REGULATORY REFORM LEGISLATION

WEDNESDAY, JUNE 20, 1979

COMMITTEE ON GOVERNMENTAL AFFAIRS,

U.S. SENATE,

Washington, D.C.

The committee met at 9 a.m., in room 457, Russell Senate Office Building, Hon. Thomas Eagleton presiding.

Present: Senators Eagleton, Cohen, and Percy.

Senator EAGLETON. The committee will be in order.

Our first witnesses today are Ms. Jacqueline Warren, staff attorney, Environmental Defense Fund; Mr. Blakeman Early; and Mr. Richard Tybout, professor of economics, Ohio State University and chairman, Economic Committee, Sierra Club.

We are delighted to have you here this morning. Please proceed with your testimony.

TESTIMONY OF JACQUELINE M. WARREN, STAFF ATTORNEY, ENVIRONMENTAL DEFENSE FUND; A. BLAKEMAN EARLY; AND RICHARD A. TYBOUT, PROFESSOR OF ECONOMICS, OHIO STATE UNIVERSITY AND CHAIRMAN, ECONOMIC COMMITTEE, SIERRA CLUB

Ms. WARREN. Thank you, Mr. Chairman.

My name is Jacqueline M. Warren. I am a staff attorney in the Washington office of the Environmental Defense Fund, a national nonprofit organization composed of 45,000 members of both the human and natural environment. We appreciate very much this opportunity to testify before you today on the two major regulatory reform proposals before this committee, S. 262, introduced by Senator Ribicoff and a number of others as well as S. 755, the administration's proposal.

As you know, the Environmental Defense Fund has been heavily involved in the regulatory reform debate for over a year and a half. During that time, we have become increasingly concerned that the call for regulatory reform may in fact be only a thinly disguised effort to undercut major health and safety regulations. Although the goals of regulatory reform are laudable, we must be very careful that the techniques adopted to achieve the goals are substantially neutral-that is, that they do not favor either the opponents or advocates of greater social regulation. The goal of such legislation should be to improve whatever regulation emerges than necessarily reducing the amount or cost of regulation.

In general, we feel that S. 262, and to a somewhat lesser extent, S. 755, satisfy this neutrality test. Both bills appear to be honest

attempts to improve the Administrative Procedure Act (APA) and the regulatory process in general.

Nevertheless, there are a number of significant improvements which need to be made to both proposals before either of them is reported out by this committee. Perhaps most important, the bills fail to address a number of key issues which have come to the front of the regulatory debate during the past 2 years. Because you have already heard a great deal of testimony on the present form of the two bills, I will only summarize the key points where we believe change is necessary. The bulk of my testimony will be devoted to issues which are not currently addressed in this legislation, but which nevertheless we feel deserve immediate attention. Most important among them is the need for some type of control on ex parte communications in informal rulemaking following the close of the official comment period. I will address this issue in some detail in a moment.

Since other public interest organizations have already provided you with detailed comments on S. 262 and S. 755, I will only briefly summarize our concerns. To facilitate review, we have prepared our comments on a section-by-section basis.

One, findings. There are two key concerns which this section raises. First, only S. 755 recognizes that regular review of existing regulations may lead to strengthening of those regulations where they are inadequate to achieve statutory objectives. We feel S. 262 should be amended to incorporate similar language. Without this, it may be widely assumed that review of existing regulations is intended only to weaken or eliminate them entirely.

The second concern is over language in S. 755 dealing with supervision of the rulemaking process by the executive branch. Although S. 262 has no similar provision, S. 755 provides that "the President and agency heads (should) exercise their authority to assure effective regulatory management and to achieve the objectives of this act and other applicable laws."

This provision is so vague that it could easily be construed to authorize unwarranted Presidential interference in the rulemaking process. Specifically, this language could be construed to authorize ex parte communications after the close of the rulemaking period, as well as the use of other tactics designed to discourage agencies from carrying out their statutory mandate. The problem posed by ex parte communications from the executive branch will be discussed in more detail shortly.

Two, definitions. The principal concern we have with this section is the definition of the term "major rule." We prefer the definition incorporated in S. 262 which defines a major rule as one which is likely to result in an effect on the economy in any given year of $100 million or more, or any other rule which the agency determines is likely to have an equally significant effect on the national economy. On the other hand, S. 755 also includes those rules which the agency estimates will cause a substantial change in costs or prices for individual industries, geographic regions, or levels of government; or otherwise determines will have a major impact. This language, in our judgment, is much too broad and will encourage business interests to force the incorporation of virtually all rules into the major rule category. Disputes over whether a rule

falls into this category could delay the initiation of regulatory activity. Moreover, it is conceivable that this issue could be raised on judicial review and the entire regulation set aside for failure to classify it as a major rule and thus require the preparation of a regulatory analysis. We urge the committee to adopt the definition in S. 262.

Three, regulatory analysis. Although EDF has no objection to the preparation of a regulatory analysis, we feel that the preparation of a separate document assessing projected benefits and costs as well as evaluating alternatives creates a number of potential problems.

First, the preparation of a separate document, aside from any economic analysis required by the governing statute, raises difficult problems regarding the proper scope of judicial review. Although both bills explicitly prohibit judicial review of the regulatory analysis, questions remain as to whether that analysis will be subject to judicial review once it becomes part of the final administrative record. Also, as a conceptual matter, we have difficulty with the idea of requiring the preparation of a separate document which is then excluded from the judicial review process.

The other problem created by the preparation of a separate regulatory analysis is that the requirements for such an analysis may contradict specific statutory directions as to what factors an agency head is authorized to take into account in making a final decision.

For example, under the Clean Air Act, EPA is supposed to set national ambient air quality standards solely on the basis of health criteria. Economic factors are not supposed to play a role in the setting of these standards. Yet, at least under the administration's proposal, the regulatory analysis would not be limited to those projected economic effects which the agency is permitted by law to take into account.

This problem has already confronted EPA. During its revision to the national ambient air quality standard for ozone, the Agency was confronted with a host of economic arguments developed through the regulatory analysis which it was not supposed to take into account in making final decision. Despite the fact that Administrator Costle denied taking these facts into account, they are hard to ignore once they have been developed. It is equivalent to telling a jury to ignore testimony which a judge has struck out as inadmissible.

At a minimum, we recommend that the regulatory analysis be limited to those factors which are permitted to be considered under the governing statute. S. 262 does this; S. 755 does not. In a broader vein, we recommend the committee give consideration to dispensing with a separate regulatory analysis altogether and merely instruct affected agencies to incorporate these requirements, to the extent permitted by applicable law, into their normal rulemaking processes. Above all, we want to make certain that a separate analysis does not become a football in the hands of the courts with the prospect of it being kicked repeatedly back to the Agency on the grounds it is inadequate to satisfy statutory requirements.

If a separate regulatory analysis is retained, we urge that a committee to adopt S. 262's requirements for the final regulatory

analysis, rather than those contained in S. 755. S. 755 requires that the final analysis include an explanation of why the rule attains its objectives, in a manner inconsistent with the applicable statutues, with less adverse economic effects than the other alternatives considered, or an explanation of why an approach entailing greater adverse economic effects was selected.

The problem with this provision is that it assumes that the costs and benefits of different approaches can be quantified with sufficient precision to permit this type of comparison. Frankly, I doubt whether any two approaches will achieve precisely the same set of statutory objectives. If there were at least two ways to achieve the same degree of health or environmental protection, one of which was at lower cost, it would be unnecessary to even include this provision in the statute. Commonsense would always dictate the selection of the cheaper alternative.

Unfortunately, comparison of alternatives is never this simple. Invariably there are trade-offs and frequently the trade-offs involve reduced protection if lower costs are to be achieved, or at least less certainty of that protection. The real danger, of course, is that the Agency will be pushed toward adopting both the less costly as well as less protective alternative. Environmental and other public interest groups will then be placed in the position of having to prove that the regulation does not fully satisfy the statutory objective-a task which becomes increasingly difficult as the courts give greater and greater deference to Agency decisions in this area.

Four, deadlines. In general, EDF strongly supports this provision requiring agencies to set specific deadlines for rulemaking actions. Deadlines can be very important tools in making certain that agencies complete rulemaking action in a timely fashion. Nevertheless, the machinery contained in both bills to extend deadlines, should they be missed, raises a number of important questions. First, does this provision give the agency authority to extend statutory deadlines which it may have missed? If it is construed to give agencies this authority, it could substantially undermine the efforts of citizen groups to make certain that agencies meet statutory deadlines through judicial action. Agencies could conceivably argue that this language gives them automatic authority to extend even statutory deadlines. We urge the committee to make clear that this authority extends only to those deadlines which are set through administrative action, and that nothing contained therein gives the agency authority to unilaterally extend a statutory deadline.

A second modification which we believe would be very useful is a requirement that when setting a deadline for final agency action, the agency also establish incremental deadlines for each step in the process. Thus, the agency would be required to set a deadline for proposing a rule, a deadline for completion of public comment, and most important, a deadline for promulgation of the final rule, if any. The length of time permitted between the close of the public comment period and final agency action is especially important. In our judgment, this time should not exceed 90 to 120 days. If the time is allowed to run much longer, there is a substantial increased risk of ex parte communications as parties uncover new arguments

or fear that the agency may be going in new directions which were not indicated in the proposed rule.

This is precisely what happened in the case of the EPA's rulemaking on revised new source performance standards for fossilfueled powerplants under the Clean Air Act. Almost 6 months elapsed from the close of the public comment period and the announcement of the Agency's final action. During this time a significant number of ex parte communications occurred which appear to have had a substantial impact on the final rule. The problems raised with these communications will be discussed in more detail shortly.

The only point I wish to emphasize here is that the opportunity for such ex parte communications is substantially reduced if the agency is required to make its final decision within a reasonable time after the close of the public comment period. We strongly urge the committee to consider including such an incremental deadline of the final legislation. We believe such a requirement could go a long way toward reducing the problems posed by ex parte communications following the public comment period.

Five, periodic review of existing rules. As a conceptual matter, the requirement to review existing rules is very appealing. There is no question that some existing rules can be strengthened and that other can be eliminated altogether. On the other hand, the mechanics of such a review process are extremely important and we do not feel have been given sufficient consideration in either bill. The first question which needs to be addressed is, what impact will this requirement have on the Agency's ability to develop new rules, many of which are required by statute? Needless to say, the review of a major existing rule could be as time consuming, if not more so, than the promulgation of a similar new rule.

To illustrate, EPA's revision to its existing New Source Performance Standard for Coal-Fired Power Plants consumed almost 2 years. Tremendous resources were committed to this rulemaking and it consumed a substantial amount of the personal time of even the Agency's top policymakers. The same is true for the Agency's revision to its standard for photochemical oxidants under the Clean Air Act.

Upcoming reviews of its national ambient air quality standards for particulate matter and sulfur dioxide can also be expected to consume enormous amounts of time and resources.

The fundamental question, one which is not addressed in this legislation, is does the Agency have sufficient resources to both meet its responsibility to develop new rules as well as review existing ones? If no additional resources are provided, there is a very real danger that the development of new rules will suffer because substantial resources must be committed to the review of existing rules.

To our knowledge, no one has taken a careful look at this issue. The review provision contained in S. 755 make this problem especially acute. Under those provisions, an agency would be required to review all of its major rules-those with an impact of a hundred million or more dollars per year on the national economy-within a 10-year period. In reality, this is a form of sunset provision, which, although there is an extension procedure for