Joint Hearing of the Rules Subcommittee on Technology and the House and
the Government Reform Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs
Hearing on "Unfunded Mandates - A Five-Year Review and Recommendations for Change."
President and Chief Executive Officer, Bay Cast, Inc., Bay City, MI and
Chairman, Regulatory Affairs Committee, U.S. Chamber of Commerce
Thank you Chairman Linder, Chairman Ose, Ranking Member Tierney, Ranking Member Hall, and members of the Rules Subcommittee on Technology and the Government Reform Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs. My name is Scott L. Holman, and I am owner, President and Chief Executive Officer of Bay Cast Inc. of Bay City, Michigan. My company is a manufacturer of large custom steel castings for the automotive tooling, machine tool, steel mill and construction industries. I am also Regional Vice Chair of the U.S. Chamber of Commerce, and Chair of the U.S. Chamber's Regulatory Affairs Committee.
I am pleased to share some thoughts about the Unfunded Mandates Relief Act of 1995 (UMRA) on behalf of the U.S. Chamber – the world's largest business federation representing three million members of every size, sector and region.
My testimony will focus on private sector mandate requirements – primarily those contained in UMRA Title II related to rulemakings conducted by federal agencies. The U.S. Chamber believes that UMRA has been successful at reducing Congressionally imposed mandates through Title I requirements. However, after five years of experience with Title II, there are some changes that the committees should consider to address the deficiencies in the structure of Title II.
UMRA is successful at the Congressional level.
UMRA is a significant legislative achievement. The Act provides members of Congress and the general public with important data concerning the scope and cost of federal mandates. Moreover, Congress imposed discipline on itself by mandating that the House and Senate examine the costs of potential laws before legislating.
UMRA Title I establishes requirements for Congress with respect to proposed legislative mandates to state and local governments and the private sector. The Congressional Budget Office (CBO) must provide written statements to authorizing committees indicating whether legislation contains federal mandates. Title I also establishes thresholds for further CBO review. CBO will prepare detailed estimates of the cost of mandates for any intergovernmental mandate exceeding $50 million or private sector mandate exceeding $100 million.(1) Any legislation exceeding UMRA thresholds must be accompanied by a CBO report or it is subject to a point of order.
The independent CBO review is key to the success of UMRA. CBO's statements provide advocates and opponents with a nonpartisan, thorough analysis of the potential impacts of legislation. Furthermore, point of order procedures ensure that debate in Congress considers the direct costs of any mandate contained in the legislation being considered.
UMRA's Title I success has been quantified. According to CBO, few intergovernmental mandates have been enacted since UMRA was enacted five years ago, and in 1999, no legislation that contained an intergovernmental mandate on state or local governments exceeding the UMRA thresholds became law.(2)
The U.S. Chamber does, however, have one recommendation for amending Title I. As you all know, the U.S. Chamber for several years has supported legislation, which, if enacted, would extend the comprehensive CBO review of mandates to include the private sector and would authorize point of order provisions when such requirements are not complied with. Specifically, H.R. 350 from the 106th Congress, The Mandates Information Act sponsored by Representative Gary A. Condit, would improve Congressional review of proposed federal private sector mandates included in legislation. The measure passed the House February 10, 1999, 274-149, but was not considered in the Senate. The U.S. Chamber would once again strongly support similar legislation this session.
Agencies are not held to the same high standards that Congress set for itself.
Under Title II, agencies must prepare an UMRA statement for all rules that would impose a federal mandate exceeding $100 million to state, local and tribal governments, or the private sector. The UMRA statements must identify the statutory basis for a rule, assess the costs and benefits of a rule, estimate the scope of a mandate and its impact on the national economy, and describe the outreach an agency has conducted with state and local officials. Moreover, Section 205 requires that agencies consider several alternatives when proposing regulations, and select the least costly, most cost-effective or least burdensome alternative.
This overview of Title II describes a potentially powerful statute for identifying and avoiding costly regulatory mandates to state and local governments and the private sector. Congress clearly intended that regulatory agencies comprehensively identify and quantify regulatory mandates in a manner similar to CBO analysis of potential legislative mandates.
In certain instances, however, agency actions have prevented the policy of Congress from being achieved. Unlike Title I, which requires an independent CBO statement describing potential legislative mandates, Title II does not require an independent review of potential regulatory mandates. Therefore, Title II enables federal rulemaking agencies to propose regulations that impose significant federal mandates without providing the information necessary to debate or scrutinize the costs and benefits of the proposed rule. As structured, Title II authorizes an agency to be the final determinator over whether the regulations it proposes are mandates or not, and whether the agency's own analysis adequately describes the costs and impacts of the mandate. Under this process, Congress, the Administration, and the American people are often deprived of the information needed to ensure that federal agencies regulate in the most cost effective, least burdensome manner.
Due to the lack of independent review, an agency may deliberately underestimate the costs of a proposed rule or conclude that UMRA does not apply because of other statutory provisions. In these instances, the agency controls both the information and debate, and its determination is virtually unreviewable.
By clearly setting forth the estimates of the costs of a proposed regulation, Congress is provided the information necessary to conduct oversight of rulemaking activities. This is a consistent Congressional policy. For example, the Congressional Review Act (CRA)(3) authorizes Congress to review and repeal any final regulation within 60 session days of its official publication. The vehicle for this repeal is a joint resolution of disapproval that must be passed by both the House and Senate. Vital to this review is a determination of whether a rulemaking exceeds the $100 million major rule threshold.(4)
Under both UMRA and CRA, Congress clearly demands that agencies provide accurate information regarding the impacts of proposed or final rules. But Title II has been ineffective at ensuring agencies provide this data. The title of a 1998 General Accounting Office (GAO) report says it all: "Unfunded Mandates: Reform Act Has Had Little Effect on Agencies' Rulemaking Actions."(5)
Federal regulatory agencies should not be allowed to avoid congressional mandates by mischaracterizing the cost of a rulemaking. New provisions should be enacted to address this deficiency. To this end, the U.S. Chamber provides the following two recommendations for revising UMRA.
First, Title II should be amended to establish independent analysis of UMRA statements conducted by agencies when considering mandates. An independent body – such as GAO or the Office of Management and Budget – should be charged with reviewing the assumptions and policy decisions contained in mandates analyses. This will help ensure that mandates to both the public and private sector will be fully considered before regulations are finalized.
Alternatively, the recently enacted Truth in Regulating Act (TIRA) could also be revised to enact this change. I will discuss this in greater detail later.
The second recommendation is to permit early judicial challenges to an agency's failure to prepare UMRA statements. Section 401 of UMRA states that an agency can be compelled to prepare the necessary statements, but only when the final rule has been promulgated. A rule cannot be stayed, enjoined or invalidated solely because an agency did not prepare an UMRA analysis.(6) For this reason, the rulemaking proceeding is permitted to continue when analysis of the costs involved might otherwise be grounds to terminate the proceeding. By removing this provision and allowing a court to potentially invalidate a rule at an early stage because of a missing or deficient UMRA analysis, regulatory agencies will hopefully be more likely to prepare accurate UMRA statements.
The U.S. Chamber believes these changes to UMRA are prudent. Since the goal of UMRA is to generate data, these changes will ensure that agencies provide more comprehensive information. Generally, the U.S. Chamber does not advocate new provisions of law to encourage lawsuits. However, this type of action may be necessary to ensure agencies fully comply with UMRA requirements.
There are several examples of UMRA Title II flaws.
We have spent several minutes discussing the deficiencies of Title II, and strategies for fixing it, but most of this discussion is theoretical. Let me share two real-world examples.
First is the Total Maximum Daily Load (TMDL) example.
Last summer, the U.S. Environmental Protection Agency (EPA) finalized the TMDL surface water quality regulation.(7) This rule was initially proposed in August 1999. It amends water quality and permitting requirements by federalizing water discharge and restoration programs delegated to states by the Clean Water Act. EPA's proposals would create an expensive, burdensome water regulation bureaucracy that, among other things, would ban certain new and expanded industrial development, and commandeer the authority of states to solve their local water quality problems. The rule would also create new EPA oversight of certain industrial, municipal and agricultural activities. In short, this regulation would eliminate jobs and stunt economic development in communities throughout the nation.
Despite these clear costs and mandates, EPA, in its UMRA statement, determined that the TMDL rules would impose costs of less than $25 million per year on states and local governments, and zero to the private sector. EPA declared: "Thus, today's proposal is not subject to the requirements of section 202 and 205 of UMRA."(8)
At best, EPA's UMRA analysis was disingenuous. According to EPA, states would be required to prepare approximately 40,000 TMDL waterbody restoration plans over a period of 10 to 15 years. Estimates indicate that a state's development cost for a single TMDL plan typically ranges from $300,000 to $1 million. Additionally, the association representing state professionals that would be required to implement these plans estimated that costs would soon reach as much as $1.2 billion per year – many times greater that EPA's UMRA estimate and well above the UMRA thresholds. These would be direct costs to states to implement the federalized EPA TMDL regime. Other costs would be passed along to the private sector in the form of new regulatory and permit requirements for water discharges, and lost economic development as facilities were driven out of business, or eliminated expansion to meet the new TMDL regulatory regime. EPA failed to even briefly consider these costs.
The U.S. Chamber and representatives of states, other industry associations, and the agricultural sector strongly criticized EPA's proposals and the shortcomings of the economic analysis. Various committees in both the House and Senate held oversight hearings and many members of Congress criticized various provisions of the proposals.
In an analysis of the TMDL rule, GAO raised questions about EPA's UMRA determination and the reasonableness of EPA's assessment of the rule's potential costs.(9)
Nevertheless, EPA remained undeterred and sought to finalize the rules during the summer of 2000. In response, last June, Congress approved a provision of the Military Construction appropriation to bar EPA from implementing the TMDL rule.(10)
Before President Clinton signed this measure into law on July 13, 2000, EPA Administrator Carol M. Browner finalized the TMDL rule. The U.S. Chamber called this move "willful contempt of Congress." EPA's action ignored the GAO analysis of the shortcomings of EPA's UMRA analysis.
Congress ultimately included in EPA's annual appropriation a requirement that EPA reassess the cost effectiveness of the TMDL rule to better quantify state resources needed to develop and implement TMDLs. Congress also required the National Academy of Science (NAS) to review the quality of science and methodologies used to develop and implement TMDLs, assess cost, and analyze monitoring data for TMDLs.(11)
The TMDL example demonstrates the weakness of UMRA Title II. EPA was determined to promulgate a regulation – regardless of the costs, impacts or mandates. Had UMRA been stronger, a thorough analysis of the impact to state and local governments and the private sector would have taken place long before EPA finalized the rule. As a result, the rule is final, although not effective until October 1, 2001, and we all await the results of the NAS study and EPA cost analysis. Without Congress' leadership in prohibiting EPA's implementation of this rule during this appropriations cycle, EPA would have implemented this costly, burdensome regulation with no consideration of the mandates to state and local governments and the private sector whatsoever.
The new National Ambient Air Quality Standards example.
In 1997, EPA proposed new National Ambient Air Quality Standards (NAAQS) for ozone and fine particulate. These regulations would impose a significant mandate on state and local governments and the private sector. Pursuant to the Clean Air Act, states and EPA are required to classify areas that do not meet NAAQS standards as being in "nonattainment." EPA's revised NAAQS requirements would have caused communities throughout the nation to be classified as nonattainment, compelling communities in these nonattainment areas to meet a series of restrictive air permitting requirements. Federal highway funding could be terminated for communities that did not develop EPA-approved plans to attain these NAAQS standards.
By all accounts, the costs of these regulations would be severe. Estimates of annual compliance costs ranged from $45 billion to $150 billion.(12) Despite these significant mandates, EPA claimed:
Because the Clean Air Act prohibits EPA, when setting the NAAQS, from considering the types of estimates and assessments described in section 202, UMRA does not require EPA to prepare a written statement under section 202.(13)
Furthermore, EPA refused to release the scientific information on which the regulations were based.
The U.S. Chamber and other trade associations have been involved in litigation on this regulation since 1997. The Supreme Court recently ruled that the Clean Air Act precludes EPA from considering the costs when establishing NAAQS standards. However, nothing in the Clean Air Act, UMRA, or the Supreme Court's decision prohibits EPA from fully describing the costs and benefits of its regulations for the debate on this issue.(14) Therefore, a multi-billion dollar regulation went into effect without significant information about the costs, benefits or alternatives of the proposal.
A full and honest debate about the true benefits and true costs of regulations and mandates is all that the business community asks.
Statement of regulatory alternatives would unleash the power of UMRA Section 205.
Requiring better information through UMRA will have a tremendous impact on how agencies develop regulations. For example, UMRA Section 205 requires that agencies consider many alternatives when proposing regulations. From these alternatives, Section 205 also requires agencies to "select the least costly, most cost-effective or least burdensome alternatives that achieves the objectives of the rule" or explain why more burdensome options are necessary.(15) However, Section 205 is not operative unless an UMRA analysis, as specified in Section 202, is required. Therefore, when agencies circumvent Section 205 by concluding an UMRA analysis is not required or by grossly underestimating the cost of UMRA, the agency thwarts the intent of Congress.
Section 205 is good government – why would we ever want government regulations more burdensome than necessary? Yet, we have provided two examples of EPA actions designed to circumvent a congressional mandate to provide Congress, the regulated community, and the public with information to ensure vigorous debate on issues of great public concern.
Title I encourages members of Congress to discuss the costs and benefits of new mandates before legislation is finally enacted. The TMDL and NAAQS examples demonstrate the consequences of the Title II limitation: without information, there is no informed public policy debate. Instead of exploring opportunities for improving environmental protection, debate on the TMDL and NAAQS rules focused on lawsuits, legal technicalities, and appropriations riders.
With a workable Title II, UMRA statements on the TMDL and NAAQS rules would have included important information to frame the debate on water and air quality issues for the private sector, state and local governments, Administration officials, and members of Congress. The failure of UMRA in these and many other instances represents squandered opportunities.
Other recent statutes improve the efficiency of the regulatory process.
As I have stated, Title II of UMRA has deficiencies, but they can be remedied. The key to the remedy is developing good quality information and making it available to Congress, the regulated community and the public. This information is necessary for the debate over how to ensure the most efficient, cost effective regulations. However, Congress has recently enacted other important statutes for increasing information used by federal agencies when preparing and justifying regulations. Some of the other statutes that have a relationship to UMRA are set forth herein:
Truth in Regulating Act – Congress has recognized that greater oversight of agency rulemakings is needed. Last session, Congress took an important step in this direction by passing TIRA. This measure implemented a three-year pilot program that enhanced Congress' ability to monitor the administrative rulemaking process by empowering GAO to analyze economically significant rules with impacts to state and local governments and the private sector of $100 million or more, or regulations that would adversely affect the economy, productivity, competition, jobs, the environment, public health and safety, or state or local governments. A TIRA review is triggered by a request from the chair or ranking member of a committee of jurisdiction.
TIRA does not require GAO to conduct new analysis – instead, TIRA requires GAO to assess the quality of an agency's information provided as part of a rulemaking. TIRA review encompasses an independent evaluation of the agency's assessment of costs and benefits of a rule, alternative approaches considered by an agency, and the quality of regulatory impact.
TIRA will enable Congress to better assess agency compliance with UMRA Title II mandate analysis requirements. This is likely to deter agencies from circumventing UMRA and willfully ignoring Congress as EPA did in the TMDL and NAAQS rulemakings.
TIRA received widespread, bipartisan support in the House and Senate. It passed the Senate with unanimous consent and was approved by the House under suspension of the rules. Although TIRA has become law, it will not become effective unless $5.2 million is appropriated to fund the three-year pilot program. The U.S. Chamber believes TIRA funding should be included in this year's appropriations.
Moreover, as I mentioned earlier, TIRA could be revised in two ways to incorporate the independent review of UMRA statements that the U.S. Chamber recommends.
First, TIRA could be established and fully funded as permanent, instead of as a pilot program. Second, TIRA could be amended to require GAO to undertake a review of all regulations that potentially impose direct costs in excess of $100 million to ensure that Title II requirements are fully addressed.
This additional responsibility would not overwhelm GAO. In the book Ten Thousand Commandments, the Competitive Enterprise Institute (CEI) reports that although agencies issue more than 4,000 regulations annually, only a few are estimated to cost more than $100 million. For 1999, the last year for which statistics are available, only 46 major rules were enacted.(16)
The U.S. Chamber concedes that with independent review of federal regulations and better quality cost and mandate analyses, more rules are likely to be characterized as major. However, the number of reviews GAO would have to complete would not significantly increase. CEI examined all regulations currently in the promulgation process. Of the thousands of rules that have been proposed, CEI identifies only 116 as pending major rules with costs exceeding $100 million. Since it is also important to obtain an independent review of all proposed major rules, GAO would likely be required to review a few additional proposed rules that an agency may claim are not major rules. For example, EPA claimed TMDL and NAAQS were exempt from UMRA review.
Congressional Review Act – As stated, CRA enables Congress to repeal final federal regulations within 60 days of publication by means of a joint resolution of disapproval. Since the President can veto a CRA resolution, and since a President is unlikely to approve a measure to kill a regulation that the President's administration had sought to promulgate, successful CRA petitions typically require enough Congressional support to override a veto.
In the five years since CRA has been in place, Congress has disapproved only one rulemaking – the Occupational Health and Safety Administration's ergonomics regulation. The U.S. Chamber described this rule as one of the most costly regulations ever proposed.(17) The relationship between UMRA and CRA is clear. Congress requires specific information about costs and benefits of major rules whether the rules be proposed or final.
Data Access – As part of the 1999 Omnibus Appropriations Act,(18) new standards were imposed governing access to data generated by taxpayer-funded research on which regulations are based. Often referred to as the "Shelby amendment," the data access provision required federal regulatory agencies to provide public access to federally funded research data collected through grants and agreements with research universities, hospitals, and other non-profit organizations.
The purpose of the data access provision is to ensure that Congress, the regulated community and the general public have access to the data used by federal agencies to develop regulations. This data frames the debate over the costs and benefits of rules. Yet, some of this data was not made available to the public, even though agencies relied upon this publicly funded research as a basis for major rulemakings, including the NAAQS rules.
Therefore, in a situation like NAAQS – when an agency refuses to prepare an UMRA statement or to release data forming the basis of a rule – Congress, the private sector, state and local governments and the public are at a significant disadvantage. The federal agency controls both the data and the debate. This is not appropriate in a democracy.
Data Quality – The data quality law was included in the FY 2001 Consolidated Appropriations Act.(19) It requires OMB to establish guidelines to ensure that agencies maximize the quality, objectivity, utility of information on which regulations are based. A continuation of the data access concept, the data quality provisions ensure Congress, the private sector and the public that agencies use the best possible information as the basis for federal regulations. It also provides a process by which inaccurate or incomplete federal data can be corrected. Therefore, the data quality provision further ensures that the data issued by and disseminated by an agency is of good quality, objective, useful, and has integrity.
UMRA and other regulatory reform statutes should be integrated.
Various regulatory reform statutes help to improve the rulemaking process and the data used and disseminated by federal agencies. Yet, these regulatory reform statutes – although complementary – are balkanized. By revising UMRA as the U.S. Chamber recommends, Congress would integrate and harmonize UMRA and TIRA. The committees may want to consider harmonizing all of the regulatory reform provisions into a simple, integrated statute. This integrated statute would provide a single source of information regarding the benefits, costs, and mandates associated with rulemakings, the release of data used by the agency in the rulemaking, and procedures to ensure that agencies rely on the best possible scientific and technical data, and that the regulated community be able to review the data.
Moreover, an independent review process in Title II of UMRA would help provide information necessary when the rulemaking process breaks down as it did in the TMDL and NAAQS examples, thereby providing Congressional oversight committees the necessary tools to determine whether an agency selected the least burdensome alternatives to achieve congressional goals.
The U.S. Chamber believes changes to UMRA are necessary, prudent and responsible measures to meet Congress' goal for UMRA – to ensure a high quality, comprehensive analysis of the potential impact of regulations to state and local governments and the private sector.
Finally, members of Congress – especially the members of these committees – deserve great credit for leadership and generally bipartisan support for measures to improve the regulatory process. With the few tweaks to UMRA recommended by the U.S. Chamber, Congress will take another leap towards this goal. The U.S. Chamber looks forward to assisting in this endeavor in any way we can.
Thank you. I would be pleased to answer any of your questions.
"Unless otherwise prohibited by law, before promulgating any general notice of proposed rulemaking that is likely to result in promulgation of any rule that includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any 1 year, and before promulgating any final rule for which a general notice of proposed rulemaking was published, the agency shall prepare a written [UMRA] statement…" (2 U.S.C. 1532)
Although this section precludes agencies from preparing UMRA statements when "prohibited by law," this prohibition does not apply to NAAQS standards. In Whitman v. American Trucking Associations, Inc., the Supreme Court found "EPA may not consider implementation costs in setting primary and secondary NAAQS under §109(b) of the CAA." (at 26). However, EPA is not barred from describing mandates and cost information in the UMRA statement.
