Regulatory Response: An Analysis of the Shifting Priorities of the U.S. Budget for Fiscal Years 2002 and 2003

The Mercatus Center at George Mason University has teamed with the Weidenbaum Center on the Economy, Government, and Public Policy at Washington University in St. Louis to examine the expenditures and staffing of federal regulatory agencies. This continues an annual effort begun in 1977 by the Weidenbaum Center (formerly the Center for the Study of American Business). Regulations impose costs (and confer benefits) on American citizens in ways that are not always transparent. Current estimates suggest that the budget tracks only about two percent of the estimated social costs regulatory agencies impose. Nonetheless, the expenditures of federal regulatory agencies, and the trends in that regulatory spending over time, can serve as a useful barometer of regulatory activity, providing policy makers and others with useful insights into the composition and evolution of regulation.

The 2003 Budget of the United States Government reveals a shift in national priorities after the events of September 11, 2001. In 2002, budget expenditures directed toward regulatory activities represented 1.22 percent of the total federal budget, the highest percentage since 1980. In 2003, the percent of the total federal budget directed toward regulatory activity declined to 1.15 percent, about the 2001 level. The shift of resources within that 1.15 percent may be more revealing, however. Greater resources are being directed toward regulatory activities in response to the terrorist attacks, particularly resources directed at the transportation sector. For the first time since 1976, the regulatory budget of the Department of Transportation exceeds that of the Environmental Protection Agency.

The administrative expenditures of federal regulation are projected to reach an all-time high of $25.1 billion in fiscal year 2002, and then fall slightly to $24.6 billion in 2003. Adjusted for inflation, this represents a real growth of almost 15 percent between 2001 and 2002-the highest real increase since 1973. The current budget projects a decline of almost 4 percent in 2003.

Staffing at the federal regulatory agencies is forecast to grow to 135,970 in 2002 and reach a peak of 139,002 in 2003. The new peak is over 11 percent higher than staffing levels in 2001.