Why Congress Should Not Codify Cost-Benefit Analysis Requirements

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Codifying cost-benefit analysis requirements of Executive Order would preempt valuable nuances of current review system.

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Requirements for economic analysis of important regulatory proposals have been around at least since President Nixon established a “Quality of Life Review” program for certain high-profile regulations. Beginning in 1981, with President Reagan’s Executive Order on regulatory review, and continuing through to President Obama’s Executive Order earlier this year, all Presidents — both Republicans and Democrats — have required regulatory agencies within the Executive Branch to assess the costs and benefits of proposed actions. Some members of Congress are now considering whether to codify the terms of executive orders and to authorize the courts to review agencies’ economic analysis. Having served as the Administrator of the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB) for the first five years of the Clinton Administration, I am a staunch supporter of requiring regulatory agencies to conduct economic analysis and of having their work reviewed by OIRA. But I have serious reservations about codifying these requirements and providing for judicial review of agencies’ economic analysis.

First, there is no need, let alone a compelling need, to codify the requirements contained in executive orders on regulatory review. These orders have been successfully implemented for almost 30 years. All indications are that the rules being developed by Executive Branch agencies generally meet the “benefits justify costs” standard of the current Executive Order. Even if there are implementation problems – and that case has not been made – would legislating pieces or all of the current Executive Order likely bring about significant change? Before adding another legislative requirement, Congress might rationalize the current set of analytical requirements imposed on agencies or provide more resources to the agencies to do the analyses and more resources to OIRA to review them. If there is an implementation problem, Congress should address the source of that directly and not just add another requirement that presumably also could not be successfully implemented.

Second, virtually all executive orders, including those on regulatory review, state that they are “intended only to improve the internal management of the Federal Government.” This statement is not a throw-away clause but rather reflects the nature of executive orders. They are orders by the Executive — the President — to those who report to him and for whom he is constitutionally responsible, and as such they are the prerogative of the President. The history of executive orders on regulatory review shows that while many of the concepts carry over from one administration to the next, different presidents have chosen to emphasize different things – e.g., costs and the effects on the economy, openness and transparency, market failure as a basis for regulating, public participation, and so forth. The differences across administrations may be subtle but they are nonetheless important indicators of administration policies and preferences, which would likely be lost if the President’s prerogatives were preempted by legislation.

Third, if Congress were to codify the requirements for cost-benefit analysis of proposed regulations, it would be amending a host of previously enacted statutes that either are silent on the role of costs in the formulation of regulations or do not permit the consideration of such factors. For example, Section 7409(b)(1) of the Clean Air Act provides that the Environmental Protection Agency (EPA) should set standards for certain pollutants at a level “requisite to protect the public health” with “an adequate margin of safety.” In Whitman v American Trucking Associations, Inc.,the Supreme Court unanimously confirmed that Section 7409(b)(1) precludes the EPA Administrator from taking account of costs in setting the standards. For that reason, the Executive Order on regulatory review repeatedly prescribes certain analytical practices only “to the extent permitted by law.” However, if provisions of the Executive Order were codified, they would become decisional criteria. As a result, a proposed regulation — even one arising under a statute that does not permit the consideration of costs — could not become effective unless, among other things, the “benefits of the intended regulation justify its costs.” Such a super-mandate would abrogate previously enacted Congressional decisions. Congress can, of course, rewrite legislation such as the Clean Air Act, but it should do so directly, not indirectly by creating a super-mandate in the guise of promoting cost-benefit analysis and the consideration of that analysis in developing regulations.

Finally, although I am a lawyer who greatly respects our judicial system, I do not think that sorting through cost-benefit analysis and its role in the development of new regulations is well suited for judicial examination and resolution. Developing regulations entails a great deal of judgment. Costs and benefits that cannot be quantified and monetized still need to be considered. Questions of disparate effects must frequently be taken into account, and other considerations may also come into play. However, with legislative codification, easily applied tests will inevitably win out over judgment calls that are more difficult to explain and document. In addition, subjecting agencies’ compliance with cost-benefit analysis requirements to judicial review would provide yet another ground of appeal for those disappointed with agency policy decisions, and we are a notoriously litigious society With the Supreme Court’s Chevron and “hard look” doctrines framing the inquiry, one would expect substantial judicial deference to the agency’s determinations, but uncertainty will increase as substantial time and money are devoted to litigating whether, for example, the benefits justify the costs or the approach selected is the one that will maximize net social benefits.

Although economic analysis clearly helps ensure agencies have thought through, in a disciplined and rigorous way, the consequences that are likely to occur if their proposed regulations are adopted, this does not mean that executive orders requiring such analysis should be codified by Congress. One of the first provisions in the current Executive Order on regulatory review states that “agencies should promulgate only such regulations as are … made necessary by compelling need,” and that an agency should “identify the problem it intends to address” and should “identify and assess available alternatives,” both regulatory and non-regulatory, for solving that problem. These are the standards that Presidents should continue to expect agencies to meet whenever they intend to act, and I would suggest these are the same standards the public should expect Congress to meet before it takes action too.

This opinion essay on The Regulatory Review has been adapted with permission from testimony Ms. Katzen delivered earlier this year to the House Judiciary Committee’s Subcommittee on Courts, Commercial and Administrative Law.

Sally Katzen

Sally Katzen is currently a Senior Adviser at the Podesta Group and a Professor of Law at New York University.