Eliminations and Reinventions
Agency-Specific Regulatory Reforms
Specific Examples of Regulatory Reinventions
You own a growing company. You have spent the past several years conquering the American market. Now, you are setting your sights abroad, where you can attract new customers and, hopefully, increase your profits. After doing the necessary research, you have a pretty good idea about how your product will fly in Argentina or Zimbabwe, and you have come up with a business plan to make it work.
But soon your thoughts turn to the inevitable step that you must take to market your product abroad: make contact with the Federal government. You have heard all the horror stories. The red tape. The endless hours of paperwork. You wonder how many forms you will have to fill out just to apply for an export license.
Five? Ten? Twenty?
As part of its effort to make the Export Administration Regulations more user-friendly, the Commerce Department's Bureau of Export Administration (BXA), which oversees the Nation's export policies, early this year consolidated its myriad forms for Export License Application and Re-export Authorization into one. In addition, companies looking to export their goods can submit this Multipurpose Application Form either on paper or electronically.
BXA is working in other ways to create a more user-friendly and less burdensome environment for American exporters. It has added to its regulations a Country Chart, which shows licensing requirements world-wide in order to make companies aware of regulations that may affect their export operations. BXA has also created a new Special Comprehensive License, allowing exporters to ship multiple items without having to get individual validated licenses and having to maintain three separate licenses for distribution, project, and service supply. And most importantly, BXA's reforms are a fundamental redirection from a negative presumption that all exports subject to its regulations are prohibited unless specifically authorized, to a positive approach where no license or other authority is required to export unless the regulations say so.
More streamlined and more sensible regulations. More cooperation between the Federal government and the affected parties. A more efficient regulatory process. Less paperwork. And more information, in a more useable form, for those who need it. As illustrated in this one example, these are just a few of the improvements that the Clinton Administration has made to the regulatory system.
From the Agriculture Department to the Environmental Protection Agency, from the Transportation Department to the Occupational Safety and Health Administration, and from the Department of Housing and Urban Development to the National Oceanic and Atmospheric Administration, this Administration has developed and implemented a multi-faceted approach to regulatory reform that is bringing real benefits to the American people.
This report marks the third time that we have taken stock of our efforts under Executive Order (E.O.) No. 12866, "Regulatory Planning and Review," which the President signed on September 30, 1993. The Executive Order established the process by which the Office of Management and Budget (OMB) coordinates an objective and dispassionate review of agency proposed and final rules to ensure they are consistent with the President's regulatory philosophy.
Unlike previous Administrations that reviewed all of the thousands of rules generated by agencies each year (most of which are routine documents used to administer the Government's day-to-day operations, such as Coast Guard regulations governing the opening and closing of draw-bridges and Agriculture Department marketing orders and agricultural quarantine notices), the Clinton Administration has sought to maximize the value of centralized review by focusing only on the most important rules that have the greatest impact on the public. Agencies decide which of their rules under development are "significant" (based upon their economic, social, or legal importance), and OMB reviews only those regulations and others that OMB believes warrant review. Thus, we have freed up our limited resources to focus on those regulations where we can add the most value and, at the same time, enabled agencies to issue their routine and administrative rules more expeditiously.
The first report we issued assessed OMB's progress implementing the new Executive Order after six months (59 FR 24276, May 10, 1994), the second after its first full year (First Year Report, December 20, 1994). These two reports tracked OMB's record in terms of the number of rules reviewed, including their origins and significance; the disposition of those rules; and the various measures that have traditionally been applied to evaluate the review process. We have gone through the same exercise for this report, which takes stock of our efforts for the full three- year period through September 30, 1996.
The statistics, discussed in greater detail in Appendix A, reinforce our conclusion from the first two reports: our efforts to strike the right balance have paid off. The number of regulations reviewed under OMB's more selective process has gone down and, at the same time, the number of regulations modified by agencies during the reviews has gone up--all without undue delays in the rulemaking process. But this report seeks to go beyond simply updating the statistical information and discussion of procedural changes that was the focus of the first two reports. After all, improvements in process should not be made for their own sake, but also to enable us to reach better decisions on policy issues that matter to the Nation. This is in fact the overriding message of E.O. 12866--to create a regulatory system that works for, not against, the American people.
Accordingly, this report focuses more broadly than the previous reports on the results of our three-year effort:
Developing more sensible regulations also means considering regulatory alternatives to the traditional command-and-control regulatory approach and basing decisions on good data and sound analysis. Chapter 1 discusses some of the more flexible alternatives that the Administration has encouraged, such as performance standards, market incentive approaches, and information strategies. It also discusses instances in which sound economic analysis, like the benefit-cost and cost-effectiveness analyses called for in E.O. 12866, played a particularly important role in the development of regulations.
Increased consultation with those most affected by a rule is also an important part of producing better regulations. Chapter 1 describes some of the ways in which the Administration has included in the rulemaking process members of the public and our intergovernmental partners at the State, local, and tribal levels and, more importantly, how their input has helped to shape the content of the rules.
And, finally, Chapter 1 details the Administration's efforts to tackle one of the most common complaints about our regulatory system--paperwork. It describes efforts that range from consolidating and streamlining application and certification processes, to reducing or even eliminating private sector record keeping and reporting requirements, to using new technologies that enable individuals and businesses to file information with agencies electronically.
In addition, Chapter 2 discusses several sector specific reform efforts undertaken as a part of the Vice President's National Performance Review (NPR). Major reforms were initiated by the most frequently mentioned regulatory agencies--including the Environmental Protection Agency, the Occupational Safety and Health Administration, and the Food and Drug Administration--to fundamentally reengineer regulations already on their books. This chapter also provides details on some specific reform efforts taking p lace within other key regulatory agencies.
The Vice President's NPR has been particularly interested in how we are carrying out our enforcement responsibilities. Chapter 3 looks at the ways the Administration has changed the enforcement culture within the agencies. We are moving away from the traditional focus on strict compliance with procedural requirements and heavy fines for those that do not comply. Now, we are creating a system that stresses partnership with responsible actors--based on the results they achieve--and offers compliance assistance when they fall short of meeting procedural requirements, while still reserving traditional enforcement techniques for the worst actors.
While not discussed in this report, the Administration has also worked with the Legislative Branch over the past three years to enact legislation that has already had, and will continue to have, a significant impact on regulatory reform. These new laws enact Administration legislative proposals or codify Executive Branch reform initiatives already underway; all reflect bipartisan, and virtually unanimous, support for sensible approaches to regulatory issues. As outlined further in Appendix B, such legislation includes banking reform, intrastate trucking deregulation, the Food Quality Protection Act, the Safe Drinking Water Act, securities reform, procurement reform, and pension reform. It also includes generic regulatory reform legislation such as the Unfunded Mandates Reform Act, the Paperwork Reduction Act, and the Small Business Regulatory Enforcement Fairness Act.
Note: Because agency acronyms are used frequently in this report, a list of full agency names and their acronyms appears in Appendix C.
CHAPTER 1: DEVELOPING BETTER NEW REGULATIONS Better processes generally lead to better outcomes. This tenet lies at the core of Executive Order 12866, and it has been borne out by regulations issued under it. The following discussion of selected agency actions is organized by categories that reflect the basic principles of the Executive Order. These categories are not strictly bounded or mutually exclusive. Many of the examples could be used to demonstrate several types of improvements. These additional categories are noted at the end of an entry.
E.O. 12866 sets forth the President's "regulatory philosophy," which holds that regulations should: be issued only where necessary; be based on a full assessment of costs and benefits of all alternatives, including not regulating; and reflect the alternative that maximizes net benefits (unless a statute requires another approach). To this end, the Executive Order instructs agencies to adhere to 12 "principles of regulation." These principles, which provide a series of guideposts for agencies to follow in developing more focused, more effective, more efficient, and less burdensome rules, can be grouped into six broad themes that call on agencies to:
1. Tailoring the Rule to Fit the Problem One of the key principles of E.O. 12866--correctly identifying the problem and tailoring the rule to fit it--is one of the cornerstones of sound regulation. And in an Administration committed to regulating only when necessary, this work is critical. Over the last few years, agencies have soundly applied this principle by accurately assessing problems before developing regulatory or other policy approaches, and responding to them effectively and efficiently.
One example is a Department of Health and Human Services (HHS) food-borne illness rule issued by the Food and Drug Administration (FDA). In the face of reported illnesses contracted from eating seafood, FDA brought sound science and a sense of responsibility to the problem by requiring seafood processors to focus on, and continually monitor, areas where they determined the health hazards are most likely to develop, and then "control" those potential hazards in whatever way they determine will be most effective. In developing this rule, FDA worked closely with industry to adopt an approach that had proven effective in improving seafood safety. The Department of Agriculture's (USDA) Food Safety and Inspection Service (FSIS) also used this scientific model when it issued similar rules to address food-borne illnesses from meat and poultry products. These rules will lead to differential treatment of the food production process, whereby those components of that process with greater risk for food contamination will receive strict scrutiny while lower-risk components will receive less emphasis.
HHS' FDA also brought sound science and a sense of responsibility to its August 1996 final rule on tobacco. This regulation is based on a prevention strategy designed to reduce children's access to tobacco products and to limit the appeal of such products to children. It follows the recommendations of major medical and scientific organizations such as the American Medical Association and the National Academy of Science's Institute of Medicine. After reviewing public comments on its proposed rule, FDA made several changes to more narrowly tailor the final rule to children and adolescents. For example, FDA had originally proposed to ban the sale of cigarettes and smokeless tobacco through the mail and in all vending machines. However, FDA found that children and adolescents do not use mail-order sales, while adults in rural areas rely on them. Similarly, it found that sales via vending machines in facilities totally inaccessible to minors accommodate adults, while preventing easy access by young people. As a result, the FDA's final rule permitted both types of sales.
An HHS rule revisited the difficult problem that medical researchers face in developing improvements for emergency care. Any testing of equipment or procedures not fully approved by the FDA can only be done with a patient's informed consent. However, potential beneficiaries of such products are often in extreme medical situations (e.g., an unconscious accident victim whose relatives cannot be reached) that make informed consent impossible. FDA and the National Institutes of Health have worked together to fix rules and policies that made high-quality acute care research difficult or impossible to carry out. The two agencies now have tailored an appropriate informed consent policy to emergency care and they now have identical criteria for approval of research and oversight, which eliminates any confusion or inconsistency. Another HHS example is reflected in the Health Care Financing Administration's (HCFA) expansion of Medicare coverage to include certain medical devices currently under study as part of an FDA-approved clinical trial, but which have not yet been approved for marketing. These devices had been categorized as "experimental" and were therefore not covered by Medicare, denying Medicare participants the benefit of important new technologies. Under the revised policy, FDA will assist HCFA in identifying low-risk devices undergoing clinical trials that could be eligible for Medicare coverage. By tailoring an approach that allows appropriate coverage for low-risk medical devices, this change will not only provide Medicare beneficiaries with greater access to technological advances, but will also encourage the development of new technologies.
In December 1995, the Department of Transportation's (DOT) Federal Aviation Administration (FAA) issued final rules to improve commuter airline safety. The agency originally sought to implement a "one level of safety" concept, which would impose on smaller commuter aircraft (10 to 30 seats) the same rules applicable to larger commercial aircraft. After considerable analysis and public comment, however, the FAA revised its proposals to account for the different risks involved in commuter air travel. It determined that substantial safety improvements could be made while avoiding the potential service disruptions and adverse impacts on smaller aircraft (10 to 19 seats) that might have resulted from mandating expensive, but less risk-based, safety improvements too quickly. Indeed, the increased costs associated with making the improvements could have actually increased risks, because higher costs may have forced some customers to choose riskier modes of travel, such as flying in even smaller aircraft (less than 10 seats) or driving.
DOT's Coast Guard has also been adept at tailoring its rules to address the problem at hand. In January 1996, the Coast Guard issued a final rule revising inspection and safety requirements for more than 5,000 small passenger vessels. Extensive risk analysis and public comment received on the proposed rule, combined with a focus on high-risk vessel operations, enabled the Coast Guard to substantially reduce its original proposed requirements. This approach helped the Coast Guard to continue to ensure safety and reduce red tape by retaining strict requirements on riskier boat travel while substantially reducing the number of vessels required to carry additional life rafts and inflatable buoyant apparatus and to maintain crew and passenger lists. These changes significantly decreased information collection and paperwork burdens and reduced annual costs, from an estimated $10 million for the proposal, to about $3 million for the final regulation.
In May 1995, responding to the concerns raised by a number of agricultural groups, the Environmental Protection Agency (EPA) issued several amendments to the 1992 Pesticide Worker Protection Standards. These amendments provide a flexible, common sense response to the groups' concerns. For example, they reduced unnecessary requirements for workers such as farm machinery operators, who have limited contact with pesticides when entering restricted areas, while retaining stringent requirements for workers who have greater contact, such as fruit pickers. By better targeting private industry and government resources toward higher-risk environmental problems, EPA removed unnecessary burdens on the regulated community without sacrificing public health protections for over 3.5 million American agricultural workers.
As highlighted in the First Year Report, EPA moved beyond the one-size-fits-all system of the past in response to a Congressional mandate to create State model inspection, worker training, and abatement standards for housing with lead-based paint. Working closely with State and local governments, EPA and the Department of Housing and Urban Development (HUD) developed performance-based standards that set strong public health goals while giving States and localities greater flexibility in determining how best to achieve them. By tailoring the rule to address the most critical areas, the agencies enabled State and local governments to target lead abatement programs (e.g., establishing methodologies for assessing lead in settings where health risks from lead exposure are greatest, such as areas frequented by children). These more focused, flexible standards have helped to reduce the reporting and record keeping burden on States and to prevent overlaps with other Federal agencies, while offering the same level of public health protection.
HUD also issued regulations in December 1995 that required the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation to increase the availability of mortgage financing for low income families and underserved central city and rural areas. Instead of simply targeting all central city neighborhoods, including affluent areas such as Georgetown in Washington D.C. or Beacon Hill in Boston, while leaving out underserved suburban areas, HUD developed a quantitative model that carefully targeted low-income and high-minority census tracts in both central cities and suburban areas. In addition, rather than specifying how to accomplish this goal, HUD simply set a performance target as specified in the statute: 24 percent of all mortgages must be from the targeted census tracts. This rule provides an excellent illustration of the importance of addressing a properly defined problem by using high quality analysis to tailor a desired performance goal.
The Federal Trade Commission's (FTC) Telemarketing Sales Rule exemplifies tailoring a rule to combat a problem--namely telemarketing fraud and abuse, estimated to cost consumers $40 billion annually--without unduly burdening legitimate business activity. The statute pursuant to which the rule was issued defined telemarketing so broadly that virtually all business use of the telephone would be covered. Rather than issuing such a far-reaching rule, the FTC focused the most rigorous requirements on those activities that traditionally have been the most problematic, such as calls relating to credit repair (i.e., for a fee the telemarketer promises to remove unfavorable information from a consumer's credit report), advance fee loans (i.e., for an up-front fee, telemarketers promise to find loans for consumers, regardless of their credit histories), investment opportunities, and prize promotions. Other provisions of the rule, such as up-front disclosure of the purpose of the call and record keeping requirements, accord with the best practices of legitimate telemarketing firms, and pose no significant additional burdens.
In order to prevent the poisoning of children, the Consumer Product Safety Commission (CPSC) requires child-resistant packaging for medications and other hazardous substances. Under this regulation, over 700 children have been saved from accidental poisonings from prescription drugs and aspirin alone. The CPSC found, however, that children continued to be poisoned because many adults, particularly the elderly, had trouble opening child-resistant packaging and would throw the caps away, leave the containers open, or transfer the hazardous substances to other non child-resistant packaging. In July 1995, the CPSC revised its regulation to require that industry test panels reviewing new packaging be composed of 50-70 year olds, rather than 18-45 year olds, as had previously been the case. This practical solution of tailoring the response to the problem will increase adult usage of child-resistant packaging and save children's lives. Although industry has up to 30 months to comply with the new regulation, innovative "adult-friendly" child-resistant packaging is already appearing on the market.
Tailoring a rule can also take the form of relaxing certain requirements on good performers. For example, HHS' HCFA recently began recertifying laboratories with exceptional past performance by allowing them to complete a self-survey questionnaire in lieu of an on-site survey. The new system, which rewards good performance, will allow HCFA to more effectively focus its inspection program where it is needed most. HCFA plans to use the self-survey system to recertify approximately 1,700 laboratories in the coming months, a large majority of which will be physician office laboratories.
A similar example comes from the Department of Education (ED). In early 1995, the Department proposed a rule that would have required all 7,300 schools participating in Federal student aid programs to establish cash reserve funds to ensure that schools and colleges are able to pay tuition refunds if students withdraw. After considering public comments, ED decided to exempt schools with sound financial standing and accurate refund processing histories. The majority of schools will pass this performance standard and, as a result, only schools that have experienced financial difficulties, and therefore are likely to fail to meet their obligations to students, will have to set aside resources for refunds. This performance standard tailors the rule to focus on institutions at greatest financial risk.
ED's new regulations for the State Vocational Rehabilitation Services Program also provide a more focused approach for State Plan reporting. The rule uses a two-tier reporting system based on State performance; States that have been able to meet program requirements and serve all eligible individuals need to submit substantially less information in their State Plans than those that cannot meet these criteria.
To ensure the safety of those using the Nation's transportation system, DOT issued regulations requiring various types of drug and alcohol testing for transportation industry workers. After much debate about an appropriate random drug-testing rate--too low a rate would not be an effective deterrent, while too high a rate would result in significant and needless costs--DOT decided to use a 50 percent rate. However, DOT's analysis demonstrated that the agency could reward good performance and make the rule more cost-effective by permitting companies to reduce their testing rates from 50 percent to 25 percent--if the industry as a whole can reach and maintain a certain rate of drug-free compliance. Similar provisions are being put in place for alcohol testing.
Driven by safety concerns, the Department of Commerce (DOC) issued an August 1992 proposed regulation under the Fastener Quality Act that would require certain fasteners (such as nuts and bolts) to conform with their manufacturing specifications. It became apparent as a result of public comments that, while the proposed regulation closely followed the statute, it was overly broad. DOC refrained from issuing the final rule and worked with Congress to amend the legislation. Immediately after the amendments passed, DOC issued a more focused, tailored final rule that achieves the same level of public protection at a fraction of the cost--the projected compliance cost of $500 million for the proposed rule was reduced to $20 million under the final rule.
2. Alternatives to Traditional Command-and-Control Regulation One of the key principles of E.O. 12866 is that agencies should consider more flexible alternatives to the command-and-control approach replied upon so heavily in the past. Such alternatives may be conveniently divided into three categories: performance standards, market incentive approaches, and information strategies.
Performance Standards In the past, Federal agencies all too often told regulated parties how to do something ("design standards") rather than set goals and allow the private sector to determine the best means to achieve them ("performance standards"). Performance standards are generally preferred to a command-and-control design standard because they give regulated entities the flexibility to achieve the desired regulatory outcome in a more cost-effective way. Indeed, regulated entities--particularly firms in competitive industries--will continually search for the least-cost way to meet the regulatory objective; they will not stop simply because a specified design standard has been met. Furthermore, using performance standards allows each regulated entity to chose its own unique solution. Generally, these standards require that outcomes be measured or reasonably imputed.
HHS opted for a performance standard in January 1996 regulations, issued by its Substance Abuse and Mental Health Services Administration, and designed to prevent the sale and distribution of tobacco products to children under the age of 18. HHS considered requiring that States conduct certain types of inspections of retail outlets, and then follow specified reporting procedures regarding the results of the inspection. Instead, HHS decided that States should meet a performance standard based on reducing the availability of tobacco products to minors. HHS specified the performance goal--tobacco products should not be available to minors from more than 20 percent of all retail outlets--and the measurement system--scientifically-based random inspections. States determined individually how to achieve the specified goal.
DOT's Research and Special Projects Administration (RSPA) has long required the use of specifically designed packaging to transport hazardous materials, such as explosives or flammable materials. Many of these design standards have become outdated, employ outmoded technology, or were never tested for effectiveness. Over the past several years, RSPA has been replacing these design standards with performance standards. Last year, it issued a final rule prescribing performance standards for intermediate bulk containers (between 450 and 3,000 liter capacity). The revised standards allow these shippers to develop new packaging, as long as they pass certain performance tests demonstrating that the packaging will perform safely during transportation. Now, shippers have greater flexibility in designing packaging that will adequately protect hazardous materials at lower cost.
In January 1996, DOC's National Oceanic and Atmospheric Administration (NOAA) issued a final rule establishing the methodology for undertaking natural resource damage assessments. The goal of the rule, which was promulgated under the Oil Pollution Act of 1990, is to make the public whole for injuries to natural resources resulting from an oil spill. NOAA's initial proposed rule, which centered on the monetary valuation of damage as a result of a spill, engendered substantial controversy, as environmental groups and the energy industry disagreed over its valuation methodology. Furthermore, it was clear that damage assessments conducted under the proposed rule would not only be costly, but also involve litigation, which could delay the ultimate goal of restoring the environment. Responding to this debate, NOAA issued a final rule that has as its driving force restoration of the natural resource, including compensation for damage. By reducing duplicative steps, litigation, and other transaction costs, this approach will decrease the time between the spill and final restoration.
The Department of Labor's (DOL) Occupational Safety and Health Administration's (OSHA) August 1996 revision of its standard protecting approximately 2.3 million workers on scaffolds in the construction industry provides another example of an effective use of performance standards. The final rule establishes performance-based criteria, where possible, to protect employees from scaffold-related hazards such as falls, falling objects, structural instability, electrocution, and overloading. In addition, the revised standard allows employers greater flexibility in the use of fall protection systems to protect those working on scaffolds, but extends these systems and other protections to workers erecting and dismantling scaffolds. The revised standard also strengthens training for workers using scaffolds and specifies when they must be retrained. According to estimates, the new standard will prevent 4,500 injuries and 50 deaths annually, saving construction employers at least $90 million in annual costs resulting from lost workdays due to scaffold-related injuries.
In April 1995, ED invited colleges and universities administering student financial aid programs to submit proposals to participate as "experimental sites" to test new, performance-based regulatory or managerial approaches. Under these sites, of which there are now more than 100, burdensome (but often desirable) requirements have been waived in exchange for performance measures suited to both the institution and the regulatory objective. ED has taken other steps to introduce performance-based rulemaking into its student aid programs. For example, through a February 1996 Advance Notice of Proposed Rulemaking (ANPRM), the Department sought comment on how to provide, over and above broad relief across the board, maximum flexibility to institutions with demon strable financial strength and high performance records in administering student financial aid programs.
In March 1996, HHS' FDA proposed a set of five regulations to amend its earlier rules issued under the Mammography Quality Standards Act of 1992. In the preamble to the fifth proposed regulation, FDA laid out the benefits of an alternative performance or outcome-based approach to measure mammography quality. Acknowledging that there is now no practical way to measure the quality of mammography performed on a day-to-day basis, FDA sought comments on the possibility of developing and using outcome-based approaches such as phantom image testing rather than equipment standards, proficiency testing rather than training and experience requirements, and tracking through cancer registries women who had examinations interpreted as non-malignant to establish comparative data by facility that could be made publicly available. Though controversial in some quarters, these proposals aimed at improving the quality of mammography could help the estimated 46,000 women who die from breast cancer each year.
At USDA, FSIS' modernization of the Nation's meat and poultry inspection system mentioned above incorporates a performance standard for reducing pathogens that cause foodborne illness. Thus, one of the provisions in FSIS' package is a requirement that all slaughter plants, and plants producing raw ground products, ensure that their salmonella contamination rate is below the current national baseline. The pathogen reduction performance standard, coupled with the science-based process controls, provide effective new tools for reducing foodborne illness and saving lives.
Market Incentives The use of market incentives, such as user fees and marketable permits, is another approach that often provides greater public benefits at less cost than command-and-control regulation. User fees establish a price for the use of a limited public good or service (e.g., national parks, safe airways, or clean water). Unlike command-and-control regulation that establishes only an incentive to obey a command, user fees give private parties an incentive to use the good or service in the most efficient way they can. User fees, or use taxes such as the gas guzzler tax for low fuel economy vehicles or the tax. on ozone-depleting chemicals, are widely used. However, the actual amount of the good or service used is not directly controlled by the regulatory agency, and such an approach may not be appropriate in situations that require tight control of an activity (e.g., toxic emissions with potential for acute public health risks).
Marketable permits, which can be issued in set quantities and allocated appropriately, can overcome these limitations. For example, in some regions, fishing firms receive tradeable permits to catch a certain amount of fish; if they choose to catch more fish, they can purchase the unused portion of quotas from other fishermen who would prefer the payment to the right to use their full authorized quota. Similarly, airlines buy and sell landing rights at congested airports, and firms buy and sell permits to discharge limited amounts of specific pollutants.
In August 1995, EPA proposed a model rule for "emissions trading" of smog-creating pollutants. This program allows a facility that surpasses its pollution reduction obligation to sell its "surplus" reductions, or "credits," to facilities that find credits to be a more cost-effective way to comply with emissions requirements. Once such a program is incorporated into a State plan, companies may engage in trades without prior EPA approval, so long as they meet reporting and public health standards. This program gives States and industries an innovative compliance option to meet their air pollution reduction requirements efficiently. EPA also has issued guidelines under which various sources of water pollution, including agricultural producers, could trade credits for reducing pollutant discharges. Although the volume of such trades is now limited by legislative requirements, successful implementation of the new guidelines could encourage a legislative change that would deliver cost-effective water quality improvements in the future.
At DOC, the National Marine Fisheries Service (NMFS) instituted a new marketable permits system in certain Alaskan fisheries to reduce over-capitalization and over-fishing. Under the old system, fishing vessels from the Pacific Halibut and Sablefish fisheries off the Alaska Coast were allowed to harvest what they could within a total limit. This led to a yearly "derby," in which an increasing number of vessels competed during ever-shrinking periods of time for limited amounts of fish. In response to this situation, NMFS and the North Pacific Fishery Management Council, a group comprised of local government officials and representatives from industry and conservation groups, implemented an Individual Fishing Quota (IFQ) program. Under the IFQ program, which began in 1995, fishermen receive a transferable harvest privilege, called a quota share, which enables them to harvest, within specified limitations, halibut and sablefish at times and in ways that will be most beneficial to their commercial fishing operation. The program also permits the market to determine the entry of future fishermen into the fishery by allowing individuals to sell or lease their quota share harvest privileges. Furthermore, subject to limited constraints that prevent undue concentration of shares, it allows fishermen who are already participating in the program to acquire additional quota shares as a way to expand their operations.
Information Strategies Information strategies, another substitute for command-and-control regulation, are most effective when the problem requiring regulation is caused by a market failure attributable to inadequate or asymmetric information. Markets can fail to operate efficiently when some economic actors have more information than others--for example, sellers may know more than buyers about the characteristics of the products they sell. In such cases, it is usually more cost- effective to require the seller to disclose key information that is not otherwise available than to dictate the type or characteristics of products or services that can be sold.
A joint rule issued by EPA and HUD in March 1996 offers an example of this type of disclosure. The rule requires owners of housing built before 1978 to disclose the presence of any known lead-based paint or other lead-based hazards and to distribute a federally approved lead-based hazard pamphlet to prospective buyers or renters. Prospective buyers and renters are given ten days to conduct lead hazard assessments before final settlement. Since the costs and benefits of lead paint removal vary significantly depending upon the condition of the paint, whether there are children likely to be present, and how often paint dust and chips are cleaned up, informed buyers or renters are in the best position to make the decision to protect their families at an affordable cost. This approach produces a more efficient result than if clean-up procedures or standards were specified for all homes.
In early 1996, DOL's OSHA responded to growing concerns about the incidence of violence in certain industries by issuing voluntary Guidelines for Preventing Workplace Violence for Health Care and Social Service Workers. The voluntary guidelines, which provide employers with information that will help them if they choose to design their own programs to prevent violence against their employees, are part of a coordinated OSHA effort that includes research, training, and cooperative programs. In addition to helping employers analyze their work sites to identify procedures, policies, or locations that may contribute to violence in the workplace, the voluntary guidelines allow each employer to design a program that fits the specific needs of their workplace.
ED determined that by providing information to States through simple, voluntary guidance and allowing for maximum State flexibility, it could achieve its program objectives without imposing unnecessary burdens for the implementation of two of its most important initiatives--the Goals 2000: Educate America Act and the School-to-Work Opportunities Act. ED did not issue any new regulations for either of these laws, and, similarly, the Department will not issue new regulations to implement new State formula grant programs under the Improving America's Schools Act of 1994.
Other Alternatives to Command-and-Control The Department of Energy's (DOE) Climate Challenge program relies on cooperation with electric utilities rather than on traditional command-and-control regulation. Under the program, participating electric utilities make voluntary commitments to reduce, avoid, or sequester greenhouse gas emissions. For its part, DOE provides information, technical assistance, and public recognition to the participants. More than 600 electric utilities have joined the Climate Challenge program and pledged to conclude projects that could potentially reduce greenhouse gas emissions by over 44 million metric tons of carbon equivalent by the year 2000.
In October 1996, EPA issued a new regulation to limit the discharge of pesticide residues by pesticide formulators and repackagers. The agency had originally proposed to require zero discharge of all pesticide active ingredients. However, after reviewing comments on the proposed rule, EPA was able to design a more innovative approach. It offered industry facilities a choice: achieve zero discharge or adopt a set of pollution prevention practices, including water conservation and recycling, in exchange for a de minimis allowance for some pesticides in discharge permits. The final rule achieved almost the same level of pollution reduction, but at a substantially lower cost.
In March 1995, the CPSC invited the chief executive officers of eight prominent consumer product companies to address industry representatives at a "Safety Sells" conference. These executives were asked to speak about business profitability and product safety as mutual objectives, and they reported on how their companies had improved their competitive position by "selling" safety. Their presentations demonstrated an extraordinary range of innovative approaches to making and selling safer products--a lesson the 200 industry and trade representatives took back to their own companies.
Another CPSC innovation is the "Chairman's Commendation," a program that recognizes outstanding business contributions to product safety. Criteria for the award include recognition for voluntary actions that are not mandated by government regulations, anticipate government regulations, or go beyond what the government requires. In particular, the Chairman has targeted the award to areas of high priority for the Commission, such as children's products, poison-prevention packaging, sporting goods, and home appliances.
Finally, CPSC has used information and voluntary compliance in working with manufacturers of window blinds and shades to address the hazard that window blind cords present to young children. Once a month, on average, a young child--in a crib or climbing on furniture placed near a window--is strangled by window blind cords. To address this problem, CPSC brought together window covering manufacturers, retailers, and importers to exchange information and seek a voluntary solution. The industry agreed to take immediate steps to prevent future strangulations by providing consumers with free replacement safety tassels to eliminate cord loops, and joined CPSC in an education campaign to inform consumers about how they can eliminate the window blind hazards in their homes. In addition, the industry committed itself to ending loop production by January 1, 1995. CPSC is continuing to work with the industry to develop a voluntary standard for window covering pull cords that will allow manufacturers to use any design approach that will satisfactorily address the strangulation hazard.
3. Using Sound Economic Analysis to Improve Regulations The use of sound economic analysis in the design of regulations, such as the benefit-cost and cost-effectiveness analyses called for in E.O. 12866, is vital to generating maximum health, safety, environmental, and other benefits to society from the limited resources available. The Executive Order sets forth several regulatory principles that, among other things, require agencies to:
Moreover, if a rule is "economically significant," the Executive Order specifies what should be included in the cost-benefit analysis accompanying the regulatory action. To assist agencies in conducting sound economic analysis, OMB issued a January 1996 guidance document entitled "Economic Analysis of Federal Regulations Under Executive Order 12866," which describes current "best economic practices." Most of the innovative regulatory approaches discussed above were suggested by sound economic analysis. The following examples highlight several other regulatory actions where such analysis played a particularly important role.
Cost-benefit analysis enabled the Coast Guard to conclude that a simple tool is sometimes just as effective as a complex one. As part of its rulemaking involving overfill devices, the Coast Guard helped to minimize the regulatory burden associated with oil spill prevention by permitting the use of stick gauges to signal the possibility of overflows from oil-carrying ships. This simple technology is not only a more cost-effective alternative to expensive and sophisticated alarm devices, but also gives the Coast Guard an easier way of monitoring the potential for an overflow. The October 1994 interim final rule allowed these lower cost devices on certain vessels, such as tank barges. This action is estimated to have significantly reduced the cost of the rule from about $90 million to approximately $40 million (net present value) over 15 years.
After conducting a careful analysis of the costs imposed by an earlier interim final rule, HHS' FDA made a number of modifications in its December 1995 final rule requiring medical device- user facilities and manufacturers to report adverse events related to medical devices. In particular, FDA eliminated a requirement for manufacturers to conduct statistical trend analyses because the benefits of the mandatory trend analyses were not commensurate with the costs. At the same time, FDA retained important reporting provisions to ensure that potential problems in medical devices are identified and rectified as soon as possible, thus maximizing safety and efficacy. Compared to the interim final rule, the modifications to the final rule will substantially reduce overall costs to device-user facilities, the device industry, and FDA by an estimated $31 million.
Based on its analysis of the costs and benefits of controlling water discharges from plants that manufacture pharmaceutical products, EPA reduced the stringency of a 1995 proposal without sacrificing its regulatory objectives. Indeed, EPA's analysis prompted it to initiate a further study of effluent guidelines for this industry. Similarly, during an evaluation of alternatives for proposed waste discharge guidelines for the oil and gas extraction industry, EPA chose a less stringent standard for Cook Inlet, Alaska because of the disproportionate impact on the operators there. Geologic substrata and the remote location of the inlet were factors that increased the cost per unit of discharge avoided. These less stringent requirements would reduce the cost of compliance by $20 million annually.
In a February 1996 proposal to revise its rules requiring employers to maintain certain records, DOL's OSHA used quantitative analysis to target employers with poor safety and health records, and to provide responsible employers with greater flexibility. OSHA analyzed which industries had low rates of illness or injury, and used that analysis to exempt those employers from several detailed information reporting requirements. OSHA used the same analysis to target riskier firms that would be subject to greater accountability. This proposed rule would also streamline the process and increase the accuracy of reported data--saving employers nearly $5 million annually in reduced paperwork burden while, at the same time, capturing information on a larger number of job-related injuries and illnesses. The analysis and resulting proposal also benefitted from wide pre-proposal consultation (facilitated by the nationally recognized Keystone Center) with OSHA stakeholders from industry, labor, health care, and State governments.
In the aftermath of Hurricane Andrew, HUD published in early 1993 a proposed rule to tighten wind safety standards for all manufactured housing (e.g., mobile homes). The proposal met considerable opposition from industry and consumer groups because the high compliance costs would jeopardize housing affordability for low-income families. Subsequently, as a result of a cost-benefit analysis of alternative approaches, HUD developed a final rule that tightened standards only for manufactured housing in coastal areas subject to the highest risk of wind damage. The economic analysis accompanying the final rule estimated that its benefits to society significantly exceeded its costs.
A CPSC rule requiring child-resistant disposable and novelty cigarette lighters took effect in July 1994. The rule is expected to prevent 80 to 105 fire-related deaths each year that are caused by children under age 5 playing with cigarette lighters. Using sound economic analysis, CPSC had assessed several options, including broadening the scope of the rule to cover additional lighters, such as luxury lighters and low-cost liquid fuel lighters, or narrowing the scope of the rule to exclude some or all low-cost butane refillables or novelty lighters. After carefully evaluating the cost-benefit analyses for each of the options, CPSC tailored its final rule to maximize the net safety benefits to society and to minimize the adverse effects on industry by using a performance standard that ensures that lighters, however they are designed, pass a test demonstrating that they are child-resistant for children less than 5-years old. The rule's estimated annual net savings of $400 million--which results from reductions in deaths, injuries, and property damage--will return benefits to society equal to ten times the CSPC's annual budget.
4. Consultation to Obtain the Best Information One of the Administration's most important commitments--to work more cooperatively with the regulated community and with our State, local, and tribal partners--is an essential principle not only of E.O. 12866, but of E.O. 12875, "Enhancing the Intergovernmental Partnership," and of the Vice President's National Performance Review (NPR). These reflect the notion that by working with all affected parties--both those who will be benefited and those who might be burdened by the regulation--we can reach our ob jective in a cost-effective way.
Reaching Out to Our Intergovernmental Partners Our intergovernmental partners deserve special accommodation. E.O. 12866 speaks of harmonizing Federal regulatory actions with related State, local, and tribal regulatory and other government functions. The Executive Order provides that "respect" for other levels of government is a fundamental aspect of the Federal regulatory process, and it calls for State, local, and tribal input into agency reviews of existing regulations. Moreover, on the heels of E.O. 12866 came E.O. 12875, which instructed agencies to consult early with other governmental entities, and to provide a record of such consultation, about any rules that may contain unfunded mandates. Setting this practice into law, the President signed the Unfunded Mandates Act of 1995.
The Bay Delta Agreement is one example of how Federal agencies have been successful in working cooperatively with State, local, and tribal governments, as well as other stakeholders. After two years of intensive consultation with industry, cities, farmers, environmentalists, and State officials, EPA published final water quality standards for the San Francisco Bay and Sacramento/San Joaquin Delta, which supplies drinking water to two-thirds of all Californians and provides irrigation for 200 crops, including roughly 45 percent of the Nation's fruits and vegetables. Signed in December 1994, this common-sense agreement for managing the State's water resources is considered a model for solving complex issues through a consensus process. Breaking a decade's worth of gridlock, the Clinton Administration crafted an historic consensus-based plan for improving the Bay/Delta environment while providing more certainty in water supplies for the State's future. It takes a comprehensive, rather than a pollutant-by- pollutant individual source, approach to stop the continuing decline of Bay/Delta fish and wildlife resources such as the winter-run salmon. The plan also provides an opportunity to conduct long-term planning and management over the next three years, instead of having to react annually to water allocation crises.
The Great Lakes Water Quality Initiative is another example of the Administration's commitment to bringing together State and local interests and other affected parties to reach consensus on an important and wide-ranging set of issues. In March 1995, EPA released a comprehensive plan to help restore, maintain, and protect the water quality of the Great Lakes Basin. The plan was the result of a collaborative effort among EPA, the eight Great Lakes States (Illinois, Indiana, Michigan, Minnesota, New York, Ohio, Pennsylvania, and Wisconsin), environmentalists, local representatives, Members of Congress, and other stakeholders. The final guidance establishes water quality standards for the entire Great Lakes Basin, but incorporates enough flexibility to accommodate the unique situations in each State. States have two years to bring their pollution rules into accordance with, or make them equally protective as, the guidance standards. EPA believes that the initiative's built-in flexibility will hold implementa tion costs to less than $100 million a year across the Great Lakes Basin.
Similarly, in fulfilling its statutory mandate to reduce air emissions from municipal waste combusters (MWCs), EPA consulted extensively during the regulatory development process with the State and local officials responsible for operating these facilities and with technical associations representing solid waste managers. EPA began its consultations during the proposal's development stage, and continued when it mailed a copy of the proposal and a "request for comment" to over 400 MWC owners and operators. Finally, EPA concluded a third round of consultations before issuing its final rule. As a result of these consultations, EPA modified the rule to include: (1) further subcategorization of MWCs for the purpose of establishing different NOx emissions guidelines; and (2) separate emissions limits for MWCs based upon the emissions control technology already in place. The final rule reduces unnecessary burdens on local governments while, at the same time, achieving significant environmental and public health protection. As a result, it has gained the support of most of the regulated community.
DOC's NOAA embarked on a significant consultation with intergovernmental partners, and with members of the public, in constructing a management plan for the Florida Keys National Marine Sanctuary. Faced with mounting threats to the ecological health and future of the coral reefs of the Florida Keys from oil drilling, deteriorating water quality, vessel groundings, pollution, and intense human use, Congress passed the Florida Keys National Marine Sanctuary and Protection Act, which designated a 2,800 square nautical mile area of coastal waters running the entire 220 mile length of the Florida Keys as a sanctuary. Because numerous State and Federal areas of jurisdiction overlapped or lay adjacent to the area, the Commerce Secretary, along with Florida's governor, appointed a Sanctuary Advisory Council, whose members were selected from local, State, and Federal agencies, environmental groups, and the local citizenry, to assist in developing a comprehensive management plan. Also, given the high level and diversity of public use of the Florida Keys and the importance of tourism to the area's economy, NOAA held numerous public meetings and workshops. As a result, NOAA learned that the impact on the commercial fishing industry from certain proposed area restrictions was greater than it had estimated. In response, NOAA revised the proposed area's boundaries to protect crucial marine resources while minimizing the impact on the fishing community.
DOE's consultation with States on possible improvements to its regulatory programs led to a July 1996 interim final rule to consolidate the State Energy Conservation program and the Institutional Conservation Program. These programs provided grants to the States and institutions, such as schools and hospitals, for a variety of energy conservation measures. Under the consolidated program, DOE will no longer make grants directly to individual institutions, but instead will provide block-like grants for States to administer. The rule also removes prescriptive energy audit procedures. States will benefit from these changes by having greater control and increased flexibility in the use of the grant monies.
HHS provides another example of how significant consultation with State government officials resulted in important regulatory changes. Based largely on State input, HCFA streamlined Medicaid requirements in July 1994 to make it easier for States to get home- and community- based waivers enabling elderly, disabled, and chronically ill persons who would otherwise be institutionalized to live in local communities.
In April 1995, HUD revised its regulations for the Indian Housing Programs to give Indian Housing Authorities (IHAs) more responsibility and greater discretion. To increase the rule's effectiveness, HUD had extensive consultations with IHAs and other tribal officials, and held a consultation session in Washington, D.C. with the National American Indian Housing Council, eight regional IHA associations, and a number of representatives from other IHAs. These consultations not only made the rule more effectiv e, but increased its clarity as well.
Consultation With the Public The Administrative Procedure Act (APA) requires agencies to give the public an opportunity to comment on rules under development. In the past, however, the agencies had often already made up their minds and were unlikely to make changes based on public comment. That paradigm has changed under the Clinton Administration. While APA notice and comment continues to provide the minimum standard for public notice and participation, E.O. 12866 encourages even more outreach to those who might benefit from, or be burdened by, a proposed regulatory action. More significantly, agencies now respond to public comments they receive. In October 1996, EPA published its final standards for controlling emissions from spark ignition marine engines and personal watercraft. This rule will result in a 75 percent reduction in hydrocarbon emissions (an important precursor to ozone formation) from these engines. To develop this rule, EPA worked closely with manufacturers and accommodated many of their key concerns. Specifically, the rule allows manufacturers to achieve reductions on a fleet average basis phased-in over nine years, thus permitting them to choose how to comply with the rule in the most cost-effective manner and enabling them to concentrate on the development of innovative engine technologies that will be more effective over the long term. The rule also contains an innovative certification and compliance program that gives the manufacturers more control of engine testing. Finally, the rule leaves unregulated inboard engines to encourage the substitutions of these cleaner engines for outboard engines that have higher emissions.
EPA also responded to public input when it contemplated changing the process for obtaining air pollution "permits"--comprehensive documents that specify the air pollution limits that apply to an industrial facility. In response to comments from States and industry representatives who found the existing process to be complicated and burdensome, EPA proposed several changes to streamline the permitting process. In a March 1996 policy document, EPA simplified the process by combining multiple, overlapping Clean Air Act requirements into a single permit, paving the way for substantial reductions in paperwork and costs for businesses.
HHS's Administration for Children and Families (ACF) also has benefitted from active consultation with the public. For example, ACF's November 1996 final rule updating Head Start performance standards was strongly influenced by input from key stakeholders. The HHS Secretary formed two Advisory Committees to address Head Start quality and services for families with infants and toddlers, and ACF convened 70 focus groups that solicited feedback from nearly 2000 individuals. Discussions focused on the development of performance standards for the early Head Start (children ages 0-3 years) and regular Head Start (children ages 3-5 years) programs. ACF had initially intended to develop two sets of regulations but, after hearing stakeholder concerns, concluded that it would be better to issue an integrated set of standards--both for grantees who operate the two types of programs and for those children and families who move from one program to another. This decision, which will substantially reduce the burden on grantees, was very favorably received.
ACF also benefitted from public comment in its attempts to improve other child and family services. After legislation containing new provisions for family preservation and family support services was enacted, ACF convened a series of focus groups to learn more about preventive services and services to at-risk families. Using information obtained from these discussions, and building on existing literature, ACF issued a proposed rule to implement the legislation that integrated this new focus into a comprehensive continuum of child and family services. A positive public response to this approach, and to the flexibility ACF provided to State and local agencies, reaffirmed the effectiveness of the participatory approach used in developing the rule.
DOT's Federal Railroad Administration (FRA) also has shifted to a new regulatory paradigm that promises to: (1) materially increase the openness of its regulatory process and the participation of rail management, labor, and suppliers; (2) improve the factual bases of FRA's rules; (3) reduce industry opposition to, and increase voluntary compliance with, FRA rules; and (4) potentially lead to a new type of rail safety rule based on a systemic view of major subsystems of railroads and railroad activity. At the heart of the new paradigm is the use of a standing regulatory advisory committee that will send joint teams of FRA, railroad, and labor experts to conduct field reviews and reach consensus on the facts to be addressed in rail safety rulemaking--before any regulatory proceedings begin. Although this new process will require adjusting some of the timetables for the agency's regulatory actions in the near term, the enhanced inclusiveness is expected to yield results that will better satisfy the purposes of the underlying statutes.
In December 1995, the DOL's Pension Welfare Benefits Administration (PWBA) proposed a rule to revise the definition of when wages withheld by an employer for contribution to a benefit plan becomes a plan asset. PWBA proposed using the same number of days that employers have to deposit withheld income and employment taxes under IRS regulations. After receiving more than 600 public comments, and concluding two days of public hearings on the rule, PWBA issued a final rule allowing employers 15 working days after the end of the month to make these deposits, thereby significantly reducing costs for employers while still ensuring that employee funds are deposited promptly into pension accounts.
In June 1995, Department of Justice's (DOJ) Drug Enforcement Administration (DEA) published a final rule implementing the Domestic Chemical Diversion Control Act of 1993, which requires any person who manufactures, distributes, imports, or exports certain chemicals that are frequently diverted into the manufacture of illegal drugs to register and maintain controls against diversion. This rule provides new and effective tools to restrict the manufacture and distribution of illegal drugs, while simultaneously imposing the least possible burden on legitimate businesses. Based in large part on consultations with such businesses, DEA exempted from the new registration requirements over 70,000 hospitals, pharmacies, distributors, manufacturers, importers, and exporters of controlled substances who are currently registered with DEA. In addition, DEA did not require registration of companies that manufacture certain chemicals for internal use; and it established a tiering mechanism for collecting registration fees that distinguishes between retail distributors of regulated drug products (which are often small businesses) and manufacturers, wholesalers, importers, and distributors.
Moreover, in response to industry concerns, DEA withdrew for further consideration two sections of the regulations relating to manufacturer reporting and chemical mixtures. DEA subsequently met with the relevant portions of the chemical industry to develop rules that impose the least possible burden while fulfilling the law's requirements. In March 1996, DEA published a new manufacturer reporting regulation that limits the requirement to bulk manufacturers (excluding other manufacturers such as repacker/relabelers and exempt product manufacturers) and allows for manufacturers to satisfy the reporting requirement through existing reports that have been prepared for other Federal or State agencies. With respect to chemical mixtures, the consultation resulted in a soon to be published proposed regulation that would exempt from regulation a significant portion of the commerce in chemical mixtures.
Negotiated Rulemaking Negotiated rulemaking is a specific approach to using consensual processes in developing potentially controversial regulations. This practice, encouraged by the Administration through both E.O. 12866 and the Vice President's NPR, has led to the following regulatory successes.
The 1975 Indian Self-Determination and Assistance Act gave tribes the authority to contract with the government to run governmental programs serving their communities. But the rulemaking to implement of this Act had been plagued by distrust, acrimony, misunderstanding, and false starts. Frustrated with the lack of progress, Congress amended the Act in 1994, and gave the Department of Interior (DOI) and HHS until April 1996 to put forward a collaborative final rule or lose their rulemaking authority altogether. DOI and HHS then launched a negotiated rulemaking with 48 different tribal representatives. Despite their difficult history, these Federal and tribal representatives were able to reach a common understanding of how the government should hand over program responsibilities to the tribes. The final negotiated rule addresses issues such as contract proposals, declination procedures, program management, financial management, procurement, property management, reporting, and construction.
DOI also used the negotiated rulemaking process to revise the valuation of natural gas produced from Federal leases. DOI establishes a common valuation method in order to determine how much royalty Federal lessees owe the Treasury. The negotiated rulemaking committee, which included representatives from the American Petroleum Institute, the Independent Petroleum Association of America, DOI, HHS, and the States of Utah, North Dakota, Montana, and New Mexico, produced a proposed rule that would simplify royalty payments, make valuation methods responsive to modern market conditions, offer the industry flexibility, reduce administrative costs, and maintain revenue neutrality. DOI's Minerals Management Service (MMS) is evaluating comments on the proposed rule in developing the final natural gas valuation rule.
DOI also chartered a Negotiated Rulemaking Committee to develop specific recommendations with respect to the valuation of gas production from Indian leases. Members of the Committee included representatives of many of the affected tribes, the oil and gas industry, the Bureau of Indian Affairs, and MMS. The Committee recommendations became the basis of a proposed rule that would change the method used to determine valuation and, therefore, royalties paid to Indian tribes and allottees for natural gas from Indian leases.
HHS' HCFA has also successfully completed a negotiated rulemaking, which was convened to consider the wage index that is used to adjust Medicare payment rates to hospices. HCFA published a September 1996 proposed rule reflecting these negotiations.
Negotiated rulemaking also helped to expedite an OSHA rule addressing the safety hazards in the high-risk steel erection business. DOL's OSHA convened meetings with representatives from labor, industry, government, professional construction safety experts, and equipment specialists. With the help of a professional facilitator, the parties produced a draft regulatory proposal that has been hailed as a major breakthrough in protecting iron workers from falls, collapsing structures, and other accidents that, each year, claim approximately 28 lives and cause nearly 2000 serious injuries. OSHA expects to publish the proposed rule in early 1997.
ED has used negotiated rulemaking on several occasions. For example, participants in a negotiated rulemaking reached consensus on a proposed rule addressing the handling of reserve funds held by agencies that reinsure student loans under the bank-based Federal Family Education Loan program. ED adopted a final rule reflecting that consensus without change in December 1994. In addition, ED used negotiated rulemaking in developing regulations to implement Title I of the Elementary and Secondary Education Act--Helping Disadvantaged Children Meet High Standards. The participants, including representatives from States, local school districts, teachers, and parents, agreed to minimal regulations that provide States with maximum flexibility. The negotiated rule, issued in final form in July 1995, allowed States to use their own assessment system, rather than requiring a separate Title I testing system, to measure student progress toward meeting challenging State standards. The rule also refocuses the review of progress from evaluating how individual students are performing to evaluating how well schools and local educational agencies are helping students to meet these challenging standards.
HUD used negotiated rulemaking in developing a rule regarding the calculation of operating subsidies of certain vacant public housing units. HUD convened representatives from housing authorities, tenant organizations, public interest groups, and the Federal government. The negotiated rule, published in February 1996, allows higher operating subsidies to compensate housing authorities for costs associated with units that are vacant for reasons beyond their control (such as local market conditions or natural disasters) or units that are part of a modernization program. In addition, the negotiated rule authorizes housing authorities, under certain circumstances, to exclude long-term vacant units from their inventory of units available for occupancy.
DOL's Pension Benefit Guaranty Corporation (PBGC) used negotiated rulemaking to develop its July 1996 proposed regulations on changes in employer reporting under the Retirement Protection Act of 1994. The negotiated rulemaking committee consisted of representatives of large and small employers, pension plan participants, and pension practitioners. The committee developed waivers and extensions of statutory reporting and identified several additional types of events that could jeopardize workers' pensions and therefore should be reported. Proof of the success of this approach lies in the fact that only one minor technical comment was received. The final regulation is expected to be issued by January 1997.
5. Avoiding Inconsistent, Duplicative, or Incompatible Rules
Given each agency's legitimate focus on its own mission, and the fact that the Federal government is a complex organization with programs dispersed among many different agencies, sub-agencies, and offices, it is not unusual to find regulations that are inconsistent, incompatible, or duplicative. To avoid this outcome, coordination of agency actions and a shared commitment to developing mutually acceptable guidelines, standards, or requirements takes on increased importance.
The First Year Report noted that the mechanisms established by E.O. 12866 "to stimulate and encourage such coordination," including the establishment of the Regulatory Working Group (RWG), were working well. The RWG continues to serve as an important forum for the discussion of regulatory issues and has been very much involved in the Vice President's reinvention effort. In addition, among other things, the RWG developed, and ultimately adopted, principles of risk assessment, risk communication, and risk management. And the Cost-Benefit Analysis Guidelines were issued under this Group's auspices. In addition to RWG, OMB's Office of Information and Regulatory Affairs (OIRA) itself continues to play an important coordination role, particularly when a proposed action will affect actions proposed or already taken by other agencies. Finally, the agencies themselves have continued to foster new working relationships and have made significant efforts to coordinate new and existing regulatory policies.
In the Federal wetlands protection program, where several agencies are responsible for carrying out the program, interagency coordination is crucial. The agencies' activities are now coordinated through the Interagency Working Group on Federal Wetlands Policy. One of the group's notable accomplishments was a 1994 agreement among the Department of Defense's (DoD) Army Corps of Engineers, EPA, the Fish and Wildlife Service (FWS), and the Natural Resources Conservation Service (NRCS), stipulating that all Federal wetlands determinations on agricultural lands made by NRCS would be relied upon for both the Food Security Act and the Clean Water Act. Now, farmers can deal with a single agency to determine whether their lands are subject to Federal wetlands protection. The success of this program led the Administration to take steps to establish better coordination with State wetlands determinations as well.
In another action to streamline and improve wetlands programs, the Corps, EPA, FWS, NRCS, and the NMFS published guidance that encourages the use of wetlands mitigation banks (sites where private entrepreneurs or State or local governments restore, create, enhance, or, in exceptional circumstances, preserve wetlands and other aquatic resources expressly for the purpose of offsetting future wetland losses). This comprehensive guidance, the first of its kind to establish interagency policies for evaluating and approving mitigation bank proposals, will provide permit applicants more flexibility in meeting mitigation requirements.
In the past, industries transporting medical waste containing infectious material had to meet specific hazardous waste transport standards under the rules of DOT's RSPA. However, these industries also had to comply with the rules of other agencies that regulate infectious substances, including OSHA, FDA, the Centers for Disease Control (CDC), USDA's Animal and Plant Health Inspection Service (APHIS), and the U.S. Postal Service. To reduce inconsistencies and unnecessary burdens, RSPA consulted with these agencies, as well as with private industry, and streamlined its procedures in a September 1995 final rule For example, now, if related OSHA standards are met, RSPA will waive its packaging and labeling requirements for hazardous waste. DOT estimates that the elimination of the duplicative regulations will result in annual savings of $1.3 to $2.8 million while continuing to protect those who could be exposed to these hazardous substances during transport.
As part of its process of closing 98 major installations throughout the United States, DoD teamed up with a number of other agencies to support community redevelopment at the various base closure sites. Working with other agencies, DoD promulgated rules that establish the priority and procedures for the rapid disposition of real and personal property, which is an integral part of the Administration's efforts to revitalize base closure communities. For example, DoD and HUD developed a rule that creates a community-based process for using base closure property to address the needs of the homeless, a process that has the added advantage of moving homeless assistance decisions to the local community. In addition, DoD worked with the General Services Administration (GSA), the FAA, and DOI to create integrated property disposal procedures designed to spur rapid economic redevelopment and job creation in base closure communities.
The Treasury Department's Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS), the Federal Reserve System's Board of Governors, and the Federal Deposit Insurance Corporation are working together to simplify the requirements governing supervision of banks and savings and loans. As part of the President's 1993 initiative to ease the "credit crunch," the Federal banking agencies reduced the documentation that most banks require for loans to small- and medium-sized businesses. The agencies also raised to $250,000, an increase of $150,000, the threshold above which insured financial institutions have to obtain appraisals on real estate-related loans, saving 74,000 hours of paperwork burden. In addition, OTS adopted the "CAMEL" acronym used by the other Federal banking agencies to describe the examination elements of Capital, Assets, Management, Earnings, and Liquidity. Finally, OTS revised its capital treatment of equity investments held by savings and loans to conform with the capital treatment of equity investments prescribed by the OCC for banks.
In addition, Treasury's Financial Crimes Enforcement Network (FinCEN) and the five Federal financial supervisory agencies (the four previously listed, plus the National Credit Union Administration) issued proposed and final rules to simplify and streamline the process by which banks and other depository institutions report suspicious activity to law enforcement. The new system replaces six overlapping systems with one central reporting system that, according to bankers, will reduce related paperwork by 80 percent. The central system will provide Federal law enforcement and regulatory agencies, as well as State law enforcement and bank supervisory agencies, with suspicious activity report information and will allow for more comprehensive analyses of trends and patterns in financial crime laundering, embezzlement, check kiting, or other misdeeds by bank officials.
Coordination between EPA and other Federal agencies played an important part in developing final rules issued in 1995 to reduce toxic emissions from the aerospace manufacturing and ship- building industries. In developing the aerospace rule, EPA worked closely with the Air Force, Navy, NASA, industry representatives, environmental groups, and State and local governments. In response to their concerns, EPA made significant changes to incorporate maximum flexibility in compliance, offer market-based incentives, and minimize administrative costs. Similarly, in developing the shipbuilding rule, EPA worked in partnership with the Navy and affected industry to make cost-effective reductions to toxic emissions from the protective paint coatings applied to ships.
This close coordination with the Navy ensured that EPA's rules did not conflict with Naval performance requirements, particularly for speciality coatings applied to submarines. Meanwhile, as a result of these rules, the aerospace manufacturing and ship-building industries will decrease their toxic and organic air pollutant discharges by as much as 60 percent over current emissions.
USDA's FSIS and the HHS' FDA have jointly proposed new procedures that will permit ingredients to be used in USDA regulated meat and poultry products if approved for such use under FDA regulations. This proposal, released in December 1995, would replace the current dual system whereby FDA regulates uses of food ingredients in foods generally, and FSIS issues its own regulations to permit uses of these ingredients in meat and poultry products. As proposed, persons wishing to use an ingredient in meat and poultry products could do so if the use was permitted under FDA regulation; specific FSIS approval would not be required. A single petition to FDA would thus satisfy the requirements of both agencies with respect to new food additives or new uses of food additives.
Treasury and DOL, including the PBGC, have worked together to develop innovative ideas to simplify and improve pension policy. Among other things, these agencies have changed current regulations and issued other guidance to make it easier for workers to take their retirement savings with them to their next job and to enhance protections for employee contributions to 401(k) plans. In addition, they have begun an education campaign to increase employee awareness of the importance of saving for retirement.
DOL's Office of Federal Contract Compliance (OFCCP) has revised its rules to make them more consistent with those of the Equal Opportunity Employment Commission (EEOC). The OFCCP rules on Section 503 of the Rehabilitation Act of 1973 prohibit discrimination by government contractors and subcontractors on the basis of an individual's disability. The EEOC administers the Americans with Disabilities Act of 1990, which governs private employers, along with State and local government employers. OFCCP's August 1996 final rule ensures that OFCCP and EEOC will avoid the imposition of inconsistent legal standards when processing discrimination complaints that fall within the agencies' overlapping jurisdiction.
In March 1996, DOL's Mine Safety and Health Administration (MSHA) and DOE signed an agreement allowing mine operators to submit a single quarterly coal production report to MSHA, replacing the procedure under which operators submitted reports to both agencies. This change will reduce the annual reporting burden on the coal mining industry by an estimated 8,500 hours. The joint effort between these agencies will also standardize the data, thereby improving its usefulness.
International Harmonization In an era of increasing economic globalization, multinational corporations, and U.S. companies targeting foreign markets, international harmonization of regulatory standards and requirements is critical to reducing regulatory burden and increasing economic efficiency. Such harmonization prevents the artificial segmentation of markets based on arbitrary differences in product requirements, whereby companies must produce different versions of the same product for sale in domestic and foreign markets. In addition, international harmonization can reduce regulatory inefficiencies for products that need approval before they can be marketed by allowing companies to file a single application to satisfy different domestic and foreign standards.
DOT's FAA is taking steps to harmonize its Aviation Safety Standards with those of other countries, particularly European Community member countries. FAA's proposed changes are expected to save industry at least $100 million (and possibly as much as $1 billion, depending on economic conditions) over 10 years. A major objective of this reinvention effort has been to eliminate the unnecessary cost burden that would be imposed by separate U.S. and European standards, thus lessening restraints on international trade. In addition, this effort codifies standards that manufacturers are practicing already, and enhances design flexibility while clarifying existing requirements and deleting obsolete ones.
Since 1993, the European Union, Japan, and the United States, working through HHS' FDA and the International Conference on Harmonization (ICH), have issued 11 proposed guidelines and 13 final guidelines on technical aspects of drug development. ICH's goal is to identify and reduce differences in the technical requirements for drug development among different countries' regulatory agencies so that a company will be able to generate a single set of data for agencies to use in reviewing the product.
FDA's October 1996 final regulation on Current Good Manufacturing Practices (CGMP) for medical devices provides another example of harmonization. In the course of developing the regulation, the FDA met with the Global Harmonization Task Force, which represents foreign governments and industry, to compare the draft provisions of the CGMP proposal with the comparable provisions of the International Standards Organization 9001 and the European National Standards. In the final rule, FDA made major strides towards harmonizing what had been disparate standards.
In pursuit of the North American Free Trade Agreement's (NAFTA) goal of facilitating trade among participating countries, the FTC proposed in December 1995 to permit care instructions, required by its Care Labeling Rule, to be conveyed by the use of symbols instead of words. The proposal would make FTC's care labeling requirements consistent with those in Canada and Mexico. Also, the FTC is attempting to harmonize its Appliance Labeling Rule with corresponding rules in Canada and Mexico: the disclosure statements required by each country are now comparable. Similar harmonization efforts are underway with regard to FTC's Textile and Wool Rules, Feather and Down Guides, and Jewelry Guides.
6. Reducing the Burden of Paperwork When people speak of regulatory burden, they are usually referring to record keeping or reporting requirements--i.e., paperwork. Agencies have used a number of approaches to reduce paperwork burden, including eliminating applications and reports, streamlining reporting and record keeping requirements, reducing the frequency of reporting, and employing new technologies. Additional examples of burden reduction contained in significant agency regulatory reinvention efforts are discussed in Chapter 3.
In light of the fact that federal agencies are aggressively looking for opportunities to reduce paperwork burden, one might expect to see a dramatic drop in paperwork burden hours. In fact, the numbers are declining, but only modestly. It should be emphasized that we live in an "information age," where society is placing an ever increasing value on information. This is being reflected in both legislation and regulations that consistently call for the collection of more and better information as a basis for policy decisions. Indeed, the private sector also is demanding more information from the government. Moreover, as noted earlier in this Chapter, agencies are using information as an alternative to traditional command-and-control regulation.
Eliminating or Streamlining Paperwork Requirements Over the last few years, agencies have started to take a closer look at existing reporting and/or record keeping requirements, and to reassess their value. The following examples illustrate how agencies have eliminated, consolidated, or streamlined existing requirements.
Until recently, ED required States, schools, local governments, and other multi-year grant recipients to re-apply each year for continuation of the funds. Recognizing the policy's redundancy, ED eliminated these annual re-applications, substantially reducing paperwork burden on grantees and streamlining its grant award process. Now, ED approves grant budgets for an entire project period, and it approves annual continuations based on the grantee's successful performance record. In addition, after assessing what information was truly necessary for the Goals 2000 program, ED produced a simple four-page grant application form with minimal paperwork burden on States.
ED also encourages States to consolidate certain K-12 program applications into a single plan, thereby avoiding the need to submit separate detailed funding applications and plans. That consolidation also provides States with the flexibility to integrate the planning and administration of various Federal education programs.
And ED has greatly streamlined its rules for the Student Financial Aid programs, whose paperwork had become increasingly complex, confusing, and time consuming. In 1994, 1995, and 1996, ED made a number of changes to the student aid regulations to reduce record keeping requirements and hard copy storage, eliminate the need for the exchange of many paper documents and the need for multiple forms or signatures, and simplify complex calculations.
HHS' FDA is now working to consolidate, into a single form, 21 different application forms for drugs made from biotechnology. The standard form will expedite FDA reviews and could be used as a basis for electronic submissions by applicant companies. In addition, FDA issued a January 1996 proposal to eliminate the requirement for submission and approval of "establishment license applications" for biotech firms. This proposed change will speed the process for getting important new therapies on the market, and will allow firms who develop such therapies to devote more resources to designing new treatments.
FDA also has proposed streamlining the process for making changes to an approved biological product. Previously, supplemental applications were required before changes--including labeling, production processes, equipment, facilities, and even personnel--could be made in the manufacture of a biologic. Under the new proposal, reporting requirements are tailored to the complexity of the change and its potential to affect the product. This new approval process, which is similar to the reinvented approval process for medical device manufacturing changes (see Chapter 2), will not only allow industry to save resources currently spent on the preparation of supplemental applications and to make changes without awaiting FDA approval, but it will also remove an unintended disincentive to make manufacturing improvements. FDA estimates that the proposed system would reduce by 50 percent the number of supplemental applications prepared by industry annually.
In 1995, HUD's Federal Housing Administration streamlined mortgage insurance requirements for newly constructed homes. As a result, the paperwork burden on lenders and builders has been reduced by as much as 75 percent. In many cases, documentation that previously required up to a dozen pages now takes only three. In addition, HUD's Office of Community Planning and Development published a January 1995 final rule that combines seven different planning, application, and reporting documents into one document that can be used for four different formula grant programs totaling over $6 billion per year. This new consolidated plan reduces paperwork, increases local flexibility, and encourages communities to address their problems more comprehensively.
The Small Business Administration (SBA) has greatly streamlined its small business loan application. Beneficiaries of small SBA-guaranteed loans--particularly small businesses with one to four employees, including start-ups--often are unable to access capital from traditional sources. Yet capital is critical to the success of these enterprises, and the extensive paperwork and red tape associated with small SBA-guaranteed loans was infamous. After redesigning the complex, one-inch thick loan application, SBA reduced burdensome requirements to an easy, one-page application for loans up to $100,000 and pledged to respond rapidly to these applications, usually within two or three days.
Over the past several years, Treasury's Internal Revenue Service (IRS) has simplified 15 major tax forms that affect over 134 million taxpayers, reducing their reporting burden by over 46 million hours. For example, millions of hours were saved when the IRS shortened the 1040 income tax form. These improvements came as a direct result of customer outreach efforts, in which the IRS asks taxpayers how it can improve tax forms, instructions, and publications.
In September 1995, the IRS announced a significant reduction in the record keeping requirement for many businesses. Since 1962, the threshold for which businesses were required to have a receipt for a travel or entertainment expense had been $25 which, according to IRS estimates, produced an annual record keeping burden of 50 million hours. Effective October 1, 1995, the IRS raised the threshold to $75, thus excluding many business lunches and dinners. The IRS anticipates that the new threshold will reduce by one-third the average annual burden per record keeper.
In December 1995, the IRS proposed regulations that would ease ERISA requirements on employers to notify all pension plan participants of certain plan amendments. As a result of these changes, groups of plan participants that are not affected by a given plan amendment (in many cases, retired workers) would no longer need to be notified by plan administrators. IRS has received very positive feedback from the regulated community about these regulations, which it hopes to finalize in 1997.
In April 1996, the IRS issued proposed rules designed to eliminate unnecessary burdens imposed by current withholding and reporting procedures applicable to cross-border flows of income. Currently, different forms must be used for different purposes, and each has a different standard of proof for establishing foreign status. IRS proposes to combine several forms (Forms W-8, 1001, 4224, 8709) into a single form (Form W-8) to be used for multiple purposes. Current certification procedures would also be unified, and reliance standards would be clarified, in an effort to streamline the processing of cross-border payments, particularly by banks and other financial institutions. The proposed revision of current procedures and forms would be a substantial simplification and reduction of burden, and should, in turn, result in greater compliance.
In May 1996, the IRS proposed simplifying business classification rules by allowing unincorporated businesses to "check-the-box" to specify whether they would like to be taxed as a corporation or partnership. Despite the fact that the traditional, legal distinctions between partnerships and corporations have narrowed over time, the IRS and taxpayers currently spend considerable time determining correct business classifications. The new regulations would eliminate this burden, and would, in particular, benefit small, unincorporated businesses.
As part of its streamlining and simplification effort, the IRS has worked hard to establish partnerships with other Federal, State, and local government agencies, and these partnerships have produced some visible successes. For example, in 1995, taxpayers in 29 states had the ability to file both Federal and State income tax returns with a single electronic transmission. In addition, the IRS is currently working with Federal and State agencies to eliminate multiple reporting by providing employers with the ability to report all Federal and State wage and employment taxes to a single point of contact.
In February 1996, the Federal Communications Commission (FCC) proposed to eliminate 13 information collections and reduce the required reporting frequency on an additional six collections. Some of these changes will reduce burden on the larger telephone companies, while some will reduce burden on smaller carriers. In addition, in implementing the Telecommunications Act of 1996, the FCC adopted a rule allowing common carriers to file their cost allocation manuals and Automated Reporting Management Information System reports annually rather than quarterly. These changes will reduce the reporting burden on the telecommunications industry by about 180,000 hours.
USDA's FSIS significantly streamlined a burdensome process for prior approvals of labels on meat and poultry products by eliminating one level of review and limiting the type of labels that must be reviewed before these products can be marketed. As a result of these actions, USDA has reduced the number of labels reviewed from 120,000 to 80,000 per year.
In August 1995, USDA's APHIS proposed to simplify and streamline existing requirements for testing genetically engineered organisms and products. Under current rules, scientists who conduct bioengineering experiments to develop new plant varieties must, in most cases, first obtain permits for their field experiments. Based upon several years of experience, APHIS has determined that it can streamline this process by replacing lengthy permit procedures with a simple notice to the agency, while still retaining minimal requirements to guarantee the safety of the research. The APHIS proposal would also simplify existing requirements for persons submitting petitions to be exempt from regulation.
In March 1996, EPA issued interim guidance designed to reduce effluent monitoring requirements for National Pollution Discharge Elimination System permit holders with good compliance histories. Instead of a one-size-fits-all approach requiring frequent monitoring by all discharging facilities, the new policy reduces the monitoring frequency for those facilities that consistently reduce pollutants in their discharges below their existing permit requirements. This will reduce the compliance burden for permit holders by an estimated 4 million hours and, at the same time, provide incentives for voluntary reductions in pollutant loadings beyond those currently required by law.
As a result of grass roots meetings, the Interagency Working Group on Federal Wetlands Policy determined that there was a need for an administrative appeals process that would allow landowners to challenge, out of court, Army Corps of Engineers decisions on wetlands jurisdiction, administrative penalties, and permit denials. Similar appeals processes are already in place at EPA and the Natural Resources Conservation Service. In July 1995, the Corps published a draft rule that would establish such an appeals process. The proposal was generally well received, and the Corps is now working on the final rule.
DoD has significantly reduced the data delivery burdens imposed on its contractors. As part of contract performance, contractors are required to supply large amounts of information including drawings, maintenance manuals, test reports, parts lists, software documentation, and cost and scheduling data. As of 1994, DoD had over 1,300 of these data item descriptions (DIDs) in its master catalog, accounting for over 127 million hours of annual paperwork burden. After reviewing these requirements, DoD was able to eliminate 400 DIDs, for an annual burden reduction of over 30 million hours.
Traditionally, HHS' HCFA required physicians to submit a form each year to the hospitals where they worked acknowledging that they understood they would be penalized if they misrepresented certain information. In March 1994, HCFA replaced this annual reporting requirement with a process whereby physicians need only sign such an acknowledgment once--when they are first granted hospital admitting privileges. This change will save over 24,000 hours of physician time.
Subsequently, HCFA tackled another burdensome requirement that physicians certify--each time a Medicare patient was discharged from a hospital--that their diagnoses were correct and a proper Medicare payment could be made. In September 1995, HCFA deleted this unnecessary requirement, saving 200,000 hours of physician time and 11 million forms. A major medical association stated that this change will alleviate the "hassle factor" for physicians and is an important step toward restoring mutual trust between the Federal government and the medical profession.
The Department of Veterans Affairs (VA) issued an October 1995 final rule reducing annual filings of eligibility verification reports by recipients of need-based benefits. Under prior law, each recipient was required to file annually an eligibility verification report. Now, VA requires such filings only when a beneficiary's, or beneficiary's spouse's, Social Security number cannot be verified by the Social Security Administration; a beneficiary or his or her spouse may have received income in addition to Social Security that would affect entitlement to benefits; or a report is necessary to preserve program integrity. This action by VA was made possible by recent legislation giving the Secretary of VA discretionary authority to alter filing requirements. A estimates that the change will reduce the number of individuals required to submit annual reports from 825,000 to 325,000, and the annual reporting burden from 412,000 to 163,000.
In a May 1996 final rule, Treasury's Financial Management Service (FMS) eliminated the requirement that surety companies doing business with the United States report their Federal process agent appointments to FMS. FMS no longer needs, and now no longer collects, this information.
Treasury's FinCEN has taken a major step to reduce the burden imposed on depository institutions by the Bank Secrecy Act. FinCEN issued an interim rule, which became final in May 1996, exempting transactions by most public companies, as well as Federal, State, and local agencies, from the Currency Transaction Report (CTR) requirement. It is estimated that the rule will ultimately reduce CTR filings by at least 2 million forms per year. The interim rule notes that steps to further reduce the burden of CTR filing will be forthcoming.
Treasury's OTS has also deleted and streamlined a number of reporting requirements. In 1993, OTS eliminated the monthly data collection for the Thrift Financial Report (TFR), the most burdensome reporting requirement the agency imposed on the thrift industry. This change reduced the industry's regulatory burden by almost 550,000 hours, and saved over $4 million. And in June 1996, OTS further simplified the TFR by: (1) consolidating, into a single report, the separate reporting of savings associations and their subsidiaries; (2) eliminating data that is no longer needed for supervisory purposes; and (3) requiring an annual, rather than a quarterly, listing of subsidiaries. These changes resulted in a 40 percent reduction in the amount of information requested in the TFR.
DOC's Bureau of Export Administration (BXA) undertook an extensive revision of its entire body of Export Administration Regulations. As part of this effort, BXA consolidated its Export License Application and Re-export Authorization Forms into one Multipurpose Application Form. Exporters can also submit this machine-readable form electronically. BXA also established a new Special Comprehensive License, allowing exporters to ship multiple items without having to get individual validated licenses and to maintain three separate licenses for distribution, project, and service supply.
Another method of reducing the paperwork burden is to decrease the frequency of reporting. In March 1995, the President directed Executive Branch agencies to review their reporting requirements and "reduce, where practicable, by one-half the frequency of the regularly scheduled reports that the public is required . . . to provide to the Government." Agencies across the government have been making progress toward fulfilling this goal--as of September 30, 1996, agencies have taken 131 actions to reduce the frequency of reporting by the public, resulting in 3,380,000 hours of burden reduction; pending agency actions will further reduce the burden by another 6,000,000 hours. For example, Treasury's Bureau of Alcohol, Tobacco, and Firearms (BATF) cut the frequency of brewer's reports from monthly to quarterly for smaller brewers--reducing the total number of brewer's reports filed by almost 80 percent. BATF also cut the frequency of some wine maker reports, from monthly to annually, reducing the total number of wine maker reports by over 60 percent. In other examples of shrinking reporting requirements, DoD reduced the frequency of 13 reports which, together with six forms it canceled altogether, resulted in a total reduction of 37,544 burden hours imposed on the public, and ED reduced the frequency of 30 reports, which resulted in a total reduction of 675,000 hours.
Employing Technology to Enhance Benefits or Reduce Burdens Rapid technological advances have dramatically changed the ways in which information can be collected and reported. Most significantly, they have enabled those providing the information to do so more accurately and quickly, and helped agencies to process and use this information more efficiently. As the President noted when he signed the Paperwork Reduction Act Amendment of 1995, "the more we use electronic transmissions, the more we'll all be working quicker and smarter, giving better service to the American public, a more efficient Government, and far, far, less paperwork." He therefore directed agencies to "provide for the electronic submission of every new Government form or demonstrate to OMB why it cannot be done that way." Virtually all federal agencies have now instituted some process for electronic filing.
Treasury accounts for approximately 80 percent of the Federal government's "paperwork burden," the bulk of which is imposed by the IRS. The IRS is using electronic methods to achieve significant burden reductions in tax return filings. For the 1997 filing season (tax returns for the 1996 calender year), the IRS will offer Telefile to most single filers who do not claim dependents, allowing approximately 23 million taxpayers who had previously filed the 1040EZ paper form to file their tax returns using a touch-tone telephone. Under Telefile, which will be 100 percent paperless, taxpayers will not be required to send in either their W-2 forms or a written signature. Telefile, along with other related IRS initiatives such as providing tax refunds electronically, is expected to decrease annual burden by 50 million hours.
IRS is also using technology to reduce taxpayers' record keeping burden. The agency issued a proposed revenue procedure that describes the conditions under which a taxpayer may store records via an electronic imaging system, as opposed to the current requirement that records be maintained on paper. Public comments on this proposal are now being incorporated into a final revenue procedure that will be issued in early 1997. Electronic imaging should prove particularly beneficial to businesses, who will be able to spend less on the storage and retrieval of records.
DOJ's Immigration and Naturalization Service (INS) offers another example of agency use of technology to reduce paperwork burden on the public. INS has solicited proposals from the business community to engage in a pilot demonstration project to test various ways to prepare, and store electronically, the Employment Eligibility Verification Form I-9. Once the project is completed, employers will be able to use information technology to better manage the Form I-9 process, and the INS will be better able to monitor compliance with the law. Also, in October 1996, INS published an interim final rule that allows employers to generate electronically blank copies of the I-9 form, and make singled-sided copies of the form (employers are now permitted to make only double-sided copies). This change is expected to save employers the cost of purchasing the forms; it will also lower the burden of making double-sided copies.
INS is also employing technology to enhance security at land border Ports-of-Entry, while minimizing the waiting time to enter the United States. Under the new PASS SENTRI (Source Electronic Network for Travelers Rapid Inspection) program instituted in September 1995, INS can enroll frequent travelers who already have undergone a thorough background and vehicle check. Access to this information in advance of a traveler's entry into the United States allows INS officers to expedite inspections, while ensuring that the persons requesting admission, as well as their vehicles, have been thoroughly screened. This is particularly important for local residents on both sides of the border who commute frequently for work or pleasure.
HUD has taken use of technology a step further to make collected information more useful. Now, communities throughout the United States can not only prepare, but also submit, their Consolidated Plans electronically through a computerized planning system. This system includes a data base of projects planned for the year, and can print maps of project locations in relation to a community's social and economic conditions. Moreover, HUD has a computerized reporting system that includes project set-ups, drawn down funds, and a report on progress for four different programs of HUD's Office of Community Planning and Development. And to allow greater public access to information, HUD has worked with grantees to prepare executive summaries of 930 Consolidated Plans, with maps showing project locations, which are being made available on the Internet. HUD also has made use of an electronic bulletin board, permitting rapid two-way communication with its grantees and field offices. Finally, HUD has made software packages available to the public at a reasonable price that allow them to generate their own Consolidated Plan maps; over 400 copies have been purchased by individuals and non-profit organizations. HUD has distributed approximately 1,300 more free copies to public housing authorities and mayors.
A task-force of 53 Federal agencies proposed an International Trade Data System (ITDS) that would standardize and integrate the process of collecting trade data, and allow for more efficient sharing of information among agencies involved in international trade. ITDS would provide for the electronic exchange of licenses, permits, and other trade and commercial data. This would reduce burden on exporters and importers by freeing them from the duplicative, incompatible, and non-uniform data reporting and record keeping requirements of separate trade and transportation data systems. The effectiveness of ITDS data-collection methods is currently being tested with the North American Trade Prototype, a pilot project involving the United States, Canada, and Mexico.
The EPA has established electronic reporting through an "Electronic Data Interchange" (EDI) system for its Reformulated Gasoline regulation. Gasoline producers have been able to report electronically the quantity and formulation of their products since 1995. As EPA's first use of EDI, this program has served as an important demonstration of the benefits of electronic reporting for both EPA and its regulated entities.
DOT has further expanded its procedures allowing tariffs to be filed electronically. Air carriers had been permitted to electronically file international passenger fare tariffs since 1989, but were required to file the remaining information on paper, including specific provisions for each fare type (e.g., advance purchase, length of stay). The airline industry currently files about 42,000 pages of such tariff rules per year. Permitting these tariffs to be filed electronically will save the airline industry an estimated $1.6 million annually.
ED is using technology--including satellite broadcasts, electronic bulletin boards, and teleconferencing--to facilitate broader awareness of, and participation in, its rulemaking process. For example, in late 1993, ED sent letters to over 400 stakeholders asking for comments on a draft Notice of Proposed Rulemaking (NPRM) for the Independent Living Programs. The letter included a computer diskette containing the draft NPRM, and the draft rule was posted on two electronic bulletin boards for comment. In addition, ED held meetings and teleconferences to gather additional input. These steps had the added advantage of assuring that blind and disabled persons would have access to the proposals and the comment process. When the Department published the NPRM for comment, it posted the document on electronic bulletin boards, along with a copy showing the changes that had been made as a result of the public involvement. Largely due to the extensive consultations before the NPRM's publication, only 40 minor comments were received. This success has led ED to invite comments on all proposed rules through the Internet simultaneously with publication in the Federal Register, and ED aims to expand this system to allow commenters to respond to each others' comments via the Internet.
In the procurement area, several agencies have worked together to establish the Acquisition Reform Network (ARNet), an electronic forum used to disseminate information about acquisition reform efforts and to "hear" comments directly from front-line acquisition professionals and the public about procurement issues. Most recently, ARNet played an important role in the first steps of the pending rewrite of the Federal Acquisition Regulation (FAR). Questions in several areas of interest to the regulatory drafting team were published on the ARNet, with a request for discussion of these issues. As a result, for the first time in a procurement rulemaking, a drafting team was aided by comments received electronically prior to the proposed rule stage. In September 1996, the proposed rule was published electronically on the ARNet and, again, for the first time in a procurement rulemaking, interested parties were permitted to submit electronic comments directly to the FAR Secretariat.
To give small businesses easier access to information, in June 1995 SBA pioneered the U.S. Business Advisor (http://www.business.gov), a one-stop electronic link to all of the Federal Government's business information and services. The site also offers information on regulations that may impact small businesses directly. This new site has generated widespread interest--in one week alone, it received over 400,000 hits.
USDA's APHIS has established a Regulatory Analysis page on its Web site (www.aphis.usda.gov/ppd/rad) to enhance review of, and comment on, its important animal and plant health regulations. The site provides access to all current and recent APHIS proposed regulations, lists all comments received on proposals, and shows the complete text of comments received on some regulations. Additionally, the site explains APHIS' regulatory process, identifies key contacts for regulations, and contains links to other Web pages and discussion groups containing scientific information and opinions related to APHIS proposals. The FTC also has its own home page (http://FTC.gov) and has made available electronically all 140 of its business and consumer information pamphlets. In addition, the FTC has established hyperlinks from its home page to those of other Federal agencies, including the U.S. Business Advisor, and private groups, including The Washington Post (for consumer-based stories) and Sallie Mae and Kaplan On-Line (for information on how to avoid scholarship scams). The FTC also makes available on-line notices about its proceedings, as well as the comments received in those proceedings, so that other interested parties have ready access. In several proceedings where numerous comments were received, the FTC provided those comments on CD-ROM to participants in public workshops on the issues.
In addition to improving the quality of new regulations, the Administration has been committed to changing the face of existing regulations. E.O. 12866 required agencies to review their existing regulations "to ensure that [they] are still timely, compatible, effective, and do not impose unnecessary burden" (see Section 5). This effort was intended to do more than just clear away some of the deadwood that had accumulated in the Code of Federal Regulations (CFR). It was also the beginning of a fundamental reengineering of the regulatory system, a system that has developed over the past half-century. In the First Year Report, we noted that this "look-back" effort had yielded some modest results and that more needed to be done. President Clinton agreed, and in the Fall of 1994, he tapped Vice President Gore to work with the heads of agencies on both cross-cutting and sector-specific regulatory issues. One set of initiatives involved the elimination and reinvention of nearly 50,000 pages of the CFR; the other was reflected in a series of announcements of major reforms by key regulatory agencies, as well as a host of smaller reinventions from across the Federal Government.
Eliminations and Reinventions In February 1995, the President asked agencies to review, page by page, their existing regulations in order to eliminate those that are unduly burdensome, outdated, or in need of revision. The President announced the results of this effort in June 1995: 16,000 pages to be eliminated from the CFR, and another 31,000 to be reinvented.
As of September 30, 1996, agencies had made significant progress toward fulfilling these commitments, although some work remains to be done. Agencies had already eliminated 12,500 CFR pages, nearly 75 percent of the planned government-wide reduction, and had published proposals to eliminate another 1,600. Some have observed that while we may have eliminated many regulations, we are also promulgating new ones, so that our gains are not all that significant. To be sure, there have been new regulations. Many carry out statutory mandates, such as the double hull requirement, and regulations implementing the Clean Air Act Amendments and the Family and Medical Leave Act. Other new regulations implement Presidential initiatives, such as the regulation of children's access to tobacco products, new food safety procedures, and expansion of the public's right to know about toxic releases to the environment. Despite these new regulations, however, the 1996 CFR is actually smaller than it was a year ago--through the first three quarters of 1996, the CFR is roughly 5,000 pages, or 5 percent, smaller than the 1995 version.
More importantly, as of September 30, 1996, agencies had "reinvented"--that is, revised to be more streamlined, focused, flexible, cost-effective, or customer-friendly--over 14,000 pages of the CFR, and had published proposals to reinvent another 5,900 pages. Thus, the Administration has fulfilled 50 percent of its reinvention commitment, with many more reinventions in the pipeline. This sustained effort to eliminate and reinvent roughly 40 percent of the entire CFR is greater than any similar initiative in at least two decades.
Agency-Specific Regulatory Reforms In March 1995, the President announced the first of a series of specific sectoral reforms, allowing agencies to achieve their regulatory objectives while reducing burdens and costs on regulated entities. Specifically, EPA committed itself to undertaking 25 reforms that will reduce regulatory burdens while maintaining the agency's ability to protect the environment. EPA's reforms include cutting its paperwork burden by 25 percent (the equivalent of returning 625,000 work-weeks to the private sector to boost productivity and profits), instituting one-stop emissions reporting for firms, giving small businesses a grace period to correct violations, and installing a self-certification program. EPA already has eliminated more than 15 million hours of paperwork and red tape for large and small businesses seeking to comply with environmental laws, and it expects to eliminate an additional 8 million hours by the end of 1996. This includes both paperwork requirements changed or deleted, and those completed or expired, after January 1, 1995. And as a first step toward one-stop reporting of all environmental information, EPA has proposed to standardize the facility identification information that is regularly sent to EPA in dozens of reports and pollution control permits mandated under several different laws.
One specific example of EPA's reform efforts is its proposed new Hazardous Waste Identification Rule (HWIR-waste)--a rule addressing newly generated industrial waste--that would refocus the regulatory program on the hazardous wastes that pose the greatest risks to public health and the environment. This rule would exempt from the expensive hazardous waste management requirement of Subtitle C of the Resource Conservation Recovery Act (RCRA) wastes that do not pose a significant public health threat. This change would result in substantial savings to businesses handling these low-risk wastes, while allowing more time for both government and industry to focus on greater risks to public health and the environment. About 6,000 facilities would benefit from the burden reduction, which may produce an annual savings of as much as $75 million. EPA also proposed an HWIR-media rule--a rule addressing the clean-up of soils and groundwater--that would focus cleanup efforts on areas or sites that pose the greatest risks to public health, by giving EPA and States the flexibility to exempt lower-risk sites from Subtitle C requirements. EPA estimates that this proposal could reduce the annual cost of cleaning up sites with contaminated media by as much as $1.2 billion.
Another RCRA reinvention effort resulted from EPA's analysis of its Phase III Land Disposal Restriction rule. That analysis suggested that the cost of imposing RCRA requirements on facilities already regulated under other environmental statutes would substantially exceed the likely benefits. After receiving extensive input from industry, State and local governments, communities, and environmental organizations, EPA developed the first targeted RCRA legislative reform. Signed into law in March 1996, the Land Disposal Flexibility Act exempts certain low-risk wastes already subject to regulation under the Clean Water Act or the Safe Drinking Water Act from costly regulation under RCRA's land disposal restrictions program. Under this law, EPA will conduct a study of certain wastewaters to determine whether these existing authorities adequately address the risks to public health and the environment before it imposes additional requirements.
In April 1995, HHS' FDA announced 36 reforms to significantly cut drug approval times and streamline the pre-market clearance process for certain devices by: eliminating prior approval of certain manufacturing changes for drug manufacturers; eliminating environmental assessments that now must accompany drug and device applications; and increasing the number of medical devices that would not require pre-market clearance. Subsequently, FDA announced that it is undertaking a significant effort to simplify the regulation, and speed development, of drugs created through biotechnology (see Chapter 1). Moreover, FDA has joined with USDA to reform the Nation's meat and seafood inspection system by instituting new science-based process controls that will increase the safety of the Nation's food supply (see Chapter 1).
FDA's reinvention effort in the area of medical device approval mentioned above illustrates the positive effects of reviewing existing rules. FDA regulates medical devices and places them in classes, depending on the level of risk they present to patients. In the past, manufacturers of most medical devices were required to submit information to FDA, and receive FDA clearance, before putting a device on the market, even if the device posed an extremely low risk. FDA determined that, for devices that pose a low risk (Class I), such review and approval is unnecessary to protect the public health, creates unnecessary regulatory burden on manufacturers, and delays the introduction of new devices. Consequently, FDA exempted from pre-market notification 148 generic types of Class I devices. In addition, the agency will soon propose to reclassify approximately 100 types of devices from Class II to Class I, and exempt these devices from the pre-market notification requirement.
In a May 1995 report, entitled "The New OSHA," the agency commited itself to promoting common sense regulations, encouraging partnerships, and eliminating red tape, while ensuring greater safety and healthier working conditions for American workers. OSHA is instituting reinvention programs that: offer incentives to employers with good safety and health programs; provide penalty reductions for small employers who correct violations during inspection; eliminate or fix out-dated and confusing standards; ensure consultation with business and labor during rulemaking; establish performance measures that evaluate programs based on safety and health results; and focus construction industry inspections on the four leading causes of construction worker deaths and injuries. Moreover, OSHA is nationalizing its "Maine 200" program, which successfully induced high-injury workplaces to abate hazards on their own, while enabling OSHA to target workplaces that continue to have excessively high rates of job- related injuries or a history of repeated OSHA violations.
Treasury and DOL, including PBGC, developed recommendations for a variety of improvements and simplifications to the pension rules. The June 1995 report, "Simplifying Pensions," described the complexity of many existing pension rules, particularly for small businesses, and laid out a strategy of legislative and administrative changes. The legislative changes included provisions that would: (1) enable small businesses to offer their employees a simple IRA-based, 401(k)-type retirement savings plan that is not subject to complex, existing pension regulations and that is designed to expand pension coverage; (2) allow tax-exempt organizations to offer their employees 401(k) plans; (3) simplify 401(k) rules by offering alternatives to complicated and sometimes costly non-discrimination testing; and (4) allow family members who work for a family business to earn the same pension benefits as non-family employees. Each of these, and many of the other, recommendations in the Treasury-DOL-PBGC report were implemented as part of the Small Business Job Protection Act of 1996 (see Appendix B). The report also included several recommendations for administrative changes that have already resulted in significantly simplifying how plan administrators comply with ERISA.
Also in June 1995, SBA released its report, "The New SBA." Many of the ideas in the report come from five "grassroots" partnership meetings with members of SBA's regulated community--lenders, small business owners, and government contractors. These meetings, coupled with SBA's own intensive review, helped SBA to complete, in January 1996, a comprehensive streamlining of its regulations. SBA revised 100 percent of the regulations it had the authority to change, converting them to plain English and eliminating over 50 percent of their CFR pages.
Two of the regulations that SBA significantly revised were its "alter ego" and "opinion molder" rules. The "alter ego" rule authorized loan assistance for real estate use only if the borrower was an exact "mirror image" of an operating small business. After conducting its own review, SBA determined that this rule was too restrictive and interfered with many legitimate planning options. Although SBA still does not provide assistance for passive investment or real estate development, it now authorizes SBA loans to acquire or improve property used by an eligible operating business, without requiring any "mirror image" structure. SBA worked closely with the small business community in developing this new rule, and received strong support for its final proposal. In addition, SBA's repeal of its longstanding "opinion molder" rule, which had barred loan assistance to broadcasters, publishers, booksellers, and other small business concerns, was also well received. Rather than try to patch up the rule, SBA eliminated it altogether, thereby extending loan eligibility to some 75,000 media-related small businesses.
As part of its reinvention effort, SBA also has instituted a number of initiatives to help small businesses comply with relevant regulations. These initiatives include providing much needed information, education, and training to small businesses through SBA's expanded network of Small Business Development Centers, Business Information Centers, and Service Corps of Retired Executives programs. Over the past several years, these SBA services have assisted millions of small business clients.
In July 1995, the Administration released "Reinventing Health Care Regulations," a report containing a series of recommendations to increase flexibility and reduce burden for Medicare and Medicaid participants and providers, including changing current regulations, such as the Home Health Agency and Medicare Conditions of Participation, to focus on outcomes of care rather than requirements for measuring processes. In addition, HHS' HCFA is expanding, where appropriate, third-party accreditation of health care providers. This accreditation process recognizes the States' traditional role in ensuring the quality of health care facilities and enables facilities to be evaluated by private sector experts, an approach that is more consistent with health profession norms and less intrusive for providers. HCFA also has sponsored and supported legislation, which the President signed in October 1996, that reduces burdens on long-term facilities by eliminating duplicative annual assessments of the mentally ill and retarded.
HHS' HCFA is also changing the way in which it regulates medical lab tests. HCFA regulates tests on human specimens in all health care settings to ensure that they are accurate. Certain simple tests that are less prone to error can be waived from HCFA oversight, but the existing waiver criteria were confusing and applied inconsistently. To improve uniformity in, and the integrity of, the waiver process, HCFA published a September 1995 proposed rule that establishes standard waiver criteria. For example, under this proposal, all FDA-approved home test kits would be automatically exempt from HCFA oversight. The new criteria should alleviate manufacturer confusion and encourage the development of more tests that meet waiver criteria. And an increase in waivers should also reduce the regulatory burden on smaller laboratories in rural and underserved areas and enhance patient access to high quality testing services.
In addition to streamlining waiver criteria, HHS' HCFA published a September 1995 proposed rule that would waive a routine bi-annual survey of laboratories specializing in "accurate and precise technology" (APT) testing. The proposed rule would require APT tests to meet certain criteria demonstrating that their design features ensure accuracy and reliability. This new rule should stimulate demand for accurate and precise testing systems, and create incentives for manufacturers to invest in the development of these technologies. Moreover, it would reduce paperwork burden for laboratories specializing in APT testing, including a significant number of laboratories located in physicians' offices.
In a January 1996 report, Reinventing Food Regulations,'' HHS' FDA and USDA announced a series of initiatives to improve the regulation of food safety. The principal initiative involved the introduction of sound science and a sense of responsibility in addressing the problem of illnesses caused by food-borne pathogens (see Chapter 1). In addition, it announced an initiative to consider standards for various foods. These standards of identity are intended to protect the integrity of the food supply by establishing definitions of foods ranging from milk to canned fruits and vegetables to seafood cocktails. Many of the definitions are extremely detailed and have the potential to limit technological innovation. Virtually all of them were adopted before the passage of the Nutrition Labeling and Education Act of 1990, and thus did not take into account the fact that ingredient information is now readily available on food labels. In December 1995, the FDA had asked for public comments on whether these standards of identity should be retained, revised, or revoked. The agency also asked for comments on alternative means of accomplishing the statutory objective of standards of identity--that is, to promote honesty and fair dealing in the interest of consumers. In September 1996, USDA's FSIS published a similar request for comment about its standards of identity for meat and poultry products. The food safety report also contained a variety of other reinvention initiatives, including reforming the FDA's food additive petition review process, the process for pre-market approval of substances used in the preparation of meat and poultry products, and the harmonization of international standards (see Chapter 1).
Specific Examples of Regulatory Reinventions In addition to the sectoral reforms discussed above, virtually all of the agencies are reexamining existing rules and developing better ways to solve problems. The following examples illustrate the agencies' successes resulting from this effort.
DOT's review of its rules yielded several beneficial changes. For example, DOT's FRA determined that, when temporary train crews were on the job, existing work rules for assembling and disassembling trains in rail yards imposed large costs involving time, money, and operational disruptions. So FRA simplified the requirements for temporary train crew members, making them subject to the same safety protection rules as permanent crew members. This change has led to real savings for the industry, without compromising safety. In addition, FRA determined that its existing "hydrostatic" method of inspecting tank cars was costly and potentially dangerous. To address this problem, FRA issued a rule authorizing a non-destructive testing process that is far more effective and less costly than the hydrostatic method. Also at DOT, the Coast Guard is revising its "Lightering Zones" regulations to permit off-loading of oil by older, single hull vessels in the Gulf of Mexico. This will reduce transportation costs by several hundred million dollars between now and 2015, while maintaining environmental protections.
At DOI, the Office of Surface Mining's (OSM) regulations require that abandoned mine sites be inspected to ensure that they have not become dangerous or environmentally hazardous. The old rules mandated that over 2,000 abandoned mine sites be inspected monthly by State officials, even though conditions at many had not changed from month-to-month. After reexamining these rules, OSM significantly reduced the frequency of inspections at low-risk sites, thereby reducing State costs and allowing resources to be focused at sites in need of inspection. DOI's FWS also has reinvented several rules. FWS is responsible for implementing the Endangered Species Act, which criminalizes activity that disturbs the habitats of threatened species. The Act has been the subject of enormous controversy in both Congress and the courts. FWS has responded to some of the concerns by proposing rules that would allow greater use of private lands without requiring a permit for destruction of threatened species habitats. For example, under one of the proposed rules, owners of less than 80 acres in Northern Spotted Owl habitat would not be required to obtain a permit before harvesting timber on those lands.
Similarly, the Army Corps of Engineers and EPA made two changes to the wetlands protection program designed to reduce the burden on small property owners. In March 1995, the Corps and EPA issued a joint guidance document that emphasized the need for flexibility in the application of Section 404(b)(1) wetlands permitting guidelines. Under the new guidance, applicants for the construction of single family homes, or the expansion of small businesses, involving less than two acres of wetlands need not incur the expense of looking for alternative off-site locations for the project as part of the permitting process. And in a nationwide general permit issued in July 1995, the Corps approved the construction of single family homes on non- tidal wetlands of less than one-half acre without an individual permit. Both of these changes substantially reduced the burden on small landowners, shortened the time needed for their projects, and saved taxpayer dollars by reducing permit review workloads--all without reducing the overall level of wetlands protection.
In March 1996, DOC's BXA published an interim final rule that restructured and reorganized the entire, complex body of Export Administration Regulations (EAR). This rule makes the EAR more user-friendly (for example, licensing provisions previously scattered throughout the EAR are now consolidated into ten general principles in a single part of the CFR, and a Country Chart has been added to show licensing requirements world-wide) and is designed to ensure that both novice and veteran exporters can more easily locate regulations. Most importantly, BXA's reforms reflect a fundamental redirection from a negative presumption that all exports subject to its regulations are prohibited unless specifically authorized, to a positive approach where no license or other authority is required to export unless the regulations say so.
DOC's Economic Development Administration (EDA) has also completely revised and streamlined its regulations. Many of its regulations were out of date, applied to programs that no longer exist, or reflected policies that had either changed or were no longer applied consistently or regularly. The reinvention process resulted in the elimination of over 200 of EDA's approximately 370 regulations. EDA rewrote the remaining 170 regulations so that they will be more easily understood by EDA's customers--including potential grant applicants and the businesses and communities that benefit from economic development projects--and more consistently applied by EDA's staff.
USDA's Forest Service regulates private leasing of National Forest System lands for uses such as ski resorts or radio and television broadcasting towers. After conducting a thorough review, the Forest Service found its existing leasing and use regulations to be overly complex and burdensome. As a result, it has proposed a series of changes that would clarify and consolidate the leasing requirements and make it easier for regulated entities to comply with environmental protections. The Forest Service also is proposing to change the fee payment structure to more closely correspond to private market practice. Moreover, it is revising its regulations to provide for more effective decisionmaking and increased public involvement in the development of natural resource management plans. By offering more opportunities for individuals and groups to participate in the plan amendment and revision process, the Forest Service hopes to reduce frictions with the public, to improve both its coordination with other governmental agencies, Indian tribes, and private businesses, and to improve its ability to implement long-range plans. USDA's Rural Housing Service also proposed a series of major reinventions of its loan and grant programs. These changes, which affect over 625,000 customers, will produce loan savings of $250 million over five years. The changes include shifting to more common commercial business practices, developing a new technology-based management system, and rewriting rules and instructions. One rule combined 16 different regulations into only 30 pages, a reduction of 90 percent.
In late 1995, HUD revised its Home Equity Conversion Mortgage (HECM) Insurance program to simplify requirements and expedite processing time. HECMs permit individuals to convert a portion of accumulated home equity into liquid assets. The HECM program is designed to meet the special needs of elderly homeowners who are faced with increasing health, housing, and subsistence expenses at a time of reduced income. To encourage lenders to issue HECMs to elderly homeowners, HUD revised its rule to allow lenders to close HECM loans without prior HUD approval. This method, known as direct endorsement processing, had been used almost exclusively for single family mortgage insurance programs other than the HECM program, and has proven to be an effective method of reducing the processing time for loan approvals.
HUD also issued a final rule in April 1996 that streamlined its bond refunding procedures under Section 8 of the Housing Act of 1937. Since May 1989, HUD has conducted a program under which issuers of certain tax-exempt bonds are encouraged to refinance projects at lower interest rates to reduce HUD's Section 8 subsidies. To date, this program has made available over $1 billion in savings from existing Section 8 contracts; these savings have been shared with States and, since January 1992, with local housing agencies. The relevant HUD regulations were designed for the original financing of new construction or substantial rehabilitation of partially subsidized Section 8 rental housing, and did not fit refinancing transactions where construction funding was not an element. As a result, the Assistant Secretary for Housing-FHA Commissioner had to issue a regulatory waiver for each refinancing transaction. The April 1996 final rule permits non-construction refinancing under Section 8, thus eliminating the need for most waivers.
In May 1993, Treasury's OCC initiated a comprehensive review of all of its regulations to ensure that each serves a legitimate regulatory objective without imposing undue burdens. As a result, OCC has revised 22, and proposed to revise five, of its 29 regulations. Highlights of these changes include final rules that: (1) create a streamlined, expedited approval process for most corporate filings by certain banks; (2) among other things, defines the types of charges that are considered to be "interest" under Federal banking laws; and (3) completely rewrite the rules implementing the Community Reinvestment Act.
Treasury's OTS issued a September 1996 final rule that substantially revised and simplified its lending and investment regulations into a user-friendly chart that clearly lays out savings associations' lending authorities and any applicable restrictions. OTS also converted regulations concerning loan documentation into guidance. This significantly reduced the industry's burden by freeing them from stringent loan documentation requirements that micromanaged thrifts and denied them the flexibility to respond to technological advances. In addition, OTS proposed in June 1996 to clarify and streamline regulations in the areas of subsidiaries and equity investments, corporate governance, and conflicts of interest. The changes would decrease regulatory burden by removing or reorganizing entire sections of the CFR and rewriting existing regulations in plain language to make them more user-friendly. For example, provisions governing the establishment and operation of thrift subsidiaries--now scattered throughout OTS regulations--would be consolidated into a single section, and the eight sections of rules concerning conflicts of interest would be consolidated into three.
In January 1996, Treasury and the IRS issued proposed regulations that would substantially simplify the tax treatment of deferred compensation under certain retirement plans. These regulations specify when and what types of deferred payment are subject to federal payroll tax. Praised by practitioners and employers alike, the proposed regulations would clarify the process by which employers calculate the value of future employee compensation, and would allay concerns that executives would be taxed on sums they conceivably might never receive.
DOJ issued an Asylum Reform Implementation rule that took effect in January 1995. The previous asylum rule provided for an almost automatic grant of a work authorization for all asylum applicants, pending adjudication of their claims. This practice may have created perverse incentives to file frivolous claims. The new rule requires a 150-day waiting period after an application is submitted before a person is allowed to apply for employment authorization. This change has reduced the filing of frivolous asylum applications and expedited the processing time for legitimate applications.
DoD amended the Defense Federal Acquisition Regulation Supplement to eliminate the requirement for contracting officers to conduct an annual review of contractor costs for leasing automated data processing equipment. This change reduces non-value added agency reviews, reduces the paperwork burden on contractors and the Government, encourages the use of commercial practices, and rewards quality contractors. DoD also deleted language regarding requirements for in-depth functional reviews of certain contractor cost activities. This revision provides contract administration offices with greater flexibility in planning and executing cost monitoring programs and reduces overall burden. In addition, in September 1995, the Director of Defense Procurement authorized contractors to eliminate subcontract consent requirements, except for those subcontracts specifically identified by the contracting officer, provided that the contractor maintains an approved purchasing system.
In 1993, DOE began an aggressive effort to reinvent its procurement process. In particular, DOE set a goal of cutting its Acquisition Regulation in half by September 1996a goal it achieved in August 1996. Moreover, DOE eliminated over 170 pages of regulations containing excessive and obsolete prescriptive requirements for awarding and administering contracts. DOE estimates that this comprehensive streamlining effort will result in annual savings of almost $3 million, and will significantly reduce the administrative burden associated with its procurement process.
In implementing amendments to the Family Educational Rights and Privacy Act (FERPA), ED reviewed existing FERPA regulations and determined that the requirement forcing schools to adopt a formal written student records policy is unnecessary and overly burdensome. Trusting schools to decide how to inform parents and eligible students about their rights under FERPA's statutory notification of rights requirements, ED eliminated the policy in November 1996. The change will not only lessen the burden on schools, but will facilitate communication among schools, parents, and students. ED expects to issue the final regulation by the end of 1996.
The FTC has undertaken a systematic, comprehensive effort to review all of its regulations, rescind those no longer needed, and streamline others, for the benefit of both consumers and regulated businesses. Three years ago, the Commission had in effect approximately 40 rules and another 40 industry guides. The Commission has now repealed 25 rules and guides and revised another 19. In addition, the Commission has adopted a "sunset" policy of automatically terminating administrative orders that are more than 20 years old and have not necessitated enforcement action within 20 years.
The Securities and Exchange Commission (SEC) has initiated a series of changes to its rules and forms that will make it easier for small businesses to attract investors. Recent changes include: (1) simplifying the process for registering securities issued by small businesses for public sale; (2) increasing exemptions permitting the unregistered public and private sale of securities; and (3) simplifying the ongoing periodic reporting requirements of registered small issuers. In addition, the SEC recently doubled the asset threshold that subjects companies to registration under the Securities Act of 1934 from $5 million to $10 million, so that fewer small businesses are now subject to reporting requirements. The SEC is also introducing a "one-stop" disclosure and filing system located in Washington, D.C. for small businesses, while maintaining the staff assistance available to these businesses through its regional offices. Finally, in 1996 the SEC initiated a series of "town meetings" throughout the country to educate small businesses about opportunities to raise capital through the securities markets.
The FCC has also reinvented many of its regulations, reducing both costs and reporting burden. For example, manufacturers are no longer required to annually file UHF Noise Figure Performance Measurements and may now certify (rather than submit lengthy documentation) that digital devices comply with the Commission's requirements. In addition, applications for 60 percent of the services regulated by the FCC's Wireless Telecommunications Bureau are now available for electronic filing. The Commission makes available, on the FCC Internet Home Page, the software required for filing applications for Personal Communications, Land Mobile Radio, General Mobile Radio, and Interactive Video Data Services.
CHAPTER 3: CHANGING THE CULTURE OF THE REGULATORY SYSTEM Developing tailored and cost-effective rules based on sound science and good information, as well as reinventing or eliminating existing rules that are obsolete or no longer make sense, are important components of the Clinton Administration's effort to reform the Nation's regulatory system. But Americans are not just affected by how rules are written; they are also affected by how rules are administered or enforced. As part of the regulatory reform effort, and working closely with the Vice President's NPR, the Administration has worked to change the nature of the regulatory culture. We are moving away from the traditional focus on strict compliance with procedural requirements and heavy fines for those that do not comply. Now, we are creating a system that stresses partnership with responsible actors--based on the results of what they achieve--and offers compliance assistance when they fall short of meeting those requirements, while reserving traditional enforcement techniques for the worst actors.
In March 1995, the President and the Vice President emphasized their commitment to changing the regulatory culture. The President called for agencies to "get out of the business of mindlessly writing traffic tickets" and "playing gotcha' with decent honest business people." He stated that the Government's objective should be "compliance, not punishment," and ordered agencies, where practicable: (1) to waive up to 100 percent of punitive fines for small businesses if they put that amount toward fixing the problem; and (2) to waive fines for small businesses altogether for first time violations in cases where the business has made a good faith effort to quickly come into compliance. This policy, along with other recommendations of the June 1995 White House Conference on Small Business that the Administration supported, were codified as part of the Small Business Regulatory Enforcement Fairness Act of 1996 (see Appendix B). The following examples show how agencies have worked to implement the President's initiatives and, more generally, change the way they work with their regulated communities.
DOL's OSHA has given significant attention during this Administration to the Voluntary Protection Program (VPP). The VPP is a cooperative effort among OSHA, management, and labor, designed to recognize and promote effective safety and health management. After a workplace implements a strong safety and health program, OSHA, management, and labor enter into a partnership in which management agrees to operate the program effectively, according to an established set of criteria, and employees agree to participate and work with management to ensure a safe and healthy workplace. To do its part, OSHA verifies whether an individual site meets the criteria and, if it does, publicly recognizes the site and removes it from routine inspection lists (however, OSHA may still investigate major accidents, valid formal employee complaints, and chemical spills on site). OSHA reassesses the site periodically to confirm that it continues to meet VPP criteria.
OSHA also is pilot testing a system that would reduce penalties up to 100 percent for employers with excellent safety and health programs that include features such as management leadership, employee participation, worksite analysis to identify safety and health hazards with subsequent elimination or control of the hazards, and safety and health training. The revised penalty policy will provide a departure from a one-size-fits-all regulatory approach that treats all workplaces and hazards equally. Moreover, it will give managers and workers the primary responsibility for ensuring safety and health at individual worksites. The pilot program will test whether these policies can achieve OSHA's goal of increasing workplace safety and health while easing the historically adversarial relationship between business and regulators. OSHA also is launching a pilot program that would encourage roofing contractors to improve safety and health performance by recognizing those who have excellent safety and health programs. Roofing contractors who voluntarily improve their safety and health programs, and who meet specified OSHA qualifications, will receive incentives that may include more limited and focused inspections, penalty reductions, and other benefits. OSHA will annually measure the program's success by using three criteria: (1) the illness and injury experience modification rates of participating contractors; (2) contractors' accident rates; and (3) program participants' satisfaction rates.
DOL's Wage and Hour Division is also changing its culture to emphasize compliance. The percentage of time investigators have spent on moving employers into voluntary compliance with laws governing workers' pay and work time has increased markedly since 1992. At the same time, DOL has increased its enforcement focus on those sectors of the economy that contain real threats to workplace conditions for vulnerable populations, such as the garment and agriculture industries. But even in these industries, DOL is successfully leveraging the cooperation of employers. For example, retail clothing firms recently agreed to refrain from purchasing from suppliers who have substandard pay or overtime records.
In response to the rising number of accidents among contractors working on mine property, DOL's MSHA has entered into "partnership agreements" with companies who regularly use contractors to work on mine property. Under these agreements, companies commit to hiring contractors who have sound safety and health records, and staff that are qualified to perform key safety tasks. In addition, companies agree to regularly assess contractor performance. For its part, MSHA makes available agency resources to assist in the development of mine safety training programs and educational materials, and provides companies with detailed information on contractor work histories. This partnership gives contractors a powerful incentive to develop and maintain safe work environments.
EPA is implementing a number of innovative approaches to achieving compliance, including giving high priority to pollution prevention issues. While recognizing that a strong enforcement capability ensures strong public health and environmental protection, EPA is implementing the following innovative approaches:
Finally, EPA is increasing community participation and partnerships to engage States, tribes, communities, and citizens in efforts to protect public health and the environment:
Many of DOT's agencies are emphasizing compliance, rather than penalties, in implementing their programs, and they are giving special consideration to small business. The Office of the Secretary's Aviation Rule Enforcement Program, which deals with consumer protection and economic rules, routinely closes cases involving small businesses with only a warning; where penalties are assessed, 50 to 80 percent of the penalty can be forgiven if the company uses that amount for corrective action or stays in compliance for a year. RSPA is also implementing a program to waive penalties for violations that are corrected within an agreed-upon time frame. Like the Aviation Rule Enforcement Program, RSPA uses its enforcement discretion to waive up to 100 percent of a penalty if the amounts waived are used to achieve compliance. In addition, RSPA will arrange for installment payments for small businesses that must pay penalties. RSPA also periodically publishes enforcement and penalty guidance in the Federal Register.
DOT's Federal Highway Administration (FHWA) imposes penalties only as a last resort when other means of obtaining compliance, such as education and training, have failed. But even when it imposes penalties, FHWA is working to help small businesses. FHWA exercises its penalty authority in ways that take into account a business' ability to pay; therefore, in many cases, small businesses are given smaller penalties.
FRA's guidance to its inspectors emphasizes the special situation of small railroads, and FRA typically exercises its discretion to waive or reduce initial penalty assessments, particularly when it is presented with evidence of efforts to achieve compliance. In addition, FRA has developed a special education and training program for small railroads to encourage safety compliance and avoid penalty situations.
The FAA's aviation safety rules provide for issuing letters of correction and warnings in some cases of non-compliance (e.g., cases that do not involve deliberate or egregious violations, and where the alleged violator demonstrates a willingness to come into compliance and is not a repeat offender). The FAA also has broad discretion to compromise or settle civil penalties. In the case of many regulations, the FAA often considers an entity's ability to pay and its willingness to take corrective action befo re assessing a civil penalty.
Finally, the Coast Guard authorizes its personnel to issue warnings, rather than impose penalties, for minor violations that are corrected promptly. It recently implemented a "pollution ticket" program that offers a significantly reduced penalty for first- and second-time minor violations of some environmental requirements. In addition, it has revised its compliance manual to include provisions to modify civil penalties for small businesses when there has been a good faith effort to comply. Finally, in assessing penalties, the Coast Guard takes into account the size of the business and its ability to pay, and provides for the waiver of all or part of civil penalties where the penalty amount is used to correct violations.
Treasury's IRS has several programs designed to foster a more constructive, and less adversarial, dialogue with taxpayers on compliance matters. For example, it has expanded access to the popular Voluntary Compliance Resolution Program, under which employers who have identified compliance problems in their pension plans can work with the IRS to come into compliance without facing plan disqualification or tax penalties. The IRS has established a similar program for Section 403(b) retirement arrangements. In addition, the IRS's Advance Pricing Agreement program has won taxpayer praise for minimizing disputes over transfer pricing, a particularly complex area of tax administration used to calculate the profitability of transactions between related companies for tax purposes. This program allows the IRS and businesses to discuss and reach agreement on transfer pricing issues before any taxes are paid, and has helped to resolve conflicts that previously had been addressed through audits, appeals, and litigation.
The IRS is also addressing worker classification concerns. The determination of whether a worker is an "employee" or an "independent contractor" is an important one, and it has generated considerable controversy. The IRS has initiated administrative programs to ensure its own impartiality in reviewing worker classifications, to make certain that current law is accurately reflected and consistently applied in these classifications, and to achieve reductions in taxpayer burden. These programs have included the development of a well-received training program for IRS personnel and the establishment of new procedures allowing business and tax examiners to resolve worker classification cases as early as possible in the administrative process. These efforts have drawn praise from small business leaders for providing needed clarity and assisting them to plan effectively for their real business needs.
In a dramatic shift from the traditional practice of demanding compliance with military specifications, even for products nearly identical to those available commercially, DoD has taken steps to permit defense manufacturers to use commercial solutions and industry-wide commercial practices, so long as they meet the performance requirements of the military. This deregulatory initiative will allow contractors to consolidate or eliminate burdensome multiple processes, inspection points, and even assembly lines, within a factory performing more than one military contract. In December 1995, the Secretary of Defense ordered that defense contracts be promptly modified to accommodate this policy change, and ordered that the resulting savings be shared between the contractors and the Government.
Several ED programs are institutionalizing new partnerships with States and localities. For example, under the Goals 2000 Ed-Flex Partnership, nine States have authority to approve waivers for their local schools and districts--an unprecedented level of State flexibility. In addition, ED has approved 134 waivers of statutory and regulatory requirements related to elementary and secondary programs, and, in 110 situations, has worked with States and localities to accomplish their objectives without issuing waivers. Another example of State- Federal cooperation is ED's Cooperative Audit Resolution and Oversight Initiative (CAROI), in which State and Federal program, finance, legal, and audit officials work side-by-side to understand program requirements, identify and resolve recurring audit issues, and avert disputes and litigation. CAROI is now being piloted in three States to positive reviews. Finally, ED is working closely with States to implement Integrated Program Reviews by consolidating reviews of all ED programs into a single, collaborative, non-adversarial visit.
The handling of abuse complaints against employees at DOJ's INS has been a highly visible issue that has adversely affected the public's perception of the agency's enforcement services. INS is actively seeking input and recommendations from citizens on ways to reduce the number of complaints made against INS employees and to minimize or eliminate the causes of those complaints. The Citizens' Advisory Panel, which was recently extended for two more years, reviews INS systems and procedures for responding to complaints, and makes recommendations on community policing and training initiatives.
In 1995, DOI's Bureau of Land Management (BLM) began to dedicate significant resources to the conversion of all of its manuals and regulations into plain English. This initiative is aimed at making rules and regulations easier to read and understand, which will increase efficiency and reduce compliance burdens, especially for individuals and small business who cannot afford to hire full-time experts or lawyers to interpret the regulations.
Another plain English example comes from the SEC. In a move to open the world of Wall Street lawyers to the Main Street investor, the SEC is engaged in a pilot program to encourage change in the ways publically listed companies communicate with their stockholders, by using plain English instead of complicated legal jargon. In September 1996, Bell Atlantic and NYNEX issued the first plain English disclosure document, in the form of a cover page for thejoint proxy statement and prospectus for their proposed merger. Other major corporations have already volunteered to participate. Based on these successes, the SEC is drafting a new handbook, "The SEC Plain English Handbook," to assist others in writing documents more clearly.
In addition, for the first time in its history, the SEC is reaching out directly to investors with a broad education initiative. A cornerstone of this initiative is a series of town meetings the SEC is holding throughout the United States (17 thus far) that bring information directly to investors and solicit their questions about SEC rules and regulations. Also, for the first time, the SEC now goes to the public directly through the Internet and other media to seek investor comments on its proposed rules. In addition, in September 1995 the SEC established a home-page on the World Wide Web that offers valuable information to investors, including the SEC's enormous EDGAR database of corporate information. This is now the second most visited Federal web site , and it leads all other Federal sites in the amount of data that has been downloaded (approximately 20 million pages weekly). Finally, the SEC has established electronic mailboxes so that those who contact the agency through the Internet can ask questions or leave comments about proposed rules or enforcement inquiries.
The CPSC continues to encourage compliance with its laws and regulations without the need for penalties or other legal remedies. Under a special program that began in August 1995, the CSPC encourages industry cooperation through paperwork reduction, cutting red tape, and eliminating potential legal expenses related to the recall of potentially defective products. The key to this new approach is CPSC's willingness to forego making a preliminary determination that a product presents a substantial risk of injury to the public in cases where a firm reports and corrects a problem quickly. Industry views this program as an advantage in product liability suits. Another CPSC program that began in August 1995 provides manufacturers, distributors, and retailers with a one-time, six-month amnesty from civil penalties for past failure to report information concerning potential product defects, unreasonable risk of injury, or noncompliance with mandatory safety standards. Without the fear of penalties, the program encourages firms to "clean out the closets" and disclose matters that should have been reported earlier.
The FTC is also using innovative approaches to achieve compliance with its rules. In January 1996, the FTC approved a new program to increase compliance with its Funeral Industry Practices Rules, which, among other things, requires funeral homes to give consumers a list of prices for various goods and services offered. The Funeral Rule Offenders Program, implemented jointly by the FTC and the National Funeral Directors Association (NFDA), offers certain businesses that have violated the Rule an alternativ e to a federal court enforcement action.
Those firms choosing the alternative program make a voluntary payment to the U.S. Treasury in an amount lower than would be sought in a civil penalty action, and NFDA reviews the firm's practices, revises those practices to comply with the Rule, and conducts on-site training and testing for all licensed employees. Follow-up training and testing will occur annually for five years. After it has evaluated the success of this program, the FTC will consider implementing similar or other alternatives to traditional Federal court enforcement actions in areas governed by its regulations.
APPENDIX A: REGULATORY STATISTICS One of the major initial efforts of this Administration was to restore the integrity of centralized review of regulations. Centralized review allows for an objective, dispassionate review of agency proposed and final rules to ensure consistency with the President's regulatory philosophy. However, agencies generate thousands of rules each year, the vast majority of which are routine documents used to administer the day-to-day conduct of the Federal government--items like USDA marketing orders and agricultural quarantine notices, EPA pesticide tolerances and tolerance exemptions, Coast Guard rules regulating the opening and closing of draw-bridges over navigable waters, and announcements of the availability of Federal grant funds from various grant-making a gencies. This Administration chose to limit centralized review to the most important rules, where "important" means those rules that are "economically significant" because they impose high costs on the private sector or on the Federal budget, or those that have adverse and material interagency effects or present novel issues. By focusing on the most important rules, OMB can become involved earlier and more deeply in agency policies of greatest impact and maximize the value added from centralized review. The statistics outlined below demonstrate that this goal has been achieved.
OMB's success in concentrating its efforts is clear from the following data. During the first year under E.O. 12866, OIRA reviewed 1,145 rules, compared with an annual average during the preceding ten years of over 2,000 reviews under E.O. 12291 (the previous regulatory review Executive Order). During the second year, between October 1, 1994, and September 30, 1995, OIRA reviewed 663 rules under 12866; and from October 1, 1995 to September 30, 1996, we reviewed 498 rules. As indicated in our First Year Report, as OIRA and the agencies gain greater experience with regulatory review under E.O. 12866, and develop a better understanding about what is (and is not) "significant," the rate at which rules are reviewed by OIRA would continue to diminish and then level off. In fact, the 663 significant rules reviewed during the second year represents a 35 percent reduction from the first year total of 1,145, and the 498 reviewed during the past year is a further reduction of 25 percent.
The agencies with the greatest number of rules submitted for OIRA review between October 1, 1994, and September 30, 1995, were USDA with 91, EPA with 88, HHS with 75, HUD with 49, OPM with 39, ED with 38, DOI with 38, and DOT with 37. These eight agencies accounted for almost 70 percent of all rules reviewed. This is generally the same as the first year, when the top eight agencies accounted for 75 percent of the total. The agencies with the greatest number of rules submitted for OIRA review between October 1, 1995, and September 30, 1996, were again largely the same set, with the exception of OPM: USDA with 83, HHS with 67, EPA with 63, DOT with 45, HUD with 41, DOI with 26, ED with 25, and VA with 23. These eight agencies accounted for roughly 75 percent of all rules reviewed.
Of the rules reviewed by OIRA, 80 (12 percent) of the 663 reviewed in fiscal 1995 were "economically significant," as were 80 (16 percent) of the 498 reviewed in fiscal 1996. This compares with 138 (12 percent) of the 1,145 rules reviewed in fiscal 1994. Economically significant rules are those that have an annual economic effect of $100 million or more, or would have other adverse and material effects on the economy (see Section 3(f)(1) of E.O. 12866). As during the first year, EPA and USDA continue to have the most economically significant rules, with 24 and 18 respectively during fiscal 1995, and 21 and 19 respectively in fiscal 1996 (HHS also had 13 in fiscal 1996).
Of the total 663 rules reviewed in fiscal 1995, 313 were proposed and 350 were final; for fiscal 1996, 229 were proposed and 269 were final. These ratios are fairly consistent with that of fiscal 1994. Final rules generally outnumber proposals in part because agencies issue some regulations directly in final form, either under an exception to the notice-and-comment provisions of the Administrative Procedures Act, such as for an emergency, or because some "rules" as defined by the Executive Order are actually notices or other policy issuances for which APA notice and comment is not generally required, such as HHS, HUD, or ED funding notices, notices of selection criteria, or notices of procedures. The slightly higher ratio of final rules in fiscal 1996 can be attributed in part to implementation of agency regulatory reinvention and elimination commitments discussed further in Chapter 2.
In the First Year Report, we anticipated that as we narrowed the number of rules reviewed, we would be better able to use our limited resources to work with the agencies on the most important rules, which would lead to real improvements in the content of Federal regulation. The numbers bear this out: the percentage of rules that were modified by the agency during the course of OIRA review reached a record high during fiscal 1996--51 percent, compared to 37 percent in fiscal 1995 (also a record high at that time) and 33 percent in fiscal 1994. For long- term comparison, the average during the previous decade under E.O. 12291 was just over 20 percent.
The percentage of rules changed during OIRA review has varied somewhat among the three agencies with the largest number of reviews: in fiscal 1996, 66 percent for HHS, 53 percent for USDA, and 63 percent for EPA; in fiscal 1995, 47 percent for HHS, 41 percent for USDA, and 51 percent for EPA. Variation also exists among the next five major agencies (HUD, OPM, DOI, ED, and DOT). Related statistics indicate that OIRA concluded review without change in 41 percent of cases in fiscal 1996, and 54 percent in fiscal 1995, compared with 57.5 percent in fiscal 1994. In fiscal 1995 and fiscal 1996, the remainder were withdrawn by the agency, returned because they were sent improperly, or released in order to meet a statutory or judicial deadline (24 EPA rules and 4 USDA rules).
Average review times for all rules has increased somewhat over the years: 45 days for fiscal 1996, compared with 36 days in fiscal 1995 and 35 days in fiscal 1994. This compared to an average of 25 days for reviews under the previous Executive Order.
Average times for all rules varied by agency, from well below the mean for DOT and Treasury; to about the mean for USDA, HHS, and ED; to well above the mean for DOL, EPA, and VA. The increase in overall review time is another reflection of the more detailed attention that is given to more important rules as OIRA becomes more selective about what it reviews.
In fiscal 1995, reviews of economically significant rules took longer on average (41 days) than did those of other significant rules (35 days); for fiscal 1996, the time periods were more alike: 41 days for economically significant rules and 46 days for significant rules, which is generally consistent with the fiscal 1994 figures. The fact that review times for economically significant rules, which have major cost implications for the economy, are not longer, can be explained by a number of factors, including: 1) some economically significant rules do not involve much review, such as most USDA economically significant rules that essentially codify previously made crop price support decisions; 2) early consultation with OIRA in the review of more complicat ed rules; and 3) the direct involvement of senior political appointees in resolving critical issues as quickly as possible.
Under E.O. 12866, OIRA's 90 days for review may be extended at the request of an agency head or by the OMB Director (see Section 6(b)). Of the 498 rules reviewed during fiscal 1996, 61 (12 percent) were extended; in fiscal 1995 extensions were granted for 35 (5 percent) of rules reviewed. This compares with a 4 percent rate of extensions during fiscal 1994. All extensions were made at the request of the agency. Generally, extensions are needed to provide agencies more time to respond to OIRA's questions or requests for additional analysis; also, where interagency coordination is needed, the logistics of working with all interested parties often necessitates additional time.
Another area where statistical information has been kept relates to the costs and benefits of regulations reviewed by OIRA. Because this information is derived from agency analyses of regulatory impacts estimated before publication of rules, it is based on estimates of expected effects rather than a measurement of the effects themselves. Nevertheless, this information is useful as an approximation of part of what the Federal Government asks the private sector to spend in providing safer, more healthful and more enjoyable places to live, work, and relax.
The following Table presents the incremental annualized costs of the final major regulations reviewed by OIRA by year and by agency between 1987, the first year for which data are available, and 1996. The 1996 estimate is preliminary. The cost estimates are based on the total of the individual cost estimates found in the Regulatory Impact Analyses that are produced by the agencies for the economically significant rules that have been submitted to OIRA under E.O. 12866 and, before October 1, 1993, under E. O. 12291.
|Incremental Annual Cost of Major Final
(Millions of 1994 dollars)
|Year of Publication|
|Environmental Protection Agency||2,520||10,250||1,130||1,960||4,690||9,820||2,110||6,210||1,200||1,040|
|Department of Transportation||--||60||640||1,030||1,130||370||280||710||980||840|
|Department of Labor||340||40||1,490||90||890||1,130||1,680||360||2680||--|
1 Cost estimates are based on Regulatory Impact Analayses prepared by the agencies. The total costs of regulation are understated because not all major rules have quantified cost estimates and the costs of non-major rules are not included.
2 Family and Medical Leave Act (GAO estimate).
3 Other agencies with major rules include HHS, HUD, DOJ, and USDA.
Several caveats should be kept in mind when reviewing these estimates. First, these are the incremental costs of newly issued regulations that add to the costs of the existing body of regulations already in effect. These costs have been annualized, meaning that capital costs have been amortized over the life of the capital equipment and added to the ongoing annual costs to produce the annualized costs estimate. Note that no effort was made to subtract from these figures the cost that would be borne by firms even if the regulations were repealed. An example of such regulatory costs might be the cost of passive restraints for automobiles. It is unlikely that if the passive restraint rule were repealed, the automobile manufacturers would stop supplying seatbelts on new cars. Consumers now demand them as standard equipment. Another reason why these costs may be overstated is that they are based on agency estimates of likely costs to comply with a regulation that, at the time the estimates are made, has not yet been adopted, and for which compliance is not yet required. Several case studies have found that, particularly for performance standards, once compliance is required, firms have found less costly ways to comply with the regulations than they had originally expected.
On the other hand, there are factors that lead to understated cost estimates. These estimates only include major regulations issued by agencies subject to OIRA's Executive Order review authority and for which cost data was provided. Thus, all the independent regulatory agencies (i.e., FCC, SEC, FTC, etc.) are not included, nor are the less significant regulations of the Executive Branch agencies. In addition, in almost all cases indirect costs have not been included in the agency estimates. These costs include such things as the loss of the use of products that are not produced because they have either been banned by regulation (certain pesticides and uses of asbestos) or made too expensive to produce in pre-regulation quantities. Moreover, simply knowing the costs of regulations is only half of the equation, and tells nothing about the value to society of those regulations. For that we also need to know the benefits of regulation. Although E.O. 12866 requires, to the extent feasible, that agencies provide estimates of the benefits as well as the costs of proposed regulations, benefits are usually much harder to estimate and are especially difficult to monetize. Although some Regulatory Impact Analyses are able to provide monetized benefit estimates, others are only able to provide non-monetized but quantified benefit estimates--such as tons of sulfur dioxide removed--while others are only able to provide qualitative estimates of benefits. Thus, no aggregate estimate of the benefits of regulation that can be meaningfully compared to the aggregate costs exists at this time.
Table 1 shows that incremental regulatory costs have fluctuated between about a $2.2 billion preliminary estimate for 1996 and $13.6 billion for 1992, with an average of about $5.8 billion per year for the ten year period. The Table breaks out separately the regulatory costs of EPA, DOT, and DOL, the three agencies imposing the highest regulatory costs.
APPENDIX B: LEGISLATIVE REGULATORY REFORM Over the last three years, the Legislative Branch has addressed the issue of regulatory reform both in specific subject matter legislation and in more generic, across-the-board statutes. Within the former category, President Clinton supported and signed the following:
In addition to specific subject matter legislation, the President has supported and signed the following generic regulatory reform legislation:
Agency compliance with the Unfunded Mandates Reform Act has been detailed in OMB's report to Congress issued on the Act's one-year anniversary. The report demonstrates that agencies have a renewed focus on ensuring that rules of all kinds contain a minimum of unfunded mandates, establish consultative processes with affected State, local, or tribal governments, and are responsive to legitimate concerns raised by other levels of government.
APPENDIX C: AGENCY NAMES AND ACRONYMS
|ACF||Administration for Children and Families|
|APHIS||Animal and Plant Health Inspection Service|
|BATF||Bureau of Alcohol, Tobacco, and Firearms|
|BLM||Bureau of Land Management|
|BXA||Bureau of Export Administration|
|CDC||Centers for Disease Control|
|CPSC||Consumer Product Safety Commission|
|DEA||Drug Enforcement Administration|
|DOC||Department of Commerce|
|DoD||Department of Defense|
|DOE||Department of Energy|
|DOI||Department of the Interior|
|DOJ||Department of Justice|
|DOL||Department of Labor|
|DOT||Department of Transportation|
|ED||Department of Education|
|EDA||Economic Development Administration|
|EPA||Environmental Protection Agency|
|FAA||Federal Aviation Administration|
|FCC||Federal Communications Commission|
|FDA||Food and Drug Administration|
|FHWA||Federal Highway Administration|
|FMS||Financial Management Service|
|FRA||Federal Railroad Administration|
|FSIS||Food Safety and Inspection Service|
|FTC||Federal Trade Commission|
|FWS||Fish and Wildlife Service|
|GSA||General Services Administration|
|HCFA||Health Care Financing Administration|
|HHS||Department of Health and Human Services|
|HUD||Department of Housing and Urban Development|
|INS||Immigration and Naturalization Service|
|IRS||Internal Revenue Service|
|MMS||Minerals Management Service|
|MSHA||Mine Safety and Health Administration|
|NASA||National Aeronautics and Space Administration|
|NMFS||National Marine Fisheries Service|
|NOAA||National Oceanic and Atmospheric Administration|
|NRCS||Natural Resources Conservation Service|
|OCC||Office of the Comptroller of the Currency|
|OIRA||Office of Information and Regulatory Affairs|
|OMB||Office of Management and Budget|
|OPM||Office of Personnel Management|
|OSHA||Occupational Safety and Health Administration|
|OSM||Office of Surface Mining|
|OTS||Office of Thrift Supervision|
|PBGC||Pension Benefit Guarantee Corporation|
|PWBA||Pension Welfare Benefits Administration|
|RHS||Rural Housing Service|
|RSPA||Research and Special Programs Administration|
|SBA||Small Business Administration|
|SEC||Securities and Exchange Commission|
|USDA||Department of Agriculture|
|VA||Department of Veterans Affairs|
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