Rule Breakers

oping to boost a flagging national economy, the new President moved quickly to ease the burdens of federal regulation on American businesses. Within eight months of taking office, he issued an executive order to make agencies balance the economic costs and benefits of any major rules they might propose.

His order began: "The American people deserve a regulatory system that works for them, not against them: a regulatory system that protects and improves their health, safety, environment and well-being and improves the performance of the economy without imposing unacceptable or unreasonable costs on society; regulatory policies that recognize that the private sector and private markets are the best engine for economic growth."

The President wasn't Ronald Reagan. Nor was it George Bush. It was Bill Clinton. He signed the order, Executive Order 12866, on Sept. 30, 1993. Yes, that's the same Bill Clinton who put 26,000 pages of new rules-derided by critics as "midnight regulations"-on the books in the last three months of his second term.

Clinton's executive order, which was similar to the two Reagan orders it replaced, was kept by the new Bush administration. "The question for us is whether we can take the principles outlined in the Clinton order . . . and make the agencies adhere to them," says John Graham, the Harvard professor confirmed in July as director of the Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA). The question raised by Graham, whom Bush is counting on to be the administration's regulatory gatekeeper, is a huge one for a Republican President whose campaign netted significant financial support from industries eager for relief from what they say is a crushing burden of federal regulations. Bush promised to rein in what he called "an avalanche" of Clinton-imposed health, environmental and land-use regulations.

After Bush's election, expectations for regulatory reforms and rollbacks soared among the free-market think tanks that had released reports emphasizing the need for regulatory relief. Robert W. Hahn, resident scholar at the American Enterprise Institute for Public Policy Research and director of the AEI-Brookings Joint Center for Regulatory Studies, was among those who released a report advocating reform as the new administration was taking office. His research shows that more than half of the federal regulations enacted between 1981 and mid-1996 would not pass a cost-benefit analysis test. That is, the costs of implementing and complying with those rules would exceed their benefits to society. "If Congress continues to allow agencies to create regulations without adequate attention to the full economic consequences," Hahn wrote, "the standard of living that most citizens enjoy will slowly but surely erode."

Bush made changing the regulatory game a top priority. Less than two hours after taking office, he put a two-month hold on rules handed down in the final days of the Clinton administration so his own team could review them. Such reviews have been routine in new administrations since 1980, but Bush wanted to show he meant business. The new administration set aside stringent new standards for arsenic in drinking water, relaxed energy conservation requirements for central air conditioners and heat pumps, eased mining rules and announced its intention to repeal a rule that would prevent companies found to have violated environmental, labor or employment laws from getting federal contracts. Bush also backed away from a campaign pledge to reduce emissions of unregulated greenhouse gases from power plants and announced his intention to withdraw the United States from a controversial international agreement to limit pollution that causes global warming.

Emboldened by the new administration, the Republican-led Congress got into the act. In early March, GOP lawmakers put the 1995 Congressional Review Act into play for the first time. They killed a rule aimed at preventing repetitive stress workplace injuries. Businesses loathed the ergonomics rule, which they estimated would cost them $100 billion in workplace upgrades. But the revolution stalled. A wave of negative stories about the administration's environmental policies swept the nation's press before and after Earth Day in mid-April. Public opinion polls showed a negative reaction to the Bush administration's handling of environmental matters, especially the decision to pull back on plans for a tougher arsenic standard. Then came the biggest blow of all: the defection of Sen. James Jeffords of Vermont from the Republican Party. When Jeffords became an Independent, he tipped the balance of power to the Senate's Democrats. The switch guaranteed that unsympathetic Senate committee chiefs would oversee Bush's efforts to eliminate or alter regulations.

The Bush administration "came in with guns blazing saying they wanted to repeal regulations, but they learned some hard political lessons quickly," says Reese Rushing, a policy analyst for the watchdog group OMB Watch.

By summer, few of Clinton's midnight regulations had been rolled back. And congressional Republicans, fearing a potential voter backlash in 2002, grew wary of voicing opposition to environmental protections. The Republican-led House, for example, voted 218 to 189 in late July to block the Bush administration's efforts to loosen the Clinton administration's restrictions on arsenic in drinking water. The Environmental Protection Agency got the message: It announced in October plans to strengthen arsenic standards by imposing the Clinton standard.

Experts who have watched previous administrations struggle and fail to curb federal regulatory power were not surprised that the gunslinger approach wouldn't cut red tape. Even without a dramatic flip in the Senate, a President's power to reverse regulations runs out quickly, says Richard Belzer, a visiting professor of public policy at Washington University in St. Louis and a former OIRA staff economist. "The President has his maximum power the moment he is declared President-elect," Belzer says. "It's all downhill from there." The books of regulations have fattened, he says, through Richard Nixon's "quality of life" reviews, Gerald Ford's "inflation impact statements," Jimmy Carter's regulatory analysis and review group and the 1980 Paperwork Reduction Act, Ronald Reagan's centralized executive regulatory review and task force on regulatory review, George Bush's Council on Competitiveness, and Bill Clinton's cost-benefit executive order.

"There's been 30 years of trying to guide agencies, 20 years of centralized executive review, and no model has been successful really," Belzer says. "The agencies adjust because the threat of administration enforcement lacks credibility." Bush has "levers of influence" to curb regulations in his choices to head agencies, budget proposals and ability to sway public opinion, Belzer adds. But a President is constrained powerfully by Congress, the press and pollsters.

The congressional constraint is significant. Melissa Luttrell, legislative counsel for regulatory affairs for the consumer watchdog group Public Citizen, says, for example, that the outlook for defeating the regulatory rollback brightened considerably when Connecticut Democrat Joseph Lieberman took the gavel of the Senate Governmental Affairs Committee from Sen. Fred Thompson, R-Tenn. "He's shown his willingness to hold hearings when he thinks that environmental or public health protections are going to be weakened," she says. "That scrutiny is critical because the Bush administration has shown that they are willing to take heat and go to bat for their industry contributors. But they have also shown they can be responsive to the public when they've had bad press."

Indeed, even the President considered by most to be the master deregulator, Ronald Reagan, ran into the same trouble. "Even a Congress that was a lot more Republican in its makeup than the present one was afraid of people saying that they didn't care about the environment or they didn't care about safety," says Murray Weidenbaum, Reagan's top regulation buster as the chairman of the Council of Economic Advisers.

A President who is unable to launch a direct assault on federal regulatory agencies can do so indirectly. Bush is following the Ronald Reagan model: Appoint or nominate foes of federal regulations to lead agencies they oppose. And cap the agencies' budgets to sap their regulatory power. "Politically, they know now they're not going to roll back environmental regulations like those in the Clean Air Act, but we expect to see less enforcement," OMB Watch's Rushing says. "We expect them to be smarter about how they go about attacking regulations."

Consider the approach to enforcement that the EPA is taking. Administrator Christine Todd Whitman proposed eliminating 270 enforcement officers and passing their duties, along with $25 million in enforcement grants, to the states. "As a former governor, I can tell you the states have done a great deal," Whitman says. "And many of them are very successful in their approach to protecting the environment . . . States often know best who and when they need to target."

Environmentalists disagree sharply with Whitman. "Our research indicates that the EPA proposal is just a move toward weakening environmental protections," says John Coequyt, senior analyst for the nonprofit Environmental Working Group. "There are a number of states like Ohio, Michigan and Pennsylvania that have done very poor jobs of doing follow-up inspections of facilities that had violated water-pollution laws. And when they do follow up, they fail to levy appropriate penalties that remove the economic incentives for breaking the law." The EPA's own inspector general concurred with the environmental group's analysis, issuing an August report critical of state environmental enforcement.

The Bush administration tried to make the turnover of enforcement power to the states more complete by nominating the head of Ohio's environmental agency, Donald Schregardus, to lead EPA's enforcement program. During the seven and one-half years that Schregardus headed the Ohio agency-from 1991 to 1999-enforcement actions and the amounts of fines collected fell sharply. The agency's performance drew formal complaints from Ohio environmental groups, who particularly pointed to Schregardus' lack of effort in enforcing the compliance of large power plants with air pollution laws. Coequyt called the nomination "a slap in the face of EPA." Faced with mounting opposition from Democrats in the Senate, Schregardus withdrew his nomination. He later was named the Navy's deputy assistant secretary of the environment, a post that does not require Senate confirmation.

Schregardus' withdrawal from consideration for the EPA post was a rare victory for environmentalists who have consistently opposed the administration's nominations for environmental posts. "With just a handful of exemptions, Bush has managed to fill environmental slots with appointees who are hostile to . . .environmental protection activities or who are skeptical about their effectiveness," Coequyt says.

While trying to shed enforcement responsibilities, Whitman also is proposing to retool an EPA permit program loathed by operators of large power plants, which gave $19 million to Bush and other Republicans in last year's election. The program requires plant owners and operators of major polluting facilities to apply for new permits when they modify facilities and increase their emissions. The Clinton administration took major enforcement actions under the program. Whitman told the Senate Environment and Public Works Committee in July that she favors a more "comprehensive strategy" for reducing air pollution, setting limits on three key pollutants and giving industries and utilities flexibility in how they meet them.

The talk about increasing industry flexibility worries activist watchdogs like Public Citizen's Luttrell, who says regulatory agencies have been weakened in the recent past. "There's an assumption that we're starting with a pretty good system of inspection and regulation because we've just had eight years of a Democratic administration, but that is just not so," she says. EPA, the Occupational Safety and Health Administration and the Food Safety and Inspection Service all had problems keeping up with inspections during the Clinton administration, she says.

Heads of enforcement agencies come and go, and budgets for inspections expand and contract, but the great hope for meaningful long-term regulatory reform rests in whether Graham can implement Clinton's executive order. "There is a system for regulatory review in place," says Susan Dudley, senior research fellow and deputy director of regulatory studies at George Mason University's Mercatus Center.

"There's a requirement for good analysis that will require agencies putting forth a rule [to] look at the costs as well as the benefits. And there's no doubt we're going to see a stronger OMB analyzing the rules."

The importance of a stronger OMB in carrying out the cost-benefit tests called for in Clinton's executive order made Graham's confirmation one of the more intense political battles of the spring, even though the office that Graham would direct is tiny-it has only 45 full-time analysts-and all but unknown beyond the Washington Beltway. Graham's opponents, which included Public Citizen and the Natural Resources Defense Council, used strong language to denounce him for showing bias against environmental and public health regulations when he headed Harvard University's Center for Risk Analysis. The NRDC called Graham "a nightmare choice," and Public Citizen referred to him as "a disaster."

But Republicans say Graham calls 'em like he sees 'em. His backers say that the Harvard center that Graham headed gets corporate funding, but the studies it produces often go against the wishes of its corporate benefactors. "He is hands down one of the most qualified people ever nominated for this position," Sen. George Voinovich, R-Ohio, said during Graham's confirmation hearing in May. After all the hype, the Senate finally confirmed Graham in July. He went to work with modest expectations. He says his goal is to change the way agencies approach rule-making by getting agencies to do cost-benefit analyses at the beginning of the process rather than justifying decisions with post hoc calculations. "By the time OMB gets involved in most cases, a lot of political commitment has been made," Graham says. "It's very difficult to have an impact when you come in so late. I think you have a better chance if you get in early."

Graham moved to implement that plan in late September. He issued a set of rulemaking guidelines that instruct agencies to put their in-house economists and scientists to work early to ensure "the quality, objectivity, utility and integrity of information" they use to craft new regulations.

Graham hopes those guidelines will force agencies to set regulatory priorities. "We need to identify the big ticket regulations with the greatest impact on the economy, public health and the environment," he says. OIRA plans to review agencies' published regulatory assessments to know what they're planning, identify regulations with the biggest economic impact, then work with agencies to use their own scientists, analysts and economists early on.

Graham's second initiative began in October when he announced plans to expand the visibility of OIRA and the rulemaking review using the federal Internet portal at www.FirstGov.gov. Rather than simply publishing a docket of proposed regulations, the site will expand over several years to include, among other things, statistical summaries and economic analyses of proposed rules, information about OIRA meetings with outside parties, and lists of correspondence from industries, public interest groups and others. The public access plan has two goals, Graham says. One is to avoid controversies like that which arose last winter over Vice President Dick Cheney's secret meetings with industry groups in crafting the administration's energy plan. The other, he says, "is to increase public understanding of OMB's regulatory review responsibilities, thereby allowing public scrutiny, criticism and praise of what we do."

The idea of an activist administrator at OIRA worries environmentalists and public health advocates. Lieberman, for example, asked whether Graham might intimidate EPA and other agencies into avoiding new rules. OMB Watch's Reese Rushing suggests that OIRA may end up with little to do because Bush appointees have such disdain for regulation that they may end up proposing few rules. But Graham says there's little chance of scaring off the agencies. "I've never known the agencies we're talking about," he says with a smile, "to be afraid of rule-making."