March 15, 2016

David vs. Godzilla, OIRA and the Federal Agencies

Before the House Committee on Oversight and Government Reform, Subcommittee on Government Operations
Key materials

Chairman Meadows, Ranking Member Connolly, and members of the committee, thank you for inviting me to testify on ways to improve transparency and accountability at the Office of Information and Regulatory Affairs (OIRA). 

This small agency, established in 1980 by President Carter to “regulate the regulators” and to give “OMB final word on many of the regulations issued by our government,” has largely failed to achieve either goal. The myth persists that OIRA is a “little-known but extraordinarily powerful” agency that has been a “bottleneck” for protective regulations. The data, however, simply do not support this notion.

There are three main issues that I will cover in my testimony:

  1. Other federal agencies, and their associated rulemaking, have grown manyfold in the last four decades, but OIRA staffing has shrunk in the same time period, rendering oversight by OIRA spotty, at best. OIRA cannot perform its duties effectively in this imbalanced state. 
  2. OIRA also lacks necessary expertise in one key area.
  3. Recommendations for reform can help rebalance the relationship between OIRA, stakeholders, and federal agencies, while improving government accountability and transparency in rulemaking.

The Growing Imbalance between OIRA and Other Federal Agencies

Employment in federal regulatory agencies almost doubled between 1980 and 2016, from 146,000 employees to 280,000. When it was established in 1981, OIRA had 77 staff members, but in 2013, it had only 38. Today, most federal regulations are promulgated without OIRA review. In the decade ending in 2014, regulatory agencies issued more than 37,000 regulations, yet 92 percent of them were not reviewed by OIRA. For the typically 8 percent of rulemakings OIRA reviews, its primary job is to evaluate the content and quality of regulatory impact analyses, in particular the estimates of benefits and costs of a proposed regulation. Of the roughly 3,000 major rules that OIRA reviewed between 2004 and 2014, however, only 116 included estimates of both benefits and costs. The absence of such important information makes OIRA’s job difficult, to say the least.

Thus, there is little factual basis for the myth of OIRA as a David holding back a regulatory Godzilla. 

Lack of Area Expertise

While OIRA has a generally excellent staff of professionals, a key weakness is its lack of expertise in risk assessment. The vast majority of regulations, both by number and costs on the economy, are risk related. These include worker safety, food safety, environmental, and transportation rules. In order to calculate the potential benefits of any rule, it is first necessary to have an estimate of the risk that the agency is attempting to manage. Risk includes the probability of something going wrong and predicting the negative outcome, which might be injury, illness, or death. Next, the agency needs to evaluate different regulatory options that would reduce those risks.

For regulations focused on risk reduction, federal agencies employ risk assessors to estimate the size of the risk and the expected risk reduction for regulatory options. These analyses are often long and fairly complex but not necessarily accurate. Unfortunately, it is common for risk analyses to be heavily biased, showing much higher risks or much greater risk reduction than is actually achieved. For example, the journal Risk Analysis recently published an article suggesting that the benefits of reducing particulate matter (PM) may be negligible. Nevertheless, EPA continues to regulate PM to lower and lower levels. Alternatively, many of these analyses leave out increases in risk (i.e., risk/risk trade-offs) that are a natural result of some regulations. For example, lowering the tolerance for mercury in fish might reduce one tiny risk but also might cause some consumers to switch to meats that present other health risks.

When agencies bias risk estimates upward, or risk mitigation estimates downward, the benefits that they estimate will be biased upward. This means both that the regulatory impact analysis is flawed and that OMB’s annual Report to Congress on the Benefits and Costs of Federal Regulations is inaccurate. Without on-staff risk assessors, OIRA is not in a position to review risk assessments, meaning it is unable to ascertain the accuracy of benefits estimates.

Proposed Remedies

Several reforms can help rebalance the relationship between OIRA and federal agencies to improve regulatory policy.

First, create incentives that make the content and quality of regulatory impact analyses important to the agencies. The Unified Agenda of Regulatory and Deregulatory Actions, which currently includes only a title and a brief description of what the agency intends to do, should be reformed to be more transparent and include the type of information for proposed rules that agencies currently provide for final rules. For example, just one final rule the EPA published in the Unified Agenda had sections on statement of need, summary of legal basis, alternatives, anticipated benefits and costs, and risks. Yet proposed rules only get a title and a short abstract. This is precisely the kind of information that should be in the Unified Agenda for proposed rules. This material would provide clearer information to the public on what the agency knows and the types of information it needs to refine its understanding of the problem, potential outcomes, and options.

A stronger incentive would be to require agencies to publish preliminary regulatory impact analyses for public comment before a proposed rule is published for notice and comment. Research from the Mercatus Center at George Mason University indicates that going a step further and establishing a statutory mandate for conducting regulatory impact analyses could significantly improve regulatory impact analyses and their use. Any of these options can contribute to a better-informed agency, a better-informed OIRA, and a better-informed public.

Second, Congress should consider changes in OIRA’s logistical authority. With the volume of regulations on the books and in process at federal agencies, there is a great need for better information on which rulemakings will affect which industries and when. Currently, there is no government service providing the public with a means to easily match rulemakings with regulated parties. OIRA could create online calendars by industry that would track compliance dates for individual rules, along with links to the small business compliance guides. This would begin to show where agencies have compliance dates for specific industries “bunched up,” much as midnight regulations bunch up at the end of presidential administrations. Transparency and accountability could be improved if all information associated with regulations, including the Unified Agenda, notices, proposed rules, and final rules, were searchable by industry and accessible through timely updates to RSS feeds. 

Finally, OIRA could operate as “flow control” for industries by coordinating amongst all federal regulatory agencies to ensure that compliance dates are evenly spread out by industry. 

Conclusion

OIRA is no longer any match for the huge number of agencies and regulations that they issue. Restoring OIRA to its original strength, adding risk assessment professionals, and tasking it with ensuring that multiple agency rules do not bog down compliance when agencies bunch up rules can help to ensure that the federal government only issues rules informed by sound analysis and that no industries face compliance dates that are overwhelming. 

Thank you, and I welcome your questions.

 

Appendix: Potential Questions about Federal Regulations from Regulated Parties

Improving the Imbalance between OIRA and Other Federal Agencies

One area that has been a consistent concern of Congress has been the effect of regulations on small businesses. That concern led to the Regulatory Flexibility Act of 1980 and its expansion, the Small Business Regulatory Enforcement and Fairness Act of 1996 (SBREFA). Small businesses and start-ups form a large part of the creative engine of the economy and are major employers (55 percent of all jobs), yet they are the least engaged in the regulatory process. This is largely due to necessity as they cannot afford expensive lawyers to monitor the Federal Register or meet with agencies to express concerns. Some of the questions an owner of a small business may consider are addressed in the appendix. Enhancing OIRA will help with some of these issues. 

Think about the questions an owner of a small business might ask when first encountering the idea that the business must comply with federal regulations.

1. What regulations are already on the books that I have to comply with? 

If you start reading the Code of Federal Regulations today, March 15, 2016, you should be finished about the same time in 2019 (an estimated 5,727 hours of reading over 100 million words). The regulations are found in 226 books.

2. How will I know what regulations are coming up that are final or, if I do have the time, can comment on? 

On average, you will have to read 70,000–80,000 pages of often dense legalize in the Federal Register each year. 

3. If I do find something that will affect my business, how long will I have to read a proposed rule and prepare a comment on it? 

Agencies take years to prepare regulations that can run to thousands of pages in length, but you will have only 30 to 60 days to get your comment in. Regulations may contain complex risk assessments and regulatory impact analyses, as well as lots of supporting documentation that you may need to understand in order to comment effectively. The federal government itself suggests that you write a “constructive, information rich comment that clearly communicates and supports its claims.” You should, of course, understand the laws and Executive Orders that the agency is operating under, including the authorizing statute, Executive Order 12866, the Regulatory Flexibility Act, the Small Business Regulatory Enforcement and Fairness Act, the Unfunded Mandates Reform Act, the Paperwork Reduction Act, and any special acts that are applicable to the agency.

4. Does commenting make a difference? 

It will, particularly if you agree with the agency. If you don’t agree, perhaps not so much. Shapiro concluded that agencies are “happy to clear up confusion in their proposals but less willing to make substantive changes to their rules.” Another author noted, “as a general matter, the changes that agencies make to proposed rules in response to comments tend to be small and painful, and they are often subtractive rather than innovative or additive.” Finally, to describe it from the agency’s point of view, “by the time the NPRM is issued, the agency has made a very substantial commitment to the draft rule it is proposing, and will be understandably reluctant to modify it very substantially afterwards.”

5. When the rule is made final, how will I know about it and know when I have to be in compliance? 

Just like finding the proposed rule, you will have to read the Federal Register and read the final rules pretty thoroughly. SBREFA does require that agencies publish compliance guides for any rules that have a significant small business impact—that may be helpful to you. You will have to ascertain from the final rule or the guide when you must be in compliance. It could be anywhere from immediately to years from publication. What may be more of a problem for you, however, is that you may have to comply with multiple regulations from multiple agencies at the same time. For example, if you were in the waste management industry in 2014, there were 4,600 regulatory requirements (where the agencies said you “must” or “shall” do something). These came from 17 different regulations from three different agencies—and 7 of those regulations had compliance dates in just two out of the twelve months in 2014. No one in the federal government coordinates the requirements to space them out. This is a problem for small businesses as compliance with virtually all regulations has be financed out of retained earnings.

6. What happens if I don’t comply? 

You must comply with every single regulation and every one is equally important. If you don’t comply you can be fined, your products can be seized, you can have your license or permit revoked, or, in some cases, you can be sent to jail.