OMB: New 2005 regulations brought tens of billions in benefits

The benefits of major new federal regulations in fiscal 2005 far outweighed the costs, according to a draft report released this week by the Office of Management and Budget.

The 13 major rules for which OMB was able to gather costs and benefits cost the national economy between $4.3 billion and $6.6 billion in fiscal 2005 and provided benefits worth anywhere from $28 billion to $178 billion. Estimates for eight other major rules were not available, including two homeland security-related rules for which reviewers noted that enhanced security benefits were particularly difficult to assess.

The draft report was announced in an April 13 Federal Register notice, and OMB will accept public comments on it until July 12.

In compliance with the Regulatory Right-to-Know Act, the report reflects data compiled from agencies and analyzed by the budget office. It encompasses major rules adopted across federal agencies last year and over the last decade.

The report's ambitious reach is qualified by major caveats. Reviewers noted that many major rules "have important nonquantified benefits and costs, which may have been a key factor in an agency's decision to promulgate a rule-making." Reviewers also noted that agencies use different methodologies and baselines to derive estimates, and said benefits are probably understated relative to costs.

OMB analysts found that the benefits of major rules in 2005 were significantly higher than in 2004, largely due to the Environmental Protection Agency's adoption of the Clean Air Interstate Rule, which requires control measures by many states to reduce sulfur dioxide and nitrogen oxide emissions. That rule added benefits between $12 billion and $152 billion for fiscal 2005, and is expected to average $50 billion to $60 billion in annual benefits, the agency noted.

Generally speaking, EPA is the most active participant in major rule-making, the report showed. From October 1995 to September 2005, EPA promulgated 42 major rules with estimated benefits ranging from a low of $59 billion to a high of $394 billion. The second most active agency was the Health and Human Services Department, with 19 major rules contributing between $21 billion and $33 billion in benefit.

Robert Shull, director of regulatory policy for OMB Watch, had several concerns with the report's data and analysis. He said cost estimates tend to be inflated, because they are based on figures provided by industry before the regulations are adopted. By contrast, benefit numbers are heavily discounted by calculations that count future benefits in terms of dollars invested today that would accrue that value, he said.

He said the calculations also ignore or poorly capture benefits that are difficult to translate into monetary terms.

Shull said one improvement over recent years is that OMB has increased the transparency of its analysis by making it easier to find the myriad impact assessment documents it relies on, through providing Web links to online documents or references to where they can be found on paper.

Other conclusions of the report were:

• Average annual costs of major regulations issued during the present administration have been 54 percent lower than those during the previous 20 years.
• Average yearly benefits during this administration are more than double the yearly average in the previous administration.
• Regulatory costs tend to be highest in the last year before a president leaves office.