Paralysis by Analysis: How Conservatives Plan to Kill Popular Regulation

Among Newt Gingrich's great contributions to double speak is the "Jobs Creation and Wage Enhancement Act" (H.R. 9), one of the least appreciated and most extreme elements of the Contract with America. The measure has nothing to do with jobs or wages. It is, rather, a cynical effort to hamstring federal health, safety, and environmental regulation by adding a series of bureaucratic hurdles and new opportunities for industry-inspired litigation. Unless the public awakens to the dangers posed by the Republicans' approach and the president vetoes the legislation likely to emerge from this Congress, the achievements of decades of improvement in the environment and health and safety standards will be severely undermined.

The Republican sponsors argue that big government mindlessly churns out regulations harmful to the economy and business and that the public is tired of the red tape. Americans may dislike regulation in the abstract, but we value clean air, pure water, and other benefits of health and safety regulation that private markets ignore. Ironically, the Republicans' approach is a tacit admission that most regulation is popular. They know the public would not stand for explicitly dismantling the Clean Air Act, the Safe Drinking Water Act, or the Food, Drug and Cosmetic Act. Instead, they are trying to cripple these laws by enacting procedural reforms that sound neutral but make effective regulation impossible.

The House passed H.R. 9 in March, while the Senate was preparing to consider two rival counterparts--a companion bill by Majority Leader Robert Dole that goes even further than H.R. 9, and a more moderate reform bill by Senator William Roth of Delaware. Even the Roth bill would seriously and needlessly damage a good deal of regulation that most Americans support. At the heart of all three measures is more red tape. Since the Carter administration, the Office of Management and Budget (OMB) has coordinated policy among the regulatory agencies. President Reagan greatly centralized control in OMB and issued an executive order (Executive Order 12,291) requiring elaborate risk assessments before agencies could regulate. These analyses were so expensive and time-consuming that agencies often failed to meet the analytical perfection required by the order. That in turn resulted in acrimonious fights between the regulatory agencies and the economists in OMB who frequently held up important regulations for months or even years because of alleged analytical flaws.

President Clinton's counterpart order (Executive Order 12,866) eliminated much of the red tape and gave the agencies more flexibility, while preserving OMB coordination. At present, agencies are required to prepare "regulatory impact analyses" (RIAs) describing costs and benefits for "major" rules--ordinarily defined as those likely to have an annual impact of more than $100 million. In the course of carrying out their missions, agencies already do a great deal of cost-benefit analysis and risk assessment. For example, the Environmental Protection Agency (EPA) and Occupational Safety and Health Administration (OSHA) typically prepare risk assessments in regulating toxic substances because there is generally insufficient direct evidence from human studies that a substance poses a precise risk at a given level of exposure. Risk assessments take the available animal (and occasionally human) evidence and, using complex mathematical models, extrapolate the risk to humans at a range of potential exposure levels. Because of the huge uncertainties inherent in making such extrapolations, agencies are wary of relying exclusively on risk assessments. At best, risk assessment can provide useful information, to be factored together with other considerations, in setting standards. And while agencies often review costs and benefits to ensure that their rules are rational and cost-effective, they are generally not required to prepare an extensive quantitative cost-benefit analysis for every rule they promulgate. Nor must they slavishly follow the dictates of the cost-benefit analysis in choosing among regulatory options.

Under the Gingrich bill, risk assessments and cost-benefit analyses would become virtually universal and, instead of serving as a tool, would become a straitjacket. The drafters of these provisions broadly modeled them on the Reagan executive order--a proven strategy for throwing sand in the regulatory gears. Both the House bill and the Dole bill would widen the definition of "major rule." Under the House bill, rules that have an impact of more than $25 million on the economy would be subject to risk assessment requirements. Under all three bills, rules having an impact of more that $50 million would require a full-fledged cost-benefit analysis. Agencies would also have to consider the indirect economic effects of the rule, which alone can double or triple the cost. As a result, even exceedingly modest rules will be considered "major." Agencies such as the EPA estimate that they will have to prepare risk assessments and cost-benefit analyses for virtually every rule of any importance.

It is ironic that a party sworn to make government more efficient would add new layers of red tape. For example, in the case of the Food and Drug Administration (FDA), risks are generally well known by the time the agency issues a regulation. Consider the FDA's proposal to regulate children's vitamins to prevent iron poisoning in children. No one quarrels with the findings of the Centers for Disease Control that more than 100,000 children have suffered iron poisoning and that more than 30 have died in recent years, often because kids mistake children's vitamins for candy. The FDA has proposed to limit high-potency iron pills to childproof containers and to require warning labels that inform parents of the risk of overdose from iron. In fulfilling the proposed risk assessment requirement, precisely what risk would the FDA be assessing? The risk of consuming too much iron? Or the effect that iron has on children? Or something else? The bills provide no answers.

But the bills do prescribe, in microscopic detail, how an agency must go about performing a risk assessment--apparently under the theory that one size fits all. They would make it impossible for different agencies to take different approaches to risk assessment. For example, EPA and OSHA routinely perform extensive risk analyses before regulating carcinogens. Because the groups they are charged with protecting vary so widely, they often use different methods of risk assessments. EPA must worry about the effects of exposure to toxic substances over the course of a lifetime on vulnerable sub-populations, including children, the elderly, and people with weakened immune systems such as AIDS patients. OSHA, on the other hand, is concerned by and large with healthy adults who are exposed intermittently, often to high-dose levels. To suggest that all agencies should use precisely the same risk assessment techniques is to ignore the agencies' profoundly different missions.

Preparing a risk assessment capable of meeting the bill's ambitious specifications will divert the agency's money and scientific staff time. For a known hazard like iron, a detailed assessment will provide little new information to the regulators, the regulated entities, or the general public. Indeed, for agencies like the FDA, which generally regulates the risks of products whose effects are well known, this will be pure waste.


BUILDING IN BIAS

Both the House bill and the Dole bill provide, in effect, that a regulation's benefits must exceed its costs. The House bill would supersede the agency's own primary statute, if the statute failed to mandate a cost-benefit test. This cost-benefit approach sounds innocent enough, but in practice it would cripple health, safety, and environmental regulation.

For one thing, Congress has deliberately legislated some policy goals, such as OSHA's general requirement that employers provide a safe workplace, that explicitly reject cost-benefit tests--and with good reason. When cost-benefit analysis is applied to workplace safety, it puts workers in the position of bidding their wages against their health, and it allows industry to ignore measures that can enhance health and safety at moderate cost. Certain highly toxic substances have been banned outright, rather than having been subjected to economic analyses of their benefit versus their harm.

The costs of environmental and workplace hazards are often concentrated on vulnerable populations. It may make better policy sense to prohibit some hazards outright. The entire approach of cost-benefit analysis is inherently biased against collective solutions to social problems. While the costs of regulation can generally be quantified (although often overestimated) since they are often capital costs (such as new pollution control equipment), the benefits of regulation are far harder to quantify. To make matters worse, although compliance costs are generally expended promptly, the benefits of health and environmental regulation are spread over many years. Cost-benefit analysis requires the agency to reduce these future benefits to "present value." At the OMB-required discount rate of 10 percent, a dollar's worth of benefits 50 years from now is worth less than a penny today. This means that the benefits of a regulation today that would prevent catastrophic loss in 50 years are virtually certain to be outweighed by even modest present costs. For example, the Nuclear Regulatory Commission is responsible for regulating the storage of highly radioactive nuclear waste. Suppose the NRC had to approve containment systems designed to store radioactive wastes for hundreds of years. The costs would doubtless be high. But the benefits of regulation would be substantial as well, since the health consequences of a breach would be devastating. Yet, because of discounting, the benefits virtually disappear in the cost-benefit calculus, and the agency would not be able to justify protections the public overwhelmingly wants.

Reliable data about the costs of compliance are also hard to come by. Agencies are largely dependent on regulated industries for estimates of compliance costs. But these estimates are notoriously overstated, and, even when submitted in good faith, they cannot account for the often unanticipated technological advances that frequently reduce the actual compliance costs significantly. In several well-known cases, such as the cost of complying with the standards on cotton dust or polyvinyl chloride, the actual cost of compliance turned out to be far below industry projections. For instance, before OSHA imposed a polyvinyl chloride standard, an industry study claimed it would close the nation's entire polyvinyl chloride and vinyl chloride industries, with ripple effects ultimately costing more than 1 million jobs. A retrospective study, however, revealed that the actual financial cost of complying with the standard was only about 7 percent of what industry sources had predicted and that the industry was competitively far stronger afterward than before.

By its very logic, the cost-benefit view of regulation tends to understate benefits. Enormous economic benefits flow from health and safety regulation. Countless deaths and injuries have been avoided by airbags, drug approval, and food safety laws. Dramatic improvements in the quality of the nation's lakes and rivers resulting from our environmental laws have greatly benefited the fishing and tourist industries. Today's automobiles pollute less and are safer to drive than their forerunners of the 1960s. Regulations often indirectly foster economic growth by forcing manufacturers to modernize their facilities, which in turn stimulates innovation and enhances productivity, as illustrated by America's plastics, textile, and pollution-control industries. Hard data on the benefits of safety and environmental rules, however, are not easy to obtain. For example, many of the more than 100,000 children poisoned by iron sustained significant, long-term injuries, such as damage to the walls of the digestive tract. But we usually don't have exact numbers on the injuries that a rule might avert and on such benefits as reductions in health expenditures and the pain and suffering of the children and distress of their parents. Suffering is real, but it defies easy quantification. EPA Administrator Carol Browner poignantly illustrated her objections to the use of cost-benefit analysis as a decisional tool by asking: "How should I value the loss of IQ points by children exposed to lead?"

Economic analysis tends to ignore such "soft" benefits as the joy of experiencing a wilderness or the satisfaction of knowing that humpback whales still exist somewhere in the deep. As former EPA Administrator Douglas Costle observes, "That which can be measured tends to receive more weight than less tangible, though perhaps more important effects which cannot be quantified."

In short, this little-noticed amendment to a procedural statute would seriously weaken the protections ostensibly provided in dozens of health and safety laws. These include the Occupational Safety and Health Act, which sets high standards for workplace safety; the National Highway Traffic Safety Act, which sets strict safety standards for cars and trucks; and the Clean Air and Water Acts, two of our most important environmental laws. The bills would repeal another key statute, the Delaney Clause, which prevents the introduction of carcinogens into our food supply. The bills would have an especially dramatic impact on environmental laws that are aimed at inducing companies to reduce pollution through the best available control technologies. Given the inherent bias of cost-benefit analysis against health and environmental protection, an agency will nearly always reach the cost-benefit limit long before it has required the best that modern technology has to offer.


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REVIEWING AND RE-REVIEWING

All three bills pervert an honorable scientific institution--peer review. True peer review is professional review by disinterested parties. Under the bills, regulatory agencies would be required to submit both risk assessments and cost-benefit analyses to peer review panels that could be composed principally of industry scientists. Even a direct conflict of interest is not grounds for disqualification; panelists need only disclose their financial ties to industry.

Since public interest groups lack the resources to supply scientists for all such panels, the new peer review process will tend to bias agency decisionmaking in favor of the industry point of view. The process guarantees industry representatives an early opportunity to attack a proposed new rule's scientific and economic underpinnings. Even if it works smoothly, the reviews will delay rule-making and drain away scarce agency resources.

The Dole and Roth bills further require each agency to review all of its existing major rules under the cost-benefit criteria. This requirement will channel billions of dollars in agency resources and thousands of hours of professional staff time into a needless exercise in reinventing the wheel. Under current law, any affected person may petition an agency to repeal or amend a rule, and agencies frequently receive and respond to such petitions. If the agency unreasonably delays in responding to the petition, the petitioner may go to court to speed up the agency. But the Dole and Roth bills require the agencies to revisit all major rules, whether or not anyone is dissatisfied.

Nearly all of the major rules that have been promulgated during the last twenty years have been the subject of a detailed cost-benefit analysis in a regulatory impact analysis. While agencies should certainly examine the costs and benefits of past regulations on a selective basis, this universal requirement is a recipe for a colossal waste of resources. This may be exactly what the bills' proponents have in mind. If the agencies' resources are tied up in reevaluations of existing rules, they will not be able to respond as effectively to new threats to health or the environment.

Serious students of regulation have concluded that during the last two decades the rule-making process has become ossified with new procedural and analytical requirements. From an efficient tool for making and implementing government policy, informal rule-making has evolved into a plodding, document-intensive caricature of its former self. The even more meticulous and burdensome requirements of the regulatory reform bills will bring the process to a complete halt.


HANDCUFFING THE COPS

Under current law, agency rules can be challenged in court only when they are final. Agency action generally may be set aside only if it is "arbitrary or capricious." The proposed bills stand current law on its head by providing new opportunities for judicial challenge that all but guarantee that new environmental and health and safety standards will be tied up in court for years. Most disturbing is the potential of the proposal to encourage litigation over the various analytical documents that will be required. Under the House bill anyone subject to a rule will also be allowed to petition courts to review determinations that the rule is "major" as well as risk assessments, cost-benefit analyses, and RIAs. Never before have RIAs been subject to judicial challenge; nor have litigants been able to challenge risk assessments and cost-benefit analyses directly in court.

A single error in any of these highly technical analyses could provide the basis for setting aside the rule--even if the rule is critically important and satisfies the overall standard of rationality. The burden on agencies will be intolerably high. They will have to produce multiple error-free analyses and reports, even though many of them are at best tangential to the substance of the rule.

Agency rules are only of value if they can be enforced, but the Dole bill is appallingly hostile to law enforcement. Two provisions create "affirmative defenses" designed to handcuff federal agency enforcement actions. One provides a defense to corporations that claim they reasonably relied on either their reading of the interpretive material that accompanied the agency's rule or information provided by federal or state regulators. Another provision gives corporate wrongdoers an absolute defense if they can show that the rule they are accused of violating, or that of any other agency, is "incompatible, contradictory, or otherwise cannot be reconciled with the agency rule, regulation, adjudication, directive, or order being enforced." According to the New York Times, these provisions were added by Senator Dole at the urging of major corporations such as Georgia Pacific that are in hot water with the EPA.

These provisions are the modern-day equivalent of "get out of jail free" cards for corporate wrongdoers. For one thing, at least in some states, it is notoriously easy to get state personnel to interpret EPA or OSHA rules in a manner favorable to a large, politically well-connected corporation. For another, given the blizzard of low-level directives issued by agencies interpreting rules, it will not be hard for corporations, represented by squads of high-powered lawyers, to find arguably "incompatible" statements made by either the agency seeking to take enforcement action or a sister agency. Worst of all, agencies and courts will have to sift through all of these defenses when, at present, the only question they have to resolve is the straightforward one of whether the corporation violated the rule. The result will be far more complex, lengthy, and expensive enforcement proceedings, where the inquiry will be diverted from the corporation's misconduct to whether the agency has shown laser-like consistency in its interpretation of its rules.


A NEW ENTITLEMENT FOR BUSINESS

The House bill would erect an unbelievably expensive entitlement program for private property owners. Under the proposal, agencies undertaking certain specified regulatory actions aimed at protecting the environment that reduce property values by 20 percent must compensate affected property owners. Not only will this program cost taxpayers tens if not hundreds of billions of dollars, it will also stall regulatory action that might even arguably impair property rights, regardless of the importance of the underlying policy goals. The first casualty will certainly be the wetlands protection and endangered species programs, which many Republicans oppose but are afraid to criticize because of their popularity.

The Dole bill would give Congress a 45-day period to pass a joint resolution disapproving all new regulations. If the joint resolution is signed by the president, the rule would not go into effect. In addition to slowing up the regulatory process, this procedure would allow regulated industries one more chance to use their lobbyists to persuade sympathetic legislators to stop a rule for reasons wholly divorced from the rule's technical merits.

The three key themes of the current regulatory reform proposals unmask the cynicism of their supporters. First, they condemn the present regulatory system as being overly prescriptive, too expensive, and laden with burdensome and often useless paperwork requirements. Their remedy is to make the regulatory system even more prescriptive, more expensive, and more laden with burdensome and useless paperwork requirements.

Second, the bills' supporters have led the fight in Congress to protect state and local governments from "unfunded mandates"--federal programs that require expenditures that are not fully met by the federal government. These bills call for a quintessential "unfunded mandate" because they impose highly expensive analytical requirements on agencies without giving them the funds to conduct these studies. Not surprisingly, the same members of Congress who support these bills are proposing to slash agencies' budgets. Indeed, since many of the required analyses will have to be undertaken by state agencies under various delegated programs, the bills should be subjected to a mandates analysis under the recently enacted unfunded mandates statute.

Finally, the bills' supporters have decried excessive litigiousness in American society and championed cutting off the rights of victims of defective products to go to court to seek redress. To say, as do the bills' advocates, that corporations ought to have the right to sue at every turn to disrupt agency rule-makings, while injured people should be deprived of their day in court, makes it crystal clear just whose interests are being advanced in this bills.

Senator Roth's bill is not as radical as the Gingrich and the Dole measures. For example, its risk assessment principles are not quite as prescriptive, judicial review of risk assessments and cost-benefit analyses is precluded until after the agency publishes its final rule, and judicial review of the threshold question whether a rule is "major" is subject to a very deferential standard of judicial review. Some moderates have argued that the Roth bill represents a reasonable compromise that the Clinton administration should support.

Senator Roth is trying to hold what he believes to be the center, and he was buoyed by the support of moderate Democrats on the Senate Governmental Affairs Committee, which reported his bill out unanimously. But it is far from clear that Roth will have the inclination or the ability to take on Dole. The most hopeful sign thus far was the attempt by Senate Judiciary Committee Democrats to filibuster the markup of the Dole bill, but in the end, they lacked the votes to bottle the bill up in committee. And the White House has sent strong signals that while President Clinton would probably veto the Dole bill, he could grudgingly live with the Roth bill.

Although it is highly unlikely that Congress will enact regulatory reform legislation that closely resembles the Roth bill, even that bill provides too many restraints on health, safety, and environmental agencies. Even the attenuated risk assessment, cost-benefit, and peer review requirements of the Roth bill will add greatly to the resources and time that agencies must devote to providing the supporting documents for major rules. And the Roth bill would still require agencies to waste precious resources revisiting old, possibly uncontroversial regulations.

In the final analysis, the details of the analytical approaches that agencies use in writing health, safety, and environmental regulations should be left to the executive branch. Congress should articulate the policies that guide the agencies in substantive legislation that has been the subject of hearings before the committees with jurisdiction over those agencies, not in omnibus laws that enact wholesale changes. The public may want to see some changes in the regulatory process, but it deserves better than this.


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