Regulatory Reform:

Agencies Could Improve Development, Documentation, and Clarity of Regulatory Economic Analyses

RCED-98-142: Published: May 26, 1998. Publicly Released: May 26, 1998.

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Pursuant to a congressional request, GAO reviewed the extent to which federal agencies are incorporating the best practices set forth in the Office of Management and Budget's (OMB) guidance for preparing economic analyses in accordance with Executive Order 12866 and the Unfunded Mandates Reform Act (UMRA) of 1995.

GAO noted that: (1) some of the 20 economic analyses that it reviewed did not incorporate the best practices set forth in OMB's guidance; (2) for example, 5 of the 20 analyses did not discuss alternatives to the proposed regulatory action, 6 did not assign dollar values to benefits, and 1 did not assign dollar values to costs--all of which are practices recommended by the guidance; (2) OMB's guidance gives agencies the flexibility to decide how thorough their economic analyses should be; (3) at the same time, the guidance stresses the importance of fully disclosing the reasons for omissions, gaps, or other limitations; (4) although GAO found many instances in which best practices were not followed in the analyses, the reason for not following was disclosed in only one instance; (5) in addition, eight of the economic analyses did not include an executive summary that could help Congress, decisionmakers, the public, and other users quickly identify key information addressed in the analyses; (6) finally, only 1 of the 20 analyses received an independent peer review; (7) because Executive Order 12866 and UMRA establish nearly identical requirements for economic analyses and because agencies typically use the same analyses to comply with both when UMRA is applicable, GAO's findings reflect the extent to which the nine analyses called for under UMRA satisfy the act's as well as the executive order's requirements for economic analyses; (8) according to agency officials, economic analyses play a valuable role in regulatory decisionmaking; (9) twelve of the 20 analyses were used to help identify the most cost-effective of several similar alternatives or to cost-effectively implement health-based regulations; (10) seven other analyses were used to define a regulation's scope and implementation date, document and defend regulatory decisions, or reduce a health risk at a feasible cost; and (11) one analysis played almost no role in decisionmaking because, according to agency officials, the authorizing statute was so prescriptive that the agency was left with virtually no discretion in developing the implementing regulation.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: GAO recommended that OMB require agencies to provide executive summaries in their regulatory impact analyses that briefly and concisely identify all benefits and costs, describe the range of uncertainties associated with the benefits and costs, and compare reasonable alternatives compared by the agencies. On March 22, 2000, OMB issued new guidance to help agencies estimate the benefits and costs of federal regulations and summarize the results of the associated analyses. Among other things, this guidance calls for summaries of the benefit and cost estimates for each alternative and full disclosure and transparency of uncertainty in developing risk, benefit, and cost information.

    Recommendation: To facilitate full disclosure and add credibility to the economic analyses required for regulatory decisionmaking, the Director, OMB, should amend its guidance to include additional elements, the latter two of which are reflected in S. 981. Specifically, the guidance should be amended to provide that economic analyses should address all of the best practices identified in OMB's guidance or state the agency's reasons for not addressing them.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: On March 22, 2000, OMB issued new guidance that requires agencies to provide a summary table for reporting benefits and costs for each major final rule. While OMB suggested use of a summary table that would highlight some of the information GAO recommended be provided in an executive summary--the benefits and costs, described both quantitatively and qualitatively, and the uncertainties associated with benefits and costs--the new OMB guidance does not require that this information be stated in an executive summary which would enhance the ability of Congress, the public, and decisionmakers to understand key issues and be fully informed in a brief and concise manner. Furthermore, OMB proposed that the summary table be prepared only for each major final rule but not for proposed rules.

    Recommendation: To facilitate full disclosure and add credibility to the economic analyses required for regulatory decisionmaking, the Director, OMB, should amend its guidance to include additional elements, the latter two of which are reflected in S. 981. Specifically, the guidance should be amended to provide that economic analyses should contain an executive summary that briefly and concisely: (1) identifies all benefits and costs--both those that can be described quantitatively and those that can be described qualitatively; (2) describes the range of uncertainties associated with the benefits and costs; and (3) compares the reasonable alternatives considered by the agency.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: GAO recommended that OMB issue guidance to agencies to have economic analyses (regulatory impact analyses) undergo an appropriate level of internal or external peer review by independent experts. In September 2001, OMB issued guidance to agencies stating that draft economic analyses should be subject to various internal reviews--by agency economists, engineers, scientists, and agency attorneys prior to submission to OMB. In addition, the guidance recommends that economic analyses for major rules be subject to independent, external peer review by qualified specialists. Furthermore, OMB encourages agencies to have analyses peer reviewed by stating that peer-reviewed analyses will be given a measure of deference during the OMB review process.

    Recommendation: To facilitate full disclosure and add credibility to the economic analyses required for regulatory decisionmaking, the Director, OMB, should amend its guidance to include additional elements, the latter two of which are reflected in S. 981. Specifically, the guidance should be amended to provide that economic analyses should undergo an appropriate level of internal or external peer review by independent experts and state the agency's basis for selecting that level.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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