatory impact analyses prepared by federal agencies pursuant to the executive orders. Section 624 provides that each court with jurisdiction to review final agency action under the statute granting the agency authority to conduct the rulemaking shall have jurisdiction to review findings by the agency and shall set aside agency action that fails to satisfy the decisional criteria of section 623. The court is to apply the same standards of judicial review that apply to the review of agency findings under the statute granting the agency authority to conduct the rulemaking.

We also support the other principal provisions of S. 343. These include provisions for Congressional oversight of proposed major rules. In addition, interested persons may petition agencies for a cost-benefit analysis of existing major rules, and those petitions must be granted if there is a reasonable likelihood that the costs outweigh the benefits as determined in accordance with the provisions of S. 343. Once the agency undertakes the requisite cost-benefit analysis, it must revoke or amend any rule that fails to meet the requirements of the bill's decisional criteria. Another section of the bill provides for the suspension of statutory deadlines for proposing rules in order to assure that agencies undertake the required cost-benefit analysis, and to provide time for the prescribed Congressional review of those rules.

In summary, NFPA supports the provisions of S. 343, consistent with our longstanding position that cost-benefit analysis should be a statutory requirement for the promulgation of all major rules, fully subject to effective judicial review. Then and only then will agencies prepare cost-benefit analyses with the understanding that they will be held accountable if a reviewing court concludes that they have not fully complied with the requirements of these amendments.

PROPOSED ADDITIONAL AMENDMENT TO THE ADMINISTRATIVE PROCEDURE ACT

NFPA fully understands the need for each of the Committees considering various aspects of regulatory reform to complete final action as quickly as possible on provisions subject to their jurisdiction. One issue not addressed in the regulatory provisions of the bills, and which we believe deserves consideration by Congress at an early date, is the growing concern about what has come to be known as "government by consent decree." Under this practice, federal agencies may seek to perpetuate their regulatory programs well into the future by entering into consent decrees in order to settle litigation with private parties. The effect of these decrees, which are approved by the court and issued as binding judgments, may be to commit the agency to undertake extensive administrative proceedings on a prescribed schedule over a number of years. Such a consent judgment, once issued, binds the agency to compliance, even though agency policy may change with new administrations or otherwise.

We respectfully submit that this Committee consider in the near future an amendment to the APA that would prohibit any agency from proposing, agreeing to, or submitting to the court, and would prohibit the court from approving, a consent judgment that would impose upon the agency the obligation to take any rulemaking or further action more than 18 months after the consent judgment is entered. Indeed, we would go further to provide that no consent judgment entered between January 1, 1995 and January 20, 1997, could impose any obligation on any agency to take any such action after the latter date.

This amendment would in no way restrict the authority of a court to enter a judgment in a fully litigated case that would require agency action alter the prescribed times. In addition, the amendment would impose no restrictions on the discretion of an agency to establish lawfully authorized schedules and deadlines for future