GAO: OMB can't objectively assess cost of regulations

Economic experts say the Office of Management and Budget is constrained by politics from accurately analyzing agencies' reports on the costs and benefits of federal regulations, the General Accounting Office has reported.

Once a regulatory report is published, it becomes a statement of the administration's policy, and it is difficult for OMB to objectively assess such reports without criticizing its own administration, GAO concluded in its analysis, "Regulatory Accounting: Analysis of OMB's Reports on the Costs and Benefits of Federal Regulation" (GGD-99-59).

"It is politically difficult for OMB to provide Congress with an independent assessment of executive branch agencies' regulatory costs and benefits. If Congress wants an independent assessment, it may wish to consider assigning that responsibility to an organization outside of the executive branch," GAO said.

GAO asked private-sector economics experts to review and comment on OMB's handling of two annual reports to Congress on the costs and benefits of federal regulations. Congress asked OMB to prepare the reports in 1997 and 1998 after researchers suggested that the costs non-federal entities pay to comply with federal regulations may outweigh the benefits of those rules.

Several experts were critical of OMB's faith in executive agencies' reported estimates of total regulatory benefits. In 1998, OMB reported annual regulatory benefits between $260 billion and $3.5 trillion, twelve times more than its 1997 estimate of $298 billion. The biggest difference in the two figures was a 1998 inclusion of Environmental Protection Agency estimates of savings from the Clean Air Act. OMB should not have accepted those estimates-or other agency estimates-without adjustment or standardization, the economic experts said.

The economists also criticized OMB for not making any recommendations to reform or eliminate federal regulatory programs in either report. Congress asked OMB to do so in its original request for the annual reports. The 1997 report made no recommendations, while the 1998 report simply endorsed 10 previously announced statutory changes. Both reports did, however, include suggestions to improve poor data quality that prevented OMB from making specific recommendations.

Murray Weidenbaum, chairman of the Center for the Study of American Business at Washington University in St. Louis, Mo., told GAO he was "amazed" that OMB was unable to come up with a single program or regulation that it believed needed changing. Another expert, Thomas D. Hopkins, economics professor at the Rochester Institute of Technology in Rochester, N.Y., called OMB's excuse of imperfect data "a recipe for complete inaction."

Most agreed, however, that even if OMB wanted to make suggestions for improvement, it would be prevented from doing so by politics. "In the end, these are political issues and it lies with the President to make these political decisions," said Lester B. Lave, economics professor at Carnegie Mellon University in Pittsburgh.