This is historical material, "frozen in time."
The web site is no longer updated and links to external web sites and some internal pages will not work.
This is historical material, "frozen in time."
The web site is no longer updated and links to external web sites and some internal pages will not work.
A Report to the President on the Third Anniversary of Executive Order
12866
More Benefits Fewer Burdens
Creating a Regulatory System that Works for the American People
December 1996 Office of Management and Budget Office of
Information and Regulatory Affairs
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?
Try one.
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.
We are issuing more streamlined and more customer-friendly new
regulations that are cost- effective and apply innovative alternatives to
traditional "command-and-control" regulation.
We are changing the face of existing regulations, many of which have
been in place for years or even decades, by cutting back on the volume of
existing rules, and reinventing many more, to reduce burden and red tape.
And we are changing the culture of regulatory enforcement. from an
adversarial approach that bases sanctions on how people or firms comply with
each specific provision of Federal regulations, to a partnership approach that
rewards well-intended efforts to reach outcome- based goals, such as cleaner
air or safer workplaces.
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:
Chapter 1 shows how the Administration has worked to produce more
sensible new regulations. We have asked agencies to return to the basics. Now,
agencies begin the rulemaking process by asking one key question: What are we
trying to achieve? Correctly identifying the content and scope of a problem,
and determining whether and how regulation can best address it, is one of the
cornerstones of sound regulation. And in an Administration committed to
regulating only when necessary, this work is critical.
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.
It is important to recognize that the development of new regulations
under E.O. 12866 is but one piece of the Administration's multifaceted approach
to regulatory reform. Accordingly, Chapter 2 focuses on the Administration's
continuing effort to change the face of existing regulations. At the
President's direction, agencies have conducted a page-by-page review of their
existing regulations to find those that are unduly burdensome, outdated, or in
need of revision. Agencies have made significant progress toward fulfilling
their goal of eliminating 16,000 pages from the Code of Federal Regulations
(CFR), and reinventing another 31,000 pages. This sustained effort to eliminate
or reinvent roughly 40 percent of the CFR is greater than any similar
initiative in at least two decades.
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.
Developing tailored rules that are based on sound science and good
information, as well as eliminating or reinventing existing rules that are
vague or obsolete, represent significant achievements in reforming the Nation's
regulatory system. But that is only part of the equation. Americans are not
just affected by how rules are written, they are also affected by how rules are
enforced.
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:
properly identify problems and risks to be addressed, and tailor the
regulatory approach narrowly to address them;
develop alternative approaches to traditional command-and-control
regulation, such as using performance standards (telling people what goals to
meet, not how to meet them), relying on market incentives, or issuing
nonbinding guidance in lieu of rules;
develop rules that, according to sound analysis, are cost-effective
and have benefits that justify their costs;
consult with those affected by the regulation, especially State,
local, and tribal governments;
ensure that agency rules are well coordinated with rules or policies
of other agencies; and
streamline, simplify, and reduce the burden of Federal regulation.
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.
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:
assess the costs and benefits (both quantifiable and
non-quantifiable) of the regulation and its alternatives;
use the best available scientific, technical, and economic data when
making decisions; and
meet the regulatory objective in the most cost-effective manner
possible.
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.
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.
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 1996—a 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:
Under the Common Sense Compliance incentives for small business,
penalties for first-time violators can be waived or reduced if the business
repairs the problem and comes into compliance with the law.
EPA has funded Small Business Compliance Assistance Centers for the
metal finishing, printing, automotive repair, and farming industries to help
small businesses identify low-cost compliance and pollution prevention
strategies, and to make compliance easier for as many as one million small
businesses.
EPA's Environmental Leadership Program challenges facilities to take
innovative approaches--such as environmental auditing and pollution
prevention--to enhance their ability to meet environmental requirements.
EPA is working on a pilot project to control pollution by allowing
facilities to trade pollution reduction credits on the open market with
facilities that have not made those reductions.
With Project XL, EPA offers this challenge: if you can meet even
higher environmental performance standards, we will provide flexibility and cut
red tape so you can find the cheapest, most efficient way to do it. Twelve
industry or State XL projects, and one city project, are now moving
forward.
Finally, EPA is increasing community participation and partnerships to
engage States, tribes, communities, and citizens in efforts to protect public
health and the environment:
EPA has established Performance Partnerships that give States and
tribes funding flexibility to combine Federal grants to meet their
environmental needs.
EPA has strengthened and expanded community right-to-know. In
addition, it is using the Internet to increase public access to agency
information.
EPA, industry, and other groups have established the Partnership for
Safe Drinking Water, a voluntary commitment to improve drinking water safety,
with a focus on high-risk contaminants.
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
Rules--1987-19961 (Millions of 1994 dollars)
Year of Publication
Agency
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
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
--
Other Agencies3
130
100
170
50
1,400
2,320
180
--
70
280
Total
2,990
10,450
3,430
3,130
8,110
13,640
4,250
7,280
2,930
2,160
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:
Banking Reform. In September 1994, the President signed
interstate banking legislation, which had languished in Congress for over a
decade before he made it a priority. This Act eliminated most of the remaining
barriers to efficient nation-wide banking by allowing banks to locate branches
across State boundaries, not only saving money but also increasing the
convenience of banking for businesses and consumers. In addition, the President
supported, and signed in September 1996, banking reform provisions that, among
other things: (1) simplify loan applications under the Real Estate Settlement
Procedures Act and Truth in Lending Act; (2) expand the number of
"well-managed" small banks that qualify for less frequent examinations; (3)
streamline the application and approval processes under the Bank Holding
Company Act for certain bank mergers; and (4) make it easier for banks to
locate ATMs off-premises.
Intrastate Trucking Deregulation. The Administration pushed to
extend the interstate deregulation of the trucking industry to intrastate
trucking. The regulatory barriers dismantled by this law will save shippers and
consumers from $3 billion to $8 bi llion a year.
Food Quality Protection Act. The President supported, and
signed in August 1996, a bill, based in large part on Administration proposals,
to reform the laws governing pesticide use and registration by, among other
things: (1) replacing the Delaney Clause's outdated zero-risk standard for
processed foods with a more rational health-based safety standard ("reasonable
certainty of no harm") for both raw and processed foods; (2) updating the
scientific approach to regulation by recognizing the increased sensitivity to
pesticides of our children and the elderly; and (3) providing for expedited
registration of pesticides posing reduced risks.
Safe Drinking Water Act. Also in August 1996, the President
signed into law the Safe Drinking Water Act, which was drawn largely from his
1993 proposal for rewriting the Nation's drinking water laws. Among other
things, the Act: (1) establishes a new process for selecting and regulating
contaminants, using cost-benefit analysis as a factor; (2) gives States more
flexibility in complying with monitoring requirements; (3) establishes State
revolving funds to help States and localities improve their water systems; and
(4) includes a right-to-know provision that requires water systems to publish a
yearly water quality report, including information on violations and
contaminant levels.
Securities Reform. The President supported, and signed in
October 1996, securities reform legislation that will save American businesses
hundreds of millions of dollars without compromising protections for investors.
The new law reduces regulatory burdens by, among other things: (1) eliminating
overlap between State and Federal regulations governing mutual funds,
investment advisory firms, and broker-dealers; (2) significantly rationalizing
and simplifying Federal regulations governing mutual funds and corporate
securities; and (3) expanding the SEC's authority to exempt certain entities
from regulation.
Procurement Reform. The Administration helped to shape and
secure passage of the Federal Acquisition and Streamlining Act of 1994 and the
Federal Acquisition Reform Act of 1996, which simplifies procedures for Federal
purchase of commercially available goods, promotes the development of computer
networks for conducting procurement electronically, and provides more
flexibility in awarding and financing government contracts.
Pension Reform. The Small Business Job Protection Act of 1996,
which includes many of the President's proposals for reform of our Nation's
pension system, will empower more Americans to save for their retirements by
expanding pension coverage, portability, and protections and by significantly
simplifying pension rules. Among other things, the law creates a new retirement
savings plan for small businesses with no red tape and no complicated forms or
calculations. It also reduces burdens on plans by simplifying rules and
eliminating the need for complicated and expensive discrimination testing in
certain cases.
In addition to specific subject matter legislation, the President has
supported and signed the following generic regulatory reform legislation:
Unfunded Mandates Reform Act. In March 1995, the President
signed into law the Unfunded Mandates Reform Act. Among other things, this Act
sets forth the responsibilities of Federal agencies when writing regulations
that meet the Act's threshold of $100 million in expenditures in any year as a
result of unfunded mandates on State, local, or tribal governments, or on the
private sector. All rules meeting this threshold would also meet the definition
of an economically significant regulation under E.O. 12866; thus, OMB
ordinarily would review all rules covered by the Act.
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.
Paperwork Reduction Act. The Paperwork Reduction Act (PRA) of
1995 reauthorized OIRA as a statutory office and reenforced its oversight over
the information resource management functions of the Federal Government. A key
component of this responsibility involves reviewing proposed agency collections
of information that are contained in regulations, to ensure that they are
consistent with the PRA standards of minimal burden and maximum usefulness. The
new PRA continues to cover all reporting and record keeping for the Federal
Government, and includes as well those agency actions that authorize or require
disclosure of information from one private party to another.
Small Business Regulatory Enforcement Fairness Act (SBREFA).
The President continued his commitment to cutting regulatory burden on small
businesses by supporting, and signing in March 1996, this bill, which codifies
and reinforces many of his own initiatives to improve the regulatory process
for small businesses. In addition, the bill provides for Congressional review
of agency regulations, thereby enhancing Congress' accountability for the
regulatory system.
