by John F. Cooney¹

On June 27th, Senators Thompson, Levin, and six co-sponsors introduced "The Regulatory Improvement Act of 1997" (S.981), the most recent vehicle in the 20 year long effort to reform the rulemaking process. The Thompson-Levin bill is a bipartisan, bare-bones measure that incorporates the provisions that enjoyed consensus support after the shooting war over regulatory reform in the last Congress. It has three principal provisions:

First, for major rules with an impact of over $100 million, the bill would require agencies to perform cost-benefit analyses and, if the rule protects health, safety, or the environment, to conduct risk assessments. Unlike the Republican bills from 1995, the cost-benefit analysis would simply provide information to the public and would not serve as a mandatory decisional criterion. Further, the process by which an agency conducts the cost-benefit analysis and risk assessment would not be subject to separate judicial review, although these documents would be part of the rulemaking record.

Second, the bill would require each agency that has issued a major rule in the last 10 years to establish an advisory committee that would provide non-binding advice to the agency head about rules that should be considered for revision. After a public comment process, the agency must publish a schedule of those rules, if any, it proposes to revisit. All reviews must be completed within five years of publication of the schedule, but the agency is not obliged to revise any rules that are studied.

Third, the bill would grant explicit statutory authorization for the OMB regulatory review process. S. 981 would, however, expand the scope of OMB's disclosure obligations, which are now limited to documents generated by its Office of Information and Regulatory Affairs under an Executive Order. The bill's disclosure provisions would apply to other parts of OMB, notably to its budget examiners. In the Reagan Administration, OMB argued with the Department of Justice for three years over the executive privilege implications of its desire to disclose OIRA's regulatory communications. The Attorney General ultimately dictated that OIRA communications could be disclosed, but not those from other parts of OMB. The proposed extension threatens to reopen that separation of powers issue.

S. 981 was introduced shortly before President Clinton approved EPA's issuance of final rules to revise the primary national ambient air quality standards for ozone and particulates (NAAQS). Even though the Clean Air Act's requirements for NAAQS are generally believed to be inconsistent with the concepts in the regulatory reform bill, the regulatory policy debate that preceded the President's decision was in fact conducted consistently with the most important regulatory principles incorporated in S. 981.

Cost-Benefit Provisions.

Section 623 of S. 981 would require a Federal agency, before issuing a major rule, to conduct an analysis of its expected costs and benefits at both the proposal and final rule stages. In addition, the Director of OMB could designate other rules as major rules, thereby triggering the agency's obligation to perform such analyses.

In conducting a cost-benefit study, the agency would be required to analyze all benefits and costs, including those that cannot be quantified, and to explain how it anticipates the benefits and costs will be achieved. The agency also would be required to evaluate the benefits and costs of "a reasonable number of reasonable alternatives reflecting the range of regulatory options that would achieve the objectives of the statute." In issuing a final rule, the agency would have to state whether the benefits are likely to justify the costs, and whether the rule is likely to achieve the rulemaking objectives in a more cost-effective manner, or with greater net benefits, than other alternatives it considered. If the agency cannot reasonably conclude that the benefits will exceed the costs and be more cost-effective than other alternatives studied, the agency must explain why these determinations cannot be made; identify any statutory provision or other factor that prevents such a determination; and describe any feasible, reasonable alternative considered that would allow the agency to determine that the benefits would justify the costs.

The requirement to conduct a cost-benefit study applies to all major rules, regardless of whether the agency's statute allows it to consider costs in actually making its rulemaking decision. However, S. 981 contains no mandatory decisional criteria or super-mandate that would amend or override underlying laws that preclude consideration of costs.

Section 627 of S. 981 would substantially limit judicial review of cost-benefit studies conducted under Section 623. An agency decision that a rule did not constitute a major rule would be reversible only upon a clear and convincing showing of error. The actual cost-benefit study would not be independently reviewable apart from judicial review of the final rule, although the analysis would be part of the record on which a general APA review would be based. Only a complete failure by an agency to perform a required cost-benefit analysis could justify remand of the rule on procedural grounds. Taken together, these provisions effectively address concerns, which were prominent in the 1995 debate, that rules should not be delayed indefinitely by challenges to the cost-benefit procedures.

Risk Assessment Provisions

Section 624 would require each agency to perform a risk assessment, at both the proposal and final rule stages, for each major rule whose primary purpose is to address health, safety, or environmental risk. Agencies would be directed to use only "reliable and reasonably available scientific information" in such studies and to explain the exposure scenarios used, the estimated population at risk, the likelihood of exposure, and the severity of harm reasonably likely to occur from exposure.

Section 625 would further provide that each cost-benefit analysis and risk assessment should be peer reviewed, once per rule, by panels that are "broadly representative and balanced" and comprised of experts independent of the agency program and with no financial interest in the outcome.

S. 981 thus provides broad principles to guide agencies in performing risk assessments but is not prescriptive about the details. The provisions will not be acceptable to people who believe that regulating risk down to zero is the appropriate policy goal. But the provisions should be unobjectionable to those who support the general concept of risk assessment, if conducted under sensible procedures. The risk assessments and peer reviews would constitute part of the rulemaking record for judicial review. However, Section 627 imposes the same limits on judicial review as for cost-benefit analyses. In particular, these studies are not independently reviewable apart from the underlying rule, and procedural challenges are limited to a total abdication of agency responsibilities.

Prospects for Passage

S. 981 carries forward the bipartisan, consensus provisions that have survived through years of ideological debate over regulatory reform, while avoiding much of the baggage that has weighed down these efforts. S. 981 is deliberately stripped down, in order to separate groups who oppose cost-benefit review and risk assessments under any circumstances from those who could support such studies under moderate, non-prescriptive procedures. After the battle in 1995-96, however, prospects for passage may be remote. S. 981 has been denounced by the public interest community and received only muted expressions of support from the business community. Senator Levin frankly admitted that he did not know the White House position on the bill, nor had he gauged sentiment in the House. As of the August recess, the bill had not even been introduced in the House. S. 981 even faces scheduling problems in the Senate, because the Governmental Affairs Committee is consumed by he campaign finance reform hearings.

Beacons toward the Future

The 105th Congress is the ninth Congress in succession to consider legislation to reform the rulemaking process. There is no obvious reason why this Congress should succeed in reaching consensus where its predecessors have failed. Indeed, after the ill-will generated in 1995, there is every reason to dismiss any regulatory reform bill as doomed until more time has passed and passions have cooled. Yet, there have been two important developments that provide cautious grounds for believing that the political system eventually will resolve the regulatory process issue, and that the resources devoted to this effort finally can be redirected to improving individual rules.

First, the Brookings Institution and the American Enterprise Institute, leading think tanks for liberal and conservative perspectives, co-hosted the event at which Senators Thompson and Levin introduced S. 981. This means that liberal and conservative economists have at last been able to find common ground. The convergence of partisans who share an economic point of view on regulatory issues suggests that a consensus may, after all, be achievable. However, groups who approach regulatory issues from other points of view have yet to show the same congruence.

Second, the most significant regulatory policy struggle of the Clinton Administration demonstrates that the principles reflected in the Thompson-Levin bill have already carried the policy debate in practical terms, and that the impasse in Congress on this issue is an anachronism. Although not required by law (some would say precluded) to conduct a cost-benefit analysis of its NAAQS rules, EPA conducted such studies and publicly defended its rules on their results. Indeed, today it is inconceivable that rules imposing several billion dollars worth of costs could garner public support without an informed debate on how benefits and risks compare to costs. Many of the benefits on which EPA relied were unquantifiable. EPA's own analysis showed that the ozone rule could not be justified on a purely dollars-and-cents cost-benefit basis. EPA nonetheless succeeded in working the rules through the OMB regulatory review process and obtaining Presidential approval, despite well-funded industry opposition. In endorsing the final rules, the White House relied extensively on economic analyses to devise an implementation strategy that should substantially reduce compliance costs.

There are object lessons for all sides in the NAAQS case. First, for those suspicious of cost-benefit analysis and risk assessment, the process demonstrates that the regulatory reform principles in S. 981, fairly applied, may operate to vindicate proposals to tighten health and safety standards and do not create a one-way street that must inevitably lead to defeat for such proposals. The NAAQS rules also demonstrate that an informed public debate over competing interpretations of cost-benefit analyses and risk assessments can produce broad political support for enhanced protection levels.

For proponents of regulatory review, the lesson is that any reasonable set of cost-benefit principles will work, if the rulemaking agency cooperates, and that an effort to obtain a perfect set of procedures is self-defeating. EPA and the Department of Transportation already do a reasonable job in these areas without any statutory requirement. The real benefits from S. 981 would come from applying a rational set of procedural requirements to the agencies that currently do a poor job, such as the FDA, OSHA and Agriculture.

From a broader policy perspective, the most interesting question presented by S. 981 is how long Congress will remain frozen in its ancient ideological patterns, and how soon it will follow where public opinion already has evolved.

1. Venable, Baetjer, Howard & Civiletti, Washington, D.C.