Cost-Benefit Analysis and Regulatory Accounting

Objective

Ensure that federal agencies conduct a reliable cost-benefit analysis of all proposed regulations, and ensure that the federal government provides a detailed annual accounting of the costs and benefits of all regulations.

Summary of the Issue

Each year federal agencies issue approximately 4,000 new regulations. The annual cost of federal regulations is estimated to be $1.1 trillion. The U.S. Chamber of Commerce supports the use of cost-benefit analyses by federal agencies so the public can assess the likely impact of regulatory proposals, establish priorities, consider alternatives, and target resources to those activities that will most effectively use public resources to achieve the maximum protection of human health and the environment. Executive Order 12866 requires federal agencies to prepare cost-benefit analyses for all significant regulatory actions. The Office of Management and Budget (OMB) has issued cost-benefit guidelines that instruct agencies about how to prepare these analyses. While the guidelines are detailed and comprehensive, agency compliance has been sporadic and mixed to date. In addition, further improvements in agency analysis and cross-agency consistency are needed before these documents can be truly valuable to the public.

The U.S. Chamber also supports the development of a detailed annual accounting of the costs and benefits of all regulations. OMB has attempted to develop such an accounting for the past several years under the Regulatory Right-to-Know Act. While OMB's efforts are commendable, its annual report is deficient in several key areas. First, OMB merely reports an aggregate of costs and benefits as provided by the agencies, rather than conducting its own independent analysis. Second, OMB's figures are based on projected costs and benefits that are never validated once a regulation is actually implemented. Finally, although substantial research has been done in this area in recent years, there is no adequate economic model for conducting a truly dynamic analysis of total regulatory costs and benefits.

In 2005, OMB requested comments on the possible use of post-validation studies by OMB to assess the actual impact of regulations on businesses. The U.S. Chamber submitted comments voicing strong support for post-validation studies because they will provide a more accurate accounting of the true cost of regulations.   

U.S. Chamber Strategy

• Ensure that federal agencies conduct reliable cost-benefit analyses of all proposed regulations that also include consideration of less-costly alternatives.
  
• Encourage OMB to promote cross-agency consistency in the preparation of cost-benefit analyses and to reject any analyses that fail to comply with OMB guidelines.
  
• Persuade OMB to require agencies to validate projected cost-benefit analyses once regulations are actually implemented.
  
• Support legislation that would pilot test dynamic economic models to assess the total annual costs and benefits of regulations.

Staff Contact Information

Environment, Technology & Regulatory Affairs Division
(202) 463-5533
environment@uschamber.com