By Ben Goad and Megan R. Wilson - 03/13/13 09:00 AM EDT
Federal agencies are under mounting pressure from business groups to run rigorous economic tests before handing down regulations.
As the focus in Washington shifts focus from legislation to regulation in President Obama’s second term, the private sector is calling for strengthened requirements on agencies to measure the costs and benefits of new rules.
“This is 400 rules happening at once across 20 agencies,” David Hirschmann, president of the Chamber’s Center for Capital Markets Competitiveness, said of Dodd-Frank.
Republicans in Congress have seized on the call for increased cost-benefit testing, putting forward legislation that would impose new review requirements. GOP lawmakers have rallied behind the Regulations from the Executive in Need of Scrutiny (REINS) Act, which would impose congressional oversight of rules that are estimated to cost $100 million or more.
Proponents say the push is meant to ensure that regulations don’t impede the growth of the economy.
But consumer groups argue that the federal government already relies too heavily on the guesswork of economic analysis. They say it is often easier to document costs of new rules than less tangible benefits such as improved quality of life.
Flawed economic projections, they argue, are gumming up the works for urgently needed rules to protect public safety and health. Matters could get worse if economic considerations become more firmly embedded into rule-making decisions, they contend.
“The push for more cost-benefit analysis is dangerous if it becomes decisive rather than informative,” said Amit Narang, a regulatory policy advocate at the nonprofit group Public Citizen.
Comparison of costs and benefits has been a part of the federal decision-making process since the early 1900s. Former President Reagan codified its use in the 1980s when he issued an executive order requiring agencies to weigh the costs and benefits of major regulations and submit analyses to the White House budget office for review.
Obama issued his own order in 2011 directing agencies “to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.”
With Democrats only in control of the Senate, the president has begun to wield his executive powers in pursuit of policy goals. The shift — coupled with the raft of regulations in the pipeline from Dodd-Frank and healthcare reform — has brought unprecedented attention to cost-benefit analyses.
“If you look at the scale of recent regulatory activity, it’s really quite daunting,” said Douglas Holtz-Eakin, a former White House budget director who serves as president of the conservative-leaning American Action Forum.
Holtz-Eakin said regulations put forth during the first four years of the Obama administration were accompanied by an estimated total of $500 billion in costs.
Federal rules cover everything from pollution limits on power plants to worker protections to health standards for school lunches. They are issued daily from scores of agencies, and number in the thousands annually.
Under the law, cost-benefit analysis is only required for major rules at executive agencies. Independent agencies — including most major financial regulators — are exempt from the requirements.
Hirschmann said the regulators that do use a cost-benefit approach often apply it at the end of the rulemaking process. Thus, he said, they use the analysis to justify a proposed rule, rather than to determine whether it makes sense.
“It’s about getting regulations right,” he said.
Defenders of regulations say the cost-benefit analyses tell only part of the story.
“It’s better in theory than it is in practice,” said Randy Rabinowitz, the director of regulatory policy at the Center for Effective Government. “It really only works in theory when both the costs and benefits are expressed in the same way — in dollars.”
The benefits of many financial regulations — which are aimed at protecting consumers, for example — are not as easily calculated as the compliance costs for companies, the pro-regulation groups say.
“Hard numbers look compelling when you put them up against these very-hard-to-quantity values of dignity and honesty,” Rabinowitz said. “It’s set up to make these regulations sound inane and wasteful, when there’s a great part of society that gets a great deal of dignity out of them.”
Consumer groups point to 2007 legislation directing the National Highway Traffic Safety Administration to enact regulations requiring automakers to install backup cameras on all vehicles. The cost was estimated at about $2.5 billion per year, or $200 per camera.
The cameras, meant to prevent drivers from accidently backing over children, had a larger quantified cost than benefit, they say.
The camera rule remains stalled at the White House, where it has been under review since 2011.