Ruling the Regulators

In July 1985, when the United Auto Workers petitioned the Occupational Safety and Health Administration to update its standard for methylene chloride-a widely used industrial solvent that can attack the central nervous system and cause cancer and heart problems-little did they know it would be nearly 12 years before a final rule came out. Methylene chloride was known to be a human carcinogen as far back as 1946, when industry groups agreed on a voluntary workplace exposure limit recommended by leading scientists of the day. OSHA adopted that limit as a standard in 1971 and, despite scientific evidence over the years proving the level to be significantly outdated, enforced it until last year.

While the methylene chloride case is an extreme example, long delays are not uncommon in today's regulatory world. Thanks to a medley of legislative and executive orders imposed over the years in the name of reform, agencies must meet extensive analysis requirements to justify their rules to the President and Congress. They also face court challenges from disgruntled constituents on most major rules.

Despite this triad of oversight, some lawmakers and policy experts believe the system needs more restraining. They cite regulations such as that for mandatory passenger-side air bags in automobiles as evidence that regulators don't adequately consider the impact of regulations before publishing them. That rule may be saving adult lives. But several children, including a constituent of Sen. Fred Thompson, R-Tenn., have died from head injuries caused by passenger-side air bags inflating after low-speed collisions.

Senate Governmental Affairs Committee Chairman Thompson and colleague Sen. Carl Levin, D-Mich., are leading this year's reform charge with their Regulatory Improvement Act (S 981), which was approved by the committee in March. The bill is less extreme-some would say watered down-than proposals advanced in the 104th Congress, including one by former Majority Leader Bob Dole, R-Kan.

But the driving concepts are the same: Government should better weigh costs against benefits and establish risk-based priorities when writing rules that ultimately cost society billions of dollars a year. As Thompson puts it, "Simply having a rule does not mean that that's the best rule you can have."

Political Twists

The Levin-Thompson bill is only the latest entry in a regulatory reform debate spanning more than 20 years. Though the definition of "reform" has seen ideological twists and turns depending on the administration and congressional leadership, the ultimate goal, at least publicly, has consistently been to find the right balance between irresponsible regulation and imposing too many constraints on regulators at the expense of health, safety and environmental protections.

Throughout the debate, consumer and other advocacy groups have cautioned that cost-benefit and risk analysis, while helpful tools in developing rules, should not be applied as blanket requirements to all agencies, especially those responsible for protecting human life. They also stress that each reform has brought new analysis requirements that, cumulatively, have led to today's often glacial regulatory pace. In their view, the Levin-Thompson bill and similar reform efforts are about less, not better, regulation.

For government executives working in the rule-making trenches, another reform proposal conjures images of new process hurdles at a time when resources already are stretched thin. "The balance is already dangerously close to being tipped too far . . . [toward] procedural roadblocks to getting anything done," says Adam Finkel, director of health standards at OSHA.

Though you'd be hard pressed to find one willing to go on record as saying so, there are some in industry who agree. "I think the pendulum has swung too far" toward slowing the regulatory flow in order to please business, says an industry consultant who served in the Reagan administration. "The regulatory process has become too burdened."

In a way, new requirements would "constitute a kind of unfunded mandate on government programs," says Donald Kettl, director of the LaFollette Institute of Public Affairs at the University of Wisconsin-Madison. Besides, narrower reform laws passed during the last Congress have barely had a chance to show their impact, Kettle adds, suggesting that further reform may be premature.

Still, there remains enough discontent with the regulatory system to spur ever-new attempts at reform. This time, Thompson, Levin and their eight co-sponsors believe they have the answer.

How It Started

Regulatory analysis is nothing new to federal agencies. In 1979, President Carter issued the first executive order instructing agencies to conduct cost-benefit studies for major rules, those expected to cost the economy $100 million or more a year.

The next year came new statutory mandates. The Regulatory Flexibility Act, or "Reg Flex" as it's come to be known, ordered agencies to consider the economic impact of rules on small businesses, which historically have had the hardest time staying abreast of the regulatory maze. Reg Flex also ordered that major rules be reviewed every 10 years to assess continued relevance.

That same year, Congress responded to complaints from the public, business and state and local governments about excessive federal information requests with the Paperwork Reduction Act, which created the Office of Management and Budget's Office of Information and Regulatory Affairs. OIRA was to help simplify and cut down on federal information requests.

The stage was then set for President Reagan to further rein in federal agencies. Soon after taking office, Reagan signed another executive order, which stayed in place through the Bush administration. Not only would agencies have to conduct the analysis, the order said, they also would have to submit rules to OIRA before publication to ensure "consistency with administration policies."

Most career regulators who were around during those years can recount stories of unpleasant, adversarial dealings with OIRA. As many agency officials remember it, OIRA's unofficial mandate under Reagan was to see that as few burdensome regulations as possible got out. Final rules still were published, but they generally were more business-friendly than those of the 1960s and 1970s.

By the time President Clinton took office in 1993, regulatory analysis and review were accepted premises. But Clinton had his own variety in mind. While Clinton agreed with Reagan that big, intrusive government was bad, he also believed that good government was good, and good regulation was a worthy governmental goal.

He replaced Reagan's order with EO 12866, "Regulatory Planning and Review," in September 1993. The order follows similar concepts to Reagan's but is somewhat less rigid and applies only to major proposed and final rules-about 800 a year compared with Reagan's 2,300.

Clinton's 12 "principles of regulation" order agencies to do such things as show that a rule's benefits "justify" its costs (Reagan's order said benefits had to "outweigh" costs). He also ordered agencies to design regulations "in the most cost-effective manner" to achieve their objective, and to set priorities based on risks posed by various activities or substances within their jurisdiction.

Also in the executive order, and indeed a central tenet of the National Performance Review, now renamed the National Partnership for Reinventing Government, was a call for dialogue and cooperation both within government and between government and the regulatory community. "Stakeholder" meetings have become commonplace, and "negotiated rule-making," where representatives of all groups likely to be affected write the rule together, has become a reality. Both labor and industry have praised OSHA's negotiated steel erection standard.

Clinton also ordered a page-by-page review of regulations, committing to cut 16,000 pages from the 140,000-page Code of Federal Regulations and to revise 31,000 pages. While more than 60 percent of these changes have been largely cosmetic, the rest appear to have reduced "substantive regulatory burden," according to an October 1997 General Accounting Office report.

Republican Revolution

Clinton's reinvention efforts were not enough, however, to satisfy the 104th Congress. While House Speaker Newt Gingrich, R-Ga., and allies didn't win all the regulatory relief sought through the Contract With America, they certainly can claim some victories.

In 1995, they passed Paperwork Reduction Act amendments requiring agencies to have an evaluation process for proposed information requests. The law sets goals for reducing the information-collection burden on the public by 25 percent by the end of fiscal 1998 and an additional 5 percent in each of the next three years.

Also in 1995, Congress passed the Unfunded Mandates Reform Act. Although the law primarily applies to Congress' decisions on whether to impose costly federal mandates on state, local and tribal governments or the private sector, it also requires agencies to document expected costs and benefits of those mandates.

In 1996, small business' increasingly powerful lobbying voice pushed through expansions to Reg Flex with the Small Business Regulatory Enforcement Fairness Act, or SBREFA (Sa-bree-fah) as it's commonly called. Under this law, agencies must assess the impact of their rules on small business. In addition, OSHA and Environmental Protection Agency officials must consult panels of small business representatives when developing proposed rules and, when appropriate, revise them according to panel recommendations.

The law also requires each agency to have a small business liaison and to write compliance guides targeted at small business. Regulated parties may sue agencies if they believe SBREFA provisions have not been followed.

Better Rules

One's opinion of whether these changes, collectively, have improved the regulatory system depends on where one sits, notes Christopher Foreman, a regulatory politics expert at the Brookings Institution in Washington.

Peg Seminario, director of safety and health for the AFL-CIO, for example, longs for the good old days when OSHA put rules out in a couple years. She views the flurry of recent reforms simply as add-ons that ultimately will lead to fewer rules and less safe working conditions. "The problem is not that there's no cost-benefit analysis . . . [or] that there's not an opportunity for public input," she says. "The problem is that we can't get rules through."

Small businesses, meanwhile, view the various changes as helpful, says Susan Eckerly, director of Senate lobbying for the National Federation of Independent Business. But they say the system in its current form costs too much and stifles economic progress.

Still, all sides agree the process has become more open and cooperative. That openness, in turn, has boosted the images of agencies like EPA that historically have caught criticism from every outlet.

Ben Cooper, senior vice president of government affairs for the Printing Industries of America, has worked closely with EPA on a project geared toward compliance flexibility. "I have found EPA folks are genuinely interested in getting the stuff right," Cooper says.

That cooperative spirit extends to the agencies' relationships with the Office of Information and Regulatory Affairs. The OIRA-agency dynamic resembled "institutional enmity" during the Reagan and Bush years, recalls an EPA official who adds, "It's a different world now."

OIRA hasn't necessarily gotten softer, just more willing to talk. "I'm not sure I would characterize the [OIRA-agency relationship] as all ducks and bunnies," says Tom Kelly, director of EPA's Office of Regulatory Management and Information. "We've had plenty of disagreements, plenty of battles, plenty of hurt feelings. But overall, the discussions have been much more issue-oriented and the results more cooperative and collaborative."

That was a goal of Clinton's executive order-"to reaffirm the primacy of federal agencies in the regulatory decision-making process" and unite regulation writers with regulation reviewers in a cooperative process. Also helpful to improving relations, the order instructed OIRA to complete its review generally within 90 days. During the Reagan-Bush years, OIRA faced no such deadlines.

SBREFA seems to be encouraging similar dialogue between agencies and the regulated community. "So far, the panels have been quite successful in improving the proposals," says Kelly, who has overseen the process for five EPA rules. "In the past, so many small businesses and small communities have really been at a disadvantage in the regulatory process. This is creating a richer stew [of information] to present to the public."

OSHA's work with a SBREFA panel prompted the agency to incorporate longer compliance deadlines and more small business outreach provisions into its methylene chloride standard, says Art DeCoursey, the agency's small business liaison. "[SBREFA] is making things a little smoother. It is ensuring we are reaching all the constituents that we need to get."

If better relations are yielding better rules, so is better analysis, many observers agree. "There's a system that's more thoughtful, [with] a keener sense of the broader impact that regulations have," notes the University of Wisconsin's Kettl. Cost-benefit analysis and risk assessment, controversial concepts as recently as 1980, have become established baseline procedures, adds Robert Litan, director of economic studies at the Brookings Institution.

More Reform

The analysis may be better, the dialogue more free-flowing, but on the whole, the regulatory process is a long way from being as effective as it should be, say people in the Levin-Thompson camp. They point to a study conducted by researchers at Harvard University's Center for Risk Analysis that asserts 60,000 more lives could be saved each year with better, more risk-conscious regulation. On top of that, the Senators argue, a regulatory system that imposes billions of dollars of costs on the economy each year should be more accountable to the public.

Their bill would require agencies, including independent ones now exempted from Clinton's executive order, to:

• Assess quantifiable and non-quantifiable costs and benefits of all major proposed and final rules.
• Explain whether benefits are likely to exceed costs and, if they are not, explain why that approach was chosen.
• Conduct risk assessments for major health, safety and environmental rules, comparing risks with others familiar to the public such as the likelihood of being struck by lightning.
• Subject their cost-benefit and risk studies to independent peer review.
• Speed up the review of existing major rules from every 10 years to every five years.
• Include executive summaries of the regulatory analysis so the public can understand a rule's purpose and can hold officials accountable for achieving it.

Supporters of the regulatory improvement bill say it primarily would incorporate parts of Clinton's executive order into statute. Why duplicate the executive order? Because agencies don't always do the required analysis, Levin insists.

And when they do the analysis, it's often not as thorough as it should be, says Paul Portney, president of environmental think tank Resources for the Future. "Their feet are not held to the fire by the White House and OMB," the way they would be by Congress, says Portney, who opposed more extreme reform proposals in past years but supports the current bill.

Agency officials, however, believe they go above and beyond executive and legislative mandates. Kelly says EPA even does analysis when statutory law-such as the Clean Air Act-forbids the agency from making economic-based decisions. EPA analysts not only strive to quantify things such as pollution-related lost productivity, but also social benefits such as avoiding pollution-related child retardation. "This agency has become increasingly sophisticated and increasingly responsive," Kelly says.

OSHA officials sing a similar refrain. "We think we're putting out rules one after the other where the benefits greatly exceed the costs," Finkel says.

Finkel, a risk assessment expert himself, cautions that Congress may be putting too much faith in cost-benefit and risk analysis. They are useful tools when used in the context of a flexible executive order, but as sciences they are too complex and imprecise to be the subject of comprehensive federal legislation, he says.

Writing such requirements into statute tends to neglect the subtleties of individual regulatory missions, agrees Kettl. "In theory, [cost-benefit] analysis sounds very simple, but in reality it's a very slippery process. The job is not easy and the skills [required] are very sophisticated."

"It's true that neither quantitative risk assessment nor cost-benefit analysis are precise, exact disciplines," concedes Portney, but the Levin-Thompson bill doesn't direct agency decisions, it only asks that they consider all quantitative and qualitative costs and benefits. "It's basically saying be as careful as you can about identifying the good things and the bad things that could happen as a result of this regulation. If that's not the right message to be sending to regulators, I don't know what is."

Pending Controversies

The judicial review element was among the most disputed during hearings on the bill. "Cost-benefit analysis and risk assessment do not belong in court," said Karen Florini, senior attorney with the Environmental Defense Fund (EDF), during a February Senate Governmental Affairs hearing. EDF, labor unions and other advocacy groups fear industry lawyers may launch court attacks based on procedural elements of cost-benefit and risk studies alone.

Levin and Thompson insist the provision is only intended to make the analysis part of the overall record that as a whole already is subject to court review. Attorneys at the American Bar Association agree.

The bill's peer review element also is troubling to some. There are only about 15 people in the country qualified to review cost-benefit and risk analyses accompanying complex rules, according to Finkel. He estimates the federal government could complete only six high-quality independent peer reviews each year.

A better form of peer review, Finkel says, comes through OSHA's public comment and hearing process. "We get more scrutiny of our science through our hearings than we would ever get through a peer review panel," he says.

Portney and Litan, however, see the merit in independent review and believe there are sufficient experts in the various technical fields to do quality reviews. When the National Academy of Sciences submits thousands of proposals to peer review panels each year, it's hard to imagine the government couldn't find enough reviewers for the 60 to 100 major rules that come out annually, Portney says.

Besides, peer-reviewed regulatory analysis can only help agencies defend their rules in court, ultimately speeding up the overall regulatory process, Lester Crawford, director of Georgetown University's Center for Food and Nutrition Policy and former administrator of the Food Safety and Inspection Service, told Thompson's committee. "I am convinced and persuaded that [these requirements] will accelerate, not impede, the development of useful regulations," he said.

For many observers, whether the requirements speed up or slow the process is the most important question. As labor union representatives point out, a lot of workers got sick and many died waiting for OSHA to finish updating its methylene chloride standard.

Future Prospects

The future of the regulatory improvement bill was unclear in early April. It has broad and varied support from the likes of liberal Democrat Sen. Jay Rockefeller, W.Va., GAO and various economists and scientists. But the Clinton administration has raised concerns about peer review, risk assessment, judicial review and other provisions. Without administration support, the bill probably could not pass the Senate by a veto-proof margin.

In fact, whether or not the bill will reach the floor for a vote also remained uncertain, as Majority Leader Trent Lott, R-Miss., introduced his own narrower reform bill-the Risk Assessment Improvement Act-on March 6. In Lott's view, proposals for incremental reform have a better chance of being signed into law than does a comprehensive bill. Until something passes the Senate, House reformers don't plan to take up a broad bill, staff sources say.

Whatever the outcome of the Levin-Thompson bill, the regulatory analysis debate is sure to continue. If the road to achieving a regulatory process that maximizes society's benefit for the money spent is a one-mile race, today's system is only about 100 yards along, Litan says. "We're still a long way from the point where we can make rational trade-offs." But at least all parties have accepted that analysis can help, he adds. "The next question is, can we do it better?"