Assessing Regulatory Impact Analyses: The Failure of Agencies to Comply with Executive Order 12,866
Hahn, Robert W., Burnett, Jason K., Chan, Yee-Ho I., Mader, Elizabeth A., Moyle, Petrea R., Harvard Journal of Law & Public Policy
Although regulations often have no direct fiscal impact, they pose real costs to consumers as well as businesses. Regulations aimed at protecting health, safety, and the environment alone cost over two hundred billion dollars annually -- about two-thirds as much as outlays for federal, nondefense discretionary programs.(1) Yet, the economic impacts of federal regulation receive much less scrutiny than the budget.(2)
To encourage the development of more effective and efficient regulations, Presidents Reagan, Bush, and Clinton have directed agencies to perform economic analyses of major regulations that show whether a regulation's benefits are likely to exceed its costs and whether alternatives to that regulation are more effective or less costly. Each president also attempted to increase agency accountability for decisions by requiring that the President's Office of Management and Budget ("OMB") review all major regulations. More recently, Congress embraced regulatory reform and inserted accountability provisions(3) and analytical requirements into laws such as the Safe Drinking Water Act Amendments of 1996, the Small Business Enforcement and Fairness Act of 1996, and the Unfunded Mandates Reform Act of 1995.(4)
The most prominent and far-reaching of these regulatory reform efforts are President Reagan's Executive Order 12,291 and President Clinton's Executive Order 12,286. Both require agencies to prepare a Regulatory Impact Analysis ("RIA") for all major federal regulations.(5) Agencies have prepared RIAs for almost twenty years in accordance with the executive orders and guidelines for economic analysis provided by the OMB.(6)
This Article suggests that the impact of RIAs has fallen short of the expectations of regulatory reform advocates in part because agencies do not fully comply with OMB's guidelines.(7) The RIAs typically do not provide enough information to enable regulatory agencies to make decisions that will maximize the efficiency or effectiveness of a rule.(8)
This conclusion is based on the results of an evaluation of forty-eight major environmental, health, and safety regulations and their associated RIAs.(9) The authors completed a "regulatory scorecard" for each of the forty-eight regulations, which includes a checklist of the requirements for a good economic analysis outlined in the Executive Order and the OMB guidelines.(10) The study of RIAs shows that agencies only quantified net benefits -- the dollar value of expected benefits minus expected costs -- for 29 percent of the forty-eight rules, even though the Executive Order directs agencies to show that the benefits of a regulation "justify" the costs.(11) The agencies also did not adequately evaluate alternatives to the proposed regulation, another element of the Executive Order. Agencies failed to discuss alternatives for 27 percent of the rules and quantified the costs and benefits of alternatives for only 31 percent. In addition, the agencies often failed to present the results of their analysis clearly. Agencies provided executive summaries for only 56 percent of the rules.
This Article also offers specific suggestions for improving the quality of RIAs, which will in turn improve the allocation of regulatory resources. These include: (1) the use of clear executive summaries; (2) the provision of on-line RIAs; (3) improved evaluation of regulatory alternatives; and (4) improved assessment of net benefits.
Part II of the paper describes the methodology of the study. Part III presents the results. Part IV describes in detail the policy recommendations to improve RIAs.
This study builds on previous efforts to evaluate the quality of RIAs.(12) Whereas previous studies evaluated a few RIAs in great detail, this study assesses the quality of forty-eight RIAs published from April 1996 to July 1999.(13) This approach is advantageous because it is possible to identify common strengths and weaknesses among many RIAs, a task that no previous study has undertaken. …