Testimony on Recommendations to Improve the Federal Regulatory System | Business Roundtable

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Dear Chairman Lankford and Ranking Member Heitkamp:

On behalf of Business Roundtable, thank you for your continued efforts to improve the federal regulatory system.  This issue is a priority for our members.

On July 16, the Subcommittee held a hearing entitled, “Reviewing the Office of Information and Regulatory Affairs’ Role in the Regulatory Process.”  Business Roundtable members have developed recommendations to improve the federal regulatory system, many of which are within the discretion of the President and, therefore, OIRA.  We have compiled these recommendations in an attachment to this letter.  We respectfully request that you include this letter and the attachment as part of the Subcommittee’s hearing record.

Sincerely,

Andrew N. Liveris
President, Chairman and CEO
The Dow Chemical Company
Chair, Smart Regulation Committee
Business Roundtable

C:  The Honorable Howard Shelanski

Business Roundtable Comments on the Role of OIRA
in connection with the July 16, 2015 hearing on
“Reviewing the Office of Information and Regulatory Affairs’
Role in the Regulatory Process”
before the Subcommittee on Regulatory Affairs and Federal Management
of the Senate Committee on Homeland Security and Governmental Affairs

 

Business Roundtable (BRT) is an association of more than 200 chief executive officers of leading U.S. companies working to promote sound public policy and a thriving U.S. economy. BRT's CEO members lead companies with $7.2 trillion in annual revenues and nearly 16 million employees. BRT member companies comprise more than a quarter of the total market capitalization of U.S. stock markets and invest $190 billion annually in research and development – equal to 70 percent of U.S. private R&D spending. Our companies pay more than $230 billion in dividends to shareholders and generate more than $470 billion in sales for small and medium-sized businesses annually. BRT companies also make more than $3 billion a year in charitable contributions.

The issue of federal regulation is a high priority to our members, and we appreciate the Subcommittee’s commitment to pursue improvements in both the efficiency and effectiveness of regulatory programs. Federal regulation has provided substantial benefits to the country. These benefits, however, have come at a substantial cost in terms of business investment and job creation. BRT believes we can do better: We can achieve our shared regulatory objectives while reducing the significant opportunity cost.

Central to our recommendations is effective executive branch review of each major regulation before it is issued. The remainder of this statement includes recommendations for improving the effectiveness of the Office of Information and Regulatory Affairs (OIRA), which plays this critical review role on behalf of the President.

I. OIRA Resources Should Be Increased

Congress relies on the expertise of agencies to develop major regulations. Nevertheless, coordinated review of agency rulemaking is necessary to ensure that regulations are consistent with applicable law and the President’s priorities, that decisions made by one agency do not conflict with the policies or actions of another agency, and that the benefits of rules justify their costs. Executive Order 12866 designates OMB’s OIRA to conduct this regulatory review, which is necessary for an efficient and effective regulatory system.

As Senator Heitkamp noted during the hearing, it is critical that OMB possess sufficient resources (i.e., the quantity and quality of its staff) to implement this mandate effectively. It appears that OIRA may not currently have sufficient resources to adequately conduct its duties. Since its inception, OIRA staffing has been cut in half, while additional duties have been added through executive order.1  Whereas the staffing of regulatory agencies has grown steadily, OIRA staffing has declined.  BRT recommends that additional resources be provided to OIRA to ensure it can fulfill its duties.

In particular, OIRA should add legal expertise to better ensure that major rules rest upon a strong legal foundation. In his testimony, Administrator Howard Shelanski said that OIRA review does not include such a legal analysis and the office relies on the interagency review process to identify issues relating to statutory authority. Indeed, when OIRA needs internal legal analysis, it relies on the OMB’s general counsel office, of which just a fraction of one FTE is allocated to OIRA, which is insufficient. As Senator Heitkamp observed, recent court decisions against agencies underscore the value of incorporating legal review during OIRA review of major rules.

II. Cost-Benefit Analysis of Major Rules Should Be Expanded

Under Executive Order 12866, covered agencies must conduct a cost-benefit analysis (CBA) for each economically significant rule (e.g., those imposing more than $100 million in annual costs or benefits) and provide this economic analysis to OMB for review. The executive order excludes certain “independent” agencies (the Securities and Exchange Commission, Federal Communications Commission, Consumer Product Safety Commission, Federal Energy Regulatory Commission, Federal Trade Commission and others), even though such agencies are responsible for a large share (historically around 20 percent) of the most costly rules.

CBA, along with OMB review, is needed for regulatory proposals coming from all regulatory agencies to ensure that alternatives are identified and evaluated appropriately. This recommendation, which BRT embraces, has been made by many regulatory experts and by blue-ribbon panels, including President Obama’s Council on Jobs and Competitiveness. As Senator Portman indicated during the hearing, he and Senator Mark Warner recently reintroduced legislation (S. 1607) to clarify the President’s authority in this matter. While the President has the authority to expand EO 12866 to apply to independent agencies without new legislation, Administrator Shelanski’s testimony on July 16th suggests that President Obama – like his recent predecessors – is unlikely to exercise this authority without a clearer signal from Congress.

To be effective, CBA of major rules must be conducted objectively. When considering alternative approaches to regulation, an agency should rely on an objective analysis of benefits and costs, along with a clear description of the uncertainties in this analysis. OIRA review of agency CBAs is currently the only process check to ensure the objectivity of agency analyses. Judicial review of regulatory analysis would also be an important process check. BRT supports congressional action to ensure a more searching judicial review for major rules, both to evaluate agency CBAs and, more generally, to reverse the growing trend of judicial deference to agency rulemakings over the past few decades.

The public comment period for proposed rules is another potential process check for agency CBAs – but it can only serve this function if the CBA is replicable. Unfortunately, a recent evaluation conducted by BRT revealed that CBAs for major rules are often not capable of being reproduced.2   OIRA should ensure that CBAs conducted in support of major rules are capable of being reproduced.

A CBA that is capable of being reproduced is necessarily transparent, and such transparency also increases public confidence in the quality of the analysis while serving as a powerful incentive for objective analysis.

III. Retrospective Review Should Be Improved

BRT was pleased to hear the degree of interest expressed by both Chairman Lankford and Ranking Member Heitkamp in the topic of retrospective review, another principle that BRT supports. We have followed with interest the Obama Administration’s efforts on retrospective review, under which agencies have published plans that identify existing regulations to determine if they have achieved their objectives, and whether they need to be updated or eliminated. These plans have been updated every six months, with the latest agency plans being posted in mid-March.3

During the July 16th hearing, OIRA Administrator Shelanski testified that he was open to suggestions to improve the President’s initiative on retrospective review. In this spirit of improvement, BRT offers the following recommendations: (1) incorporate a plan for retrospective review into every new major rule; (2) leverage input from stakeholders to a greater extent; and (3) exercise greater OMB oversight of agency plans. These recommendations align with those of the Administrative Conference of the United States (ACUS).4

A. Prospective retrospective review

BRT believes that reducing the cost of future rules is more important than reducing the cost of existing rules. BRT was thus especially encouraged by Senator Heitkamp’s emphasis on requiring each agency to incorporate a retrospective review plan into each major rule. This is something that all agencies should be doing now – as former OIRA Administrator Sunstein instructed agencies in June 14, 2011: “[F]uture regulations should be designed and written in ways that facilitate evaluation of their consequences and thus promote retrospective analyses and measurement of actual results."

Despite the Sunstein memorandum, we are not aware that retrospective review has been incorporated into the design of any major regulation. The “right whale” rule referred to by Administrator Shelanski during the July 16th hearing was not a major rule, and the plan described in that significant rule falls short of the rigor required for objective analysis and necessary to foster public trust in the Administration’s efforts.

To ensure that agencies adopt what Senator Heitkamp called “prospective retrospective review,” we call upon Congress to enact legislation to institutionalize this concept into the regulatory process. In the interim, we urge OMB to issue guidance to agencies on best practices (e.g., definitions, metrics, timing, leveraging interagency assistance). OMB should ensure that retrospective reviews are conducted at the appropriate time and ensure that the results of each retrospective review are made public.

Each of these steps is critical to success and requires OMB involvement. Guidance is clearly necessary on topics such as determining the primary regulatory objective for each new regulation and constructing an appropriate counterfactual baseline (i.e., as if the regulation had never been adopted). Ensuring that a retrospective review is conducted on time may have budgetary implications.  Making the results of retrospective review accessible to the public will also likely also require adequate staffing.

We recognize that such an effort is long-term and that OMB and agency resources are already stretched thin. However, we are convinced that designing major regulations with an eye toward retrospective review will provide an incentive for development of better rules. Accountability will lead to improved performance, and retrospective review will become easier and more manageable if it is planned at the design stage.

B. Leverage input from stakeholders

Some agencies (e.g., DOL on March 3rd, EPA on March 9th) have recently solicited public nominations on regulations for retrospective review through a Federal Register notice. Other departments (e.g., HHS, HUD, and DoEd) have established a permanent on-line form to receive public nominations on existing regulations in need of review. These are positive developments that all departments and agencies should follow. In addition, we were pleased to read in the OMB blog post of March 18th that agencies have submitted to OMB written plans for stakeholder engagement. The Administrator testified that stakeholder input is a key means for agencies to choose which rules to review. We agree, and believe that more can be done in this regard.

Public input will be more useful if the public understands the criteria that will guide the selection of existing regulations for review.5  We believe the highest priority should be given to existing regulations posing the largest opportunity cost to ensure that limited agency resources are focused on rule changes that provide the largest net benefits. Opportunity cost is likely to be most significant when existing regulations (1) are based on prescriptive (rather than performance) standards, (2) pose significant recurring costs (as opposed to a one-time, up-front capital cost), (3) are based on outdated science or technology, or (4) are directed toward very productive sectors of the economy.6  A focus on opportunity cost is consistent with a focus on maximizing net benefits, which Administrator Shelanski mentioned as his preferred criterion in his July 16th testimony.

A focus on cumulative burden is also warranted. EO 12866, which requires a retrospective review effort by each agency, includes the “aggregate burden” of regulation on a sector of the economy as one potential focus of retrospective review. This is a thorny issue, in part because the problem to be solved is not defined with sufficient specificity. Nevertheless, we believe the solution is likely to entail the use of data analytics and the application of new technology to bridge multiple databases and integrate information in a useable form. Some private sector firms are already moving to address this market need. BRT recommends that the Administration form a task force of experts from the public and private sectors to develop a roadmap for using technology to identify regulatory burden.

State and local governments should be a valuable resource in this endeavor, and we urge the Administration to solicit their input.

C. Greater OMB oversight

We believe OMB must play a more significant role in the retrospective review effort in order for the process to meet the President’s expectations. Allowing each agency to manage its own retrospective review process without greater OMB oversight is sub-optimal.8

In particular, we suggest that OMB jointly review with the issuing agency all nominations from stakeholders and jointly determine which nominations merit inclusion in each agency plan. OMB played a leading role in identifying candidate regulations in past retrospective review efforts (esp. in 2004), and this visible role gave the business community greater confidence in the process. It would be useful for the Administration to develop a response to public nominations to explain why a particular nomination was or was not selected. BRT and some of its members submitted nominations in the past, none of which were selected, and the reasons for these decisions have never been disclosed.

It is important not to dismiss from consideration reforms that would require a change in the authorizing statute. EO 12866 calls on agencies to identify legislative mandates that require the agency to promulgate or continue to impose regulations that the agency believes are unnecessary or outdated by reason of changed circumstances. Congress ought to be made aware of such statutory impediments to smart regulation. We recommend that OMB incorporate, as part of its annual report to Congress on the costs and benefits of federal regulation,9  a list of any statutory constraints that had the effect of lessening net benefits of major regulations promulgated in the previous year. To be truly useful, such a list should include statutory impediments associated with major rules from both covered agencies and independent regulatory agencies.

IV. OIRA Should Closely Monitor Midnight Rules

During the hearing, Chairman Lankford raised the issue of “midnight regulation,” the term given to the increase in promulgated rules at the end of one Administration and before a new President takes office. BRT would like to point the Subcommittee to recommendation from ACUS, which examined this issue and recommended a process to ensure appropriate accountability. ACUS Recommendation 2012-2 on midnight rules includes a role for Congress.

V. Conclusion

OIRA plays a critical role in ensuring that our regulatory objectives are achieved at the lowest possible opportunity cost. However, this small office is understaffed and additional expertise and staffing is needed. The President can and should require independent regulatory commissions to conduct cost-benefit analysis for major rules and subject them to OIRA review. The President’s ongoing efforts at retrospective review can also be improved; the most significant improvement would be to include a retrospective review plan in each new major rule.

BRT appreciates the opportunity to provide these recommendations to the Subcommittee and looks forward to working with both Congress and the Administration to make the regulatory process more efficient and effective.

 

 

 

1. See, for example, the July 15, 2015 testimony of Richard A. Williams, Vice President, Mercatus Center at George Mason University, before the Subcommittee on Regulatory Reform, Commercial and Antitrust Law, Judiciary Committee, U.S. House of Representatives. 

2. Business Roundtable, Using Cost-Benefit Analysis to Craft Smart Regulation, December 2014.

3. Although Administration officials claim their efforts on retrospective review will yield savings of $20 billion over the next five years, no details of this calculation have ever been presented, nor is it known if this figure represents “net” savings from all the rules included in agency plans. Others, such as the American Action Forum, have concluded that the net impact of these retrospective review plans is to significantly increase regulatory burden. It is appropriate for the Committee to exercise oversight to determine if the $20 billion figure cited by OIRA is accurate and, if not, to request that Administration officials stop using this figure.

4. See Recommendation 2014-5, adopted by ACUS on December 4, 2014.

5. The OMB blog post of March 18th states four general criteria, including the criterion of reducing the regulatory burden for industry. The March 9th EPA Federal Register notice provides some additional specificity for the agency’s focus (e.g., regulations that impose recurring costs on business). 

6. When President Obama stopped EPA from tightening the ozone standard years ago, he did so on the basis of the high opportunity cost.

7. According to EO 12866: “State, local, and tribal governments are specifically encouraged to assist in the identification of regulations that impose significant or unique burdens on those governmental entities and that appear to have outlived their justification or be otherwise inconsistent with the public interest.”

8. See Keith B. Belton, “The Peril and Promise of Retrospective Review,” Regulation, summer 2015, pages 8-10.

9. The 2015 draft report to Congress is long overdue and has not yet been released by OIRA. This report is statutorily required.