Identifying the analytical implications of alternative regulatory philosophies

Dudley (2011, p. 116) also notes the continuation of this mission in the current administration and quotes President Obama’s observation that OIRA provides “a dispassionate and analytical ‘second opinion’ on agency actions.”

The OIRA Reports to Congress are authorized by Section 624 of the Treasury and General Government Appropriations Act of 2001, Pub. L. No. 106-544, 31 U.S.C. § 1105 note. Pre-2001 Reports were authorized by Section 645 of the Treasury, Postal Services and General Government Appropriations Act, 1997, and Section 625 of the Treasury and General Government Appropriations Act, 1998. The authorizing language requires a statement of the “costs and benefits of Federal regulations.” Up through 2006. The title for the Reports placed “costs” ahead of “benefits.” Beginning in 2007, the order was reversed and the title became Report to Congress on the Benefits and Costs of Federal Regulations.

The early Clinton Reports present aggregate estimates of the benefits and costs of regulation developed in large measure from the academic literature; later Reports use a “bottom-up” approach of aggregating the benefits and costs of “major” or “economically significant” rules over the previous 10 years. Many federal rules are not major and are not included in this “bottom-up” approach.

The first Report (1997) provides some general principles for regulatory analysis summarizing a “Best Practices” document that was issued in January 1996; the 2000 Report provides final guidelines to assist the agencies in preparing the “accounting statements” on the benefits and costs of regulations that OMB can then include in its annual Report to Congress (issued as Memorandum M-00-08). The 2003 Report includes revised guidelines, developed by an interagency group co-chaired by the Council of Economic Advisers and OIRA, to make continued improvements in regulatory analysis (issued as OMB Circular A-4, Regulatory Analysis).

Graham (2008, p. 457) also alludes to this role in explaining, “[t]he White House empowered me to establish control over the flow of new regulations.”

Katzen (2011, p. 105) notes that the relationship with the agencies was for the most part collegial (with the possible exception of disagreements with EPA). She also identifies as one of the clearest examples of a different philosophy for OIRA across administrations that OIRA in Democratic administrations “would implement neutral principles to achieve smart or sensible regulations rather than advance a decidedly antiregulatory agenda.” Sunstein (2013, p. 1875) states that “OIRA does not so much promote centralized direction of regulatory policy as incorporation of decentralized knowledge.”

A recent evaluation of the quality of RIAs is provided in a recent paper by Ellig, McLaughlin, and Morrall (2013).

More recent executive orders include E.O. 12866 and 13563.

These papers focus on OIRA’s review of regulation, with only a few direct references to the Reportsto Congress. Nevertheless, they place OIRA within the context of a broader White House policy process.

Arbuckle (2011, p. 884) argues: “This White House oversight of agency regulatory analysis means that OIRA’s work, though primarily analytic, competes daily with the intense political pressures that characterize all work in the White House. Even in the face of the demands of politics, analysis is respected and utilized. A balance between politics and analysis is maintained in several ways. Several structural characteristics of the White House help protect analysis, such as a strong complement of offices whose role is primarily analytic (for example, the Council of Economic Advisors, the Office of Science and Technology Policy, and OMB). OIRA’s ability to successfully coordinate its regulatory review with White House officials ensures that it serves as an agent for presidential regulatory policy at the same time it champions higher quality benefit-cost and risk analysis. This role as intermediary between analytic and political judgment also results from OIRA’s expertise in such analysis and its reputation for the discretion necessary to maintain the trust of the president’s upper level staff.”

Note as well that President Obama, in his January 30, 2009, Memorandum on Regulatory Review, has stated that OIRA provides “a dispassionate and analytical ‘second opinion’ on agency actions.”

Sunstein (2013, p. 1873) also addresses the concerns of the critics that OIRA brings a politicized process to regulatory decisions by reporting, “Political considerations – the concerns of Congress, the views of State and local governments – are brought to OIRA by other parts of the White house. But, generally, these concerns have not been a significant part of OIRA’s role.”

The 2002 Report also sets out specific steps to increase the transparency of the OIRA regulatory review process.

Section 515 of the Treasury and General Government Appropriations Act for Fiscal Year 2001 (Pub. L. No. 106-554; H.R. 5658) requires OMB to issue guidelines to ensure the quality of information issued by federal agencies.

A final version was issued on February 22, 2002 (67 Fed. Reg. 8452), available at http://www.whitehouse.gov/omb/.

We note that the 2008 Report (OIRA, 2008, 19–24) discusses a proposal to adopt a “scorecard” as a way of evaluating the extent of compliance of agency RIAs with Circular A-4. OMB would then report the scorecard results in future Reports. In the final 2008 Report, OMB expresses support for the scorecard approach, noting that it has merit and deserves further consideration. However, in light of comments from peer reviewers, OMB decided not to implement a scorecard in the 2008 Report because development of an effective scorecard required further careful deliberation.

OIRA issued the Final Information Quality Bulletin on Peer Review on December 16, 2004, available at http://www.whitehouse.gov/omb/memoranda/fy2005/m05-03.pdf.

The 2011 Report includes an Agency Checklist for RIAs that effectively reaffirms the key elements of Circular A-4.

As gatekeeper for rulemaking, the Bush administration “revived the ‘return letter,’ making clear that OMB is serious about the quality of new rulemakings” (OIRA, 2002, p. 14). The 2002 Report notes that OIRA did not return any rules to the agencies for reconsideration over the last four years of the Clinton administration; in contrast, over an initial 15-month period in the Bush administration, OIRA returned 22 rules to the agencies for reconsideration. In the Obama administration, OIRA has issued one return letter, involving a final EPA rule for ozone. In this case, the president directed Sunstein to return the draft rule to the EPA administrator for reconsideration (see Sunstein, 2011). As Sunstein (2013, p. 1848) notes, “A relatively large number of return letters need not mean that OIRA and other interagency reviewers are acting aggressively, and a small number of return letters, including no such letters, does not mean that OIRA and other interagency reviewers are acting passively.”

Transparency of agency procedures is distinct from the transparency of the OMB process, long a contentious issue. Over the years, a series of incremental steps have been taken to increase the transparency of the OMB process in all three administrations considered.

As noted above, the 2008 Report also discusses a proposal to adopt a scorecard. One of the questions contained in the proposed scorecard (OIRA, 2008, p. 19) was, “Does the analysis quantify and monetize benefits and costs of the proposed action?” However, the Report provides only a limited treatment of the issue, and the final 2008 Report defers the adoption of a scorecard.

In fact, discussion of the difficulty of monetizing the benefits of Homeland Security rules largely fades away in the Obama administration Reports.

A footnote to this question notes that Circular A-4 offers a discussion of appropriate methods for monetizing benefits that might not easily be turned into a monetary equivalent. Note that the Agency Checklist is somewhat similar in content to a proposal during the Bush administration to develop a “scorecard” for evaluating RIAs. However, under the scorecard approach discussed in the Bush administration’s 2008 Report, OIRA would evaluate RIAs and report the results of the evaluation in future Reports to Congress. In contrast, the Obama administration’s Checklist is to be self-administered by the agencies. Thus, it is an agency checklist, not an OIRA scorecard.

For example, the US Environmental Protection Agency’s (EPA’s) practice in adopting a threshold has changed over the years. For the 1997 ozone and PM National Ambient Air Quality Standards, EPA adopted thresholds of 12 g/m³ and 15 g/m³ in developing its mortality benefit estimates. From 2002 to 2006, EPA assumed that the concentration–response relationship for PM mortality was linear down to background levels. From 2006 to 2009, EPA used a threshold assumption of 10 g/m³ for its primary estimate of the reduction in mortality risk. Beginning in 2009, EPA’s benefit estimates associated with reductions in fine particulate matter (PM) concentrations include mortality estimates for populations exposed to PM levels below 10 g/m³. EPA has also updated the value it uses for monetizing reductions in mortality risk, using a more recent currency year (2006$) and reflecting growth in income to 2020 (OIRA, 2011, p. 18). Taken together, the changes in EPA’s methodology roughly double the estimated benefits attributed to some rules that reduce ambient levels of fine PM as reported by OIRA in the Reports.

Hahn and Dudley (2007) report similar results for RIAs issued by the Reagan, Bush I, and Clinton administrations. They note that net benefit information does not exist for 69% of the RIAs in their sample. A few rules have reported negative net benefits in each administration: Clinton (5%), Bush II (6.5%), and Obama (6%).

Note that because the methodological changes have been concentrated in areas where the benefits already greatly exceed the costs, we find no evidence that these changes have significantly increased the proportion of rules with reported net benefits, although the total dollar amount of benefits has increased.

This study was sponsored by the Office of Advocacy of the Small Business Administration.

In his 2006 paper, discussed below, Harrington sharply criticizes the statistical modeling of the Crain and the Crain and Hopkins findings that regulatory costs are higher for small and medium-sized businesses. As far as we can determine, no reference to this critique is made in any discussion of the small business issues across any of the Reports, despite the fact that the Harrington paper is cited (in the 2010 Report and subsequently) in the discussion of retrospective analysis (see below for discussion of this point, p. 64).

The first release of these estimates was by the Interagency Working Group on Social Cost of Carbon (2011).

The 2002 Report cites prompt letters to the US Food and Drug Administration (FDA) requesting completion of a final consumer labeling rule for trans fatty acid content in foods and to EPA encouraging the adoption of several steps to improve the utility of data available on the environmental performance of industrial facilities. The 2001 Report also cites OIRA’s prompt letter to the FDA on consumer labeling of trans fatty acids in foods (OIRA, 2001, p. 45).

Some commenters on the draft OMB Reports suggest that OMB establish a formal scorecard for the evaluation by OMB of the quality of agency RIAs. The 2008 Report discusses the possibility of establishing such a scorecard as a way of improving the analysis of regulations; no further discussion of a scorecard approach appears in subsequent Reports. However, the 2011 Report includes an Agency Checklist for agencies to use in preparing their RIAs: the checklist was provided with the goal of promoting the link between careful analysis and open government (OIRA, 2011, pp. 53, 147–51).

During the Bush administration, EPA had a somewhat mixed record, preparing a CEA for 7 of the 14 economically significant health and safety rules issued, as required by Circular A-4 (Fraas & Lutter, 2011). In contrast, none of the economically significant health and safety rules issued by EPA during the Obama administration provides a CEA.

This discussion was not required for the 1997 and 1998 Reports (Section 645 of the Treasury, Postal Services and General Government Appropriations Act, 1997, and Section 625 of the Treasury and General Government Appropriations Act, 1998).

The 2003 Report includes no discussion of the effects of regulation on employment or wages.