Regulatory Accounting

Analysis of OMB's Reports on the Costs and Benefits of Federal Regulation Gao ID: GGD-99-59 April 20, 1999

Issuing and enforcing regulations is a basic responsibility of government, but the costs that nonfederal entities pay to comply with federal regulations are not accounted for in the federal budget process. Some researchers have pegged those costs at hundreds of billions of dollars, and some estimates of aggregate benefits are even higher. Congress, deciding that it needed more information on regulatory costs and benefits, required the Office of Management and Budget (OMB) to submit two successive annual reports to Congress providing (1) estimates of the total annual costs and benefits of federal regulatory programs; (2) estimates of the costs and benefits of each rule likely to have a $100 million annual effect on the economy in higher costs; (3) an assessment of the direct and indirect effects of federal rules on the private sector, state and local governments, and the federal government; and (4) recommendations to reform or eliminate any federal program that is inefficient, ineffective, or not a sound use of taxpayer dollars. This report describes, for each of these four requirements, how OMB addressed the requirements in its 1997 and 1998 reports and the views of noted economists on OMB's responses in these reports.

GAO noted that: (1) OMB's 1997 and 1998 reports contained some, but not all, of the elements Congress required; (2) OMB provided estimates of total regulatory costs and benefits and provided estimates for some, but not all, $100-million rules issued within particular 1-year periods; (3) OMB's 1998 estimate of total federal regulatory benefits was 12 times its 1997 estimate, driven almost entirely by a 1998 Environmental Protection Agency (EPA) estimate of the benefits associated with the Clean Air Act; (4) however, OMB did not separately assess the direct and indirect effects of federal regulations on various sectors in either report; (5) although it discussed a proposal for electricity restructuring and some previously announced agency initiatives in its 1998 report, OMB did not provide any new recommendations to reform or eliminate regulatory programs or program elements; (6) the cost-benefit analysis experts that GAO consulted were generally critical of OMB's performance, with regard to three of the four statutory requirements; (7) the experts said that OMB's 1998 upper-bound estimate of total regulatory benefits was questionable or implausible and they were particularly critical of OMB's unadjusted use of EPA's Clean Air Act benefit estimate; (8) they also said that OMB should not have simply accepted agencies' cost and benefit estimates for the major and economically significant rules, and should have provided new regulatory reform recommendations; (9) however, the experts said they understood why OMB could do little to discuss the other statutory requirement regarding the indirect regulatory effects on particular sectors; (10) overall, they said OMB should have been more than a clerk, transcribing the agencies' and others' estimates of costs and benefits; (11) several of the experts also recognized that, as part of the administration, OMB was politically constrained from doing more than it did because providing independent assessments would have required OMB to criticize positions approved by the administration; (12) OMB has a responsibility to review agencies' estimates of regulatory costs and benefits in rules and reports before they are published; and (13) however, after their publication those rules and reports become statements of administration policy.


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