Testimony of John D. Graham

STATEMENT OF
JOHN D. GRAHAM, PH.D.
ADMINISTRATOR,
OFFICE OF INFORMATION AND REGULATORY AFFAIRS
BEFORE THE
SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES

April 28, 2005

Mr. Chairman, and Members of this Committee, I am John D. Graham, Ph.D., Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget. Thank you for inviting me to this hearing and for giving me the opportunity to testify today on the reform of regulations that impact the United States manufacturing sector.

The Administration is moving on several fronts to facilitate the streamlining of regulation. First, we have insisted that new federal regulations be supported by good science and economics to ensure that they are necessary and cost effective.

During our review of new rules, we very clearly recognize that small businesses often face a disproportionate share of the regulatory burden. We work closely with the Advocacy Office of the Small Business Administration to ensure that agencies meet their obligations to analyze the impact of regulations and to consider less burdensome regulatory alternatives for small businesses. For example, OIRA, along with Advocacy, sits on Small Business Advocacy Review Panels, pursuant to Small Business Regulatory Enforcement Fairness Act (SBREFA). These panels ensure meaningful small business input in the early stages of rule development for all EPA and OSHA rules that may have significant small business impacts. To date, OIRA has participated in 27 EPA and 7 OSHA SBREFA panels. While not legally binding, the recommendations of these panels are taken seriously by the agencies and have frequently resulted in significant changes in the proposed regulations.

In addition, Executive Order 13272, issued in August 2002, strengthens agency compliance with the Regulatory Flexibility Act (RFA) and Advocacy's role in ensuring that agencies make minimization of small business impacts a central consideration in the rule development process. The Executive Order states that agencies must thoroughly review draft rules to assess and take appropriate account of the potential impact on small businesses, small governmental jurisdictions, and small organizations, as provided by the RFA.

We are happy to report significant success: as we stated in our 2005 Draft Report to Congress on the Costs and Benefits of Federal Regulation, the average yearly cost of the major regulations issued during this Administration is about 70% less than over the previous 20 years, and the average yearly net benefit of the major regulations issued during this Administration is over double the yearly average for the previous 8 years. This Administration has clearly slowed the growth of burdensome new rules, while still moving forward with crucial safeguards for homeland security, human health, and environmental protection.

Modernizing and streamlining the sea of existing federal regulations, however, is an immense and humbling challenge. To give you perspective on this challenge: OMB reviews approximately 300-350 new final rules each year, of which approximately 40-50 are considered “major” or “economically significant”, primarily because they are estimated to have an economic impact greater than $100 million in any one year. The flow of new rules, however, is tiny when compared to the number of rules already on the books. Since OMB began to keep records in 1981 there have been over 115,000 final rules published in the Federal Register by federal agencies. Of these published rules, over 20,000 were formally reviewed by OMB prior to publication. Of the OMB-reviewed rules, over 1,100 were considered "major" or "economically significant".

Sad as it is to say, most of the existing federal rules have never been evaluated to determine whether they have worked as intended and what their actual benefits and costs have been. During President Bush's first term, OMB initiated a program to take a second look at a limited number of these existing regulations, guidance documents, and paperwork requirements, as we are authorized to do under what’s known as the Regulatory Right to Know Act.¹ Our February, 2004 request for reform nominations, with a clear focus on the manufacturing sector of the U.S. economy, was the third such solicitation of reforms undertaken by this Administration.

To briefly summarize the previous reform initiatives, in 2001 OMB requested public nominations of rules that should be rescinded or modified. We received 71 nominations from 33 commenters, and OMB determined that 23 of the nominations should be treated as "high priority" review candidates. Federal agencies have taken at least some action (e.g., a proposed or final rule) on nearly 75% of these high priority reform nominations. In 2002, OMB again requested public nominations of reforms. In an important innovation, we included guidance documents and paperwork requirements, as well as rules, within the scope of the solicitation. We received 316 distinct reform nominations from more than 1,700 commenters. OMB and the agencies determined that 156 of the nominations should be referred to agencies for their consideration. We have determined that about 1/3 of the 2002 nominations referred to the agencies have resulted in agency action. Appendix D of our 2004 final Report to Congress on the Costs and Benefits of Federal Regulation² contains an item-by-item update on the status of each of the 2001 and 2002 nominations as of December, 2004.

We decided to focus our 2004 regulatory reform initiative on the manufacturing sector, which is one of the most heavily regulated sectors of our economy. In the 2004 Economic Report of the President, the Council of Economic Advisors found that the recent economic downturn hit the manufacturing sector hard, starting earlier and lasting longer in that sector of the economy. The Department of Commerce, in their 2004 report Manufacturing in America, recommended regulatory reform as a key activity government can undertake to ensure the continued competitiveness of U.S. manufacturing. Since U.S. manufacturers compete with firms from both developed and developing countries in an increasingly global economy, the Administration believes it is critical that any unnecessary regulatory burdens be removed.

We also applied the lessons learned from the 2001 and 2002 processes to our latest round of reform requests. First, we offered additional guidance to commenters on how to suggest reforms. We asked that commenters try and make a benefit-cost case for the reform, as many of the rules that are potential reform candidates undoubtedly generate substantial benefits. We also recommended that commenters focus on reforms that agencies can move forward on without statutory change. Our experience with previous years taught us that these are the types of reform suggestions that are likely to lead to agency actions.

In December 2004, OMB released for agency review the 189 reform nominations that were submitted by 41 industry and non-profit groups in response to our request. OMB instructed federal agencies to review the merits of each of the reform nominations and prepare a response for OMB. The responses included a determination as to whether reform action is appropriate, and if appropriate a time-line for action and a plan for public participation. OMB evaluated the reform nominations and collaborated with federal agencies in the development of response plans. OMB also sought evaluations of the recommendations by the Advocacy Office of the Small Business Administration and the Department of Commerce's Office of the Assistant Secretary for Manufacturing and Services.

Of the 189 nominations, 76 were selected by the agencies and OMB for priority consideration and action by the Bush Administration. OMB's report on Regulatory Reform of the U.S. Manufacturing Sector summarizes each of the 76 reform nominations and the time-specified steps Federal agencies will take to address them. The majority of the 76 reform nominations address programs administered by the Environmental Protection Agency and the Department of Labor, a pattern that reflects the large impact of environmental and labor regulation on this sector of the economy. Recommended actions range from gathering and reporting additional information to issuing modernized regulations.

In closing, OMB is dedicated to this initiative; we will oversee the reform process to make sure that agencies make adequate progress in the months and years ahead. Thank you very much for the opportunity to participate today in this very important hearing.

¹ Section 624 of the Treasury and General Government Appropriations Act
of 2001 (31 U.S.C. § 1105 note, Pub. L. 106-554)

² Available on our website at /omb/inforeg/regpol-reports_congress.html