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THE WHITE HOUSE

Office of the Vice President


For Immediate Release September 1, 1993
                        Accompanying Report of 
                   the National Performance Review
 
                    OFFICE OF THE VICE PRESIDENT
 
                           Washington, DC
                           September 1993

REG02:
Encourage More Innovative Approaches
to Regulation

Background

One of the biggest challenges federal regulators face is choosing the best tool to solve the problem. In many cases, non-regulatory approaches may be the best solution. These include efforts to spur technological innovation, information disclosure, and consumer education. For example:

--To address the problem of airline delays, the Department of Consumer Affairs at the Department of Transportation (DOT) publishes the monthly Air Travel Consumer Report comparing actual and scheduled arrivals and departures.[Endnote 1]

--For 8 years, the Department of Agriculture's Food Safety and Inspection Service has operated a toll-free food-safety hotline, to provide meat and poultry consumers with information regarding foodborne illnesses[Endnote 2]

--The Environmental Protection Agency (EPA) served as a catalyst in the creation of a "Golden Carrot" program--a private-sector initiative to spur development of a more energy-efficient and environmentally friendly refrigerator by providing monetary rebates to the manufacturer of a winning design[Endnote 3]

--Regulation by state or local governments may also be an alternative to direct federal regulation.

If regulation is necessary, agencies must balance a number of considerations in selecting the best regulatory approach, including fairness, enforceability, and impact on regulated industries. One of the major factors regulators must consider in choosing among alternative approaches is the cost to the regulated industry and to the government.

REDUCING COST OF REGULATION. The government is obligated to see that the money spent to achieve health, safety, environmental, economic, and social objectives is spent wisely. Regulation to achieve these goals imposes significant costs on those being regulated.[Endnote 4] For example, industries may be required to pay for installing equipment to reduce pollution, for investing in monitoring systems to meet worker health standards, and even for hiring additional personnel to maintain compliance records.

EPA estimates that the proportion of the gross national product (GNP) devoted to environmental protection alone will rise from 1.9 percent in 1990 to 2.7 percent in the year 2000, with the private sector bearing most of these costs.[Endnote 5] The National Highway Traffic Safety Administration (NHTSA) and the Federal Highway Administration (FHWA) estimate that between 1966 and 1990 the federal and state governments and the automobile industry spent an average of $6.[Endnote 5] billion annually on highway, traffic, and motor vehicle safety.[Endnote 6]

Agencies have traditionally used command-and-control regulations. Under this approach, the agency dictates what individual firms must do to meet an established standard or goal and enforces those dictates. For example, environmental regulations may require the use of specific pollution control devices; inspection systems may require performance of specific procedures; or agency officials may themselves decide on allocation of rights to exploit natural resources. No doubt exists that a command-and-control approach is appropriate--and indeed necessary--in certain cases. For example, where risks that would result from noncompliance are high, as in the regulation of nuclear power, command-and-control may be the only feasible regulatory approach.

Experience has shown that in some situations, however, costs of meeting regulatory goals can be significantly reduced by choosing approaches that rely more on market mechanisms. Such mechanisms place more decisions in the hands of the private sector, provide greater flexibility to regulated industries, and encourage innovation. Market-oriented regulation decentralizes decisionmaking, allowing the market to find the most cost-effective solution to a particular regulatory goal. Unlike command-and-control, marketoriented regulation provides greater flexibility to regulated industries and encourages innovation.

INCREASING EFFECTIVENESS OF REGULATION. Tapping the forces of the market can also produce more effective regulation. Deposit-refund systems for beverage containers ("bottle bills"), which have been mandated by a number of states, demonstrate how powerful economic incentives can be in influencing the behavior of large numbers of people. Heightened public awareness about the problems which regulation attempts to address can also have an impact on the degree to which overall objectives are attained. For example, automakers are now competing to provide safety features, such as airbags and anti-lock brakes.

How a regulation is designed has implications for its enforceability, which is often critical to overall effectiveness. The deposit-refund system relies very little on traditional enforcement mechanisms. Effectiveness of command-and-control regulations, on the other hand, depends directly on enforcement. Lax enforcement is likely to lower compliance significantly. Because enforcement resources are limited, agencies should also consider innovative approaches to enforcement, such as use of auditors, to improve regulatory programs.[Endnote 7]

USING MARKET-ORIENTED APPROACHES. Among the regulatory approaches that allow greater flexibility for the private sector and make use of market forces are:

--performance standards,

--marketable permits,

--monetary incentives, and

--information disclosure.[Endnote 8]

"Performance" standards are generally preferable to "prescriptive" or "design" standards because they give the regulated industry the flexibility to determine the best technology to meet established standards. For example, a design standard for ladders might specify the materials and exact dimensions to be used, whereas a performance standard might simply require that the ladder support a minimum weight and provide a minimum degree of stability. The Occupational Safety and Health Administration (OSHA) has sometimes been criticized for prescriptive design standards for plants and equipment relating to worker safety.[Endnote 9] In 1990, OSHA initiated rulemaking on ladders and scaffolding to convert to performance standards where possible. The proposal followed complaints by industry that current standards provided insufficient flexibility and inhibited technological developments.[Endnote 10]

The EPA's "bubble" concept for limiting pollution emissions is a type of performance standard. Under the bubble concept, overall emission limits are established for a single facility or a group of facilities, rather than from each source in the facility. This allows companies greater flexibility in choosing which emissions source(s) to reduce to meet the overall limit for emissions from the bubble. EPA estimated that facilities under the 80 or so bubbles established prior to 1986 saved $435 million in meeting emissions standards.[Endnote 11]

"Marketable permits" allow the market, rather than the government, to distribute scarce resources. The 1990 Clean Air Act Amendments establish an allowance trading system for sulfur dioxide emissions from utilities, in an effort to reduce acid rain.[Endnote 12] Utilities are allowed to trade initially allocated allowances, each representing one ton of emissions. This allows more of the reduction in emissions to be done by those plants that can reduce emissions at lower costs. EPA estimates that this system will save from $700 million to $1 billion per year.[Endnote 13]

In 1985, DOT issued a rule allowing airlines to buy and sell airport takeoff and landing rights (slots) at four major airports.[Endnote 14] Previously, these slots had been allocated by a committee, which frequently deadlocked. Under the new system, the value of the slots is determined by the market, which should allocate them most efficiently. Similarly, in 1990, the National Marine Fisheries Service implemented a transferable quota system for allocating fishery harvesting privileges in the New England and MidAtlantic regions.[Endnote 15]

"Monetary incentives", if correctly set, can be effective in influencing behavior. More than 100 communities now charge for garbage collection on the basis of volume. Because households have an incentive to reduce the amount of garbage generated, the effect has been to reduce tonnage collected and to increase recycling. Many states and counties also tax auto tires to pay for disposal. In a like manner, 10 states have implemented deposit-refund systems for lead batteries to ensure proper disposal.[Endnote 16]

"Information disclosure" provides consumers with information they need to make informed choices.[Endnote 17] Labels, routinely required on such products as overthe -counter drugs and pesticides, are probably the most common form of information disclosure. NHTSA provides information on tire safety to consumers by requiring manufacturers to grade and mark tires based on a testing protocol to measure traction, treadwear, and temperature resistance, factors relating to safety.[Endnote 18]

Information disclosure requirements can also provide an incentive to industries to move toward regulatory objectives. For example, the Federal Trade Commission's introduction of standard test procedures for tar and nicotine content in cigarettes helped lead to the introduction of low-tar cigarettes.[Endnote 19] The Emergency Planning and Community-Right-to-Know Act of 1986[Endnote 20] requires companies to disclose information on the use and release of hazardous chemicals. EPA attributes a significant portion of the 31 percent decrease in air emissions of these hazardous chemicals to voluntary reductions brought about by increased industry and public awareness of emission levels.[Endnote 21]

NEED FOR CHANGE

Federal agencies, for a number of years, have been encouraged to use alternative approaches to regulation, including more market-oriented regulation. President Carter in a 1980 Presidential Memorandum directed the agencies to find areas where alternative techniques could be used in both existing and new programs. Carter's Regulatory Council created a short-lived Project on Alternative Regulatory Approaches, which published a series of guides describing alternative approaches.[Endnote 22] Under his and later executive orders, agencies were required to include, in their regulatory analyses of all major rules, a discussion of alternative approaches considered. Presidents Reagan and Bush also supported use of market-oriented approaches.

Despite more than a decade of high-level support, innovative approaches are not widely used by agencies. There are a number of constraints to more widespread use. Congress and agencies commonly respond to problems by pulling the familiar commandand -control tool out of the toolbox. It is always easier to model a new program after an old one, and most often, existing regulations are command-andcontrol. Lack of information and knowledge about when other tools should be used is a significant constraint to introduction of innovative techniques. Even where agency staffs have expertise in designing innovative regulation, their ideas may not be accepted without strong support from agency leadership. Agencies generally do not actively ask for ideas for regulatory approaches from the regulated industry or interest groups. On the other hand, regulated entities may prefer command-andcontrol regulations or prescriptive standards over performance standards because they provide more specific details on the requirements for compliance. Finally, statutes may not give agencies sufficient discretion in designing a regulatory approach.

ACTIONS

  1. Establish use of innovative regulatory approaches as administration policy. (2)

The President should direct agency heads to use innovative regulatory approaches whenever they are appropriate. This is consistent with the new regulatory review executive order. Wider use of such approaches to regulation can lower the costs of meeting regulatory goals by giving regulated entities more flexibility and increasing the economic efficiency of regulations. However, innovative approaches are not the best solutions in some circumstances. Agencies should analyze the strengths, weaknesses, and limits of particular approaches to match the best regulatory approach to the problem.

Redirecting the regulatory system from the commandand -control end of the regulatory spectrum toward more flexible and market-oriented approaches will require strong leadership. The President should also direct the Regulatory Coordinating Group to work with Congress and policy makers to incorporate more innovative approaches in legislation and regulation. A standing task force on innovative approaches could assist this effort, and would provide a good forum for communication among government regulators.

2. Develop a Deskbook on Regulatory Design. (1)

The Chair of the Regulatory Coordinating Group (RCG) should oversee the development of a "Deskbook on Regulatory Design" for legislative and regulatory staffs, which should be completed in less than one year. The "Deskbook" would improve understanding of the full range of alternative approaches by providing both policymakers and staff with ready information about the range of regulatory approaches. It would also identify resource people within agencies who could assist others in development of innovative approaches. Project staff should work closely with congressional regulatory specialists in developing the Deskbook.

The Deskbook should describe in detail the conditions under which each approach should be considered. Possible combinations of approaches should also be discussed. In this context, the Deskbook should highlight the strengths, weaknesses, and limitations of each approach. Market-oriented approaches, though they may be more economically efficient, can be difficult to design and are not appropriate in all circumstances.[Endnote 23] In drafting the "Deskbook", the RCG should consult on existing sources, such as the handbooks prepared by the Regulatory Council in the 1970s and the experience of Germany and other European countries.[Endnote 24]

The Deskbook should also provide an in-depth survey of how innovative approaches have been used in both federal and state governments. Case studies should be used for each approach. Case studies should look at not only the design of the regulation, but also the effectiveness of implementation.[Endnote 25]

Attention should also be paid to other innovative features, including tiering, or tailoring regulatory requirements to match circumstances of the regulated entities. Agencies may, for example, use cut-offs (e.g., number of employees) in applying certain regulatory requirements or may make appropriate provisions for small businesses (e.g., short forms for reporting requirements).

The Deskbook should be designed in a format to accommodate new information, so that it can be regularly updated. In addition to printed versions, the Deskbook should be made available in electronic format to maximize its usefulness. An electronic format could be updated more frequently and could provide more extensive information, such as actual texts of regulations, as well as additional commentary on the development and monitoring of such regulations.

CROSS-REFERENCES TO OTHER NPR ACCOMPANYING REPORTS

Department of Labor, DOL07: Redirect Mine Safety and Health Administration's Role in Mine Equipment Regulation; and DOL10: Refocus the Responsibility for Ensuring Workplace Safety and Health.

Department of Transportation, DOT02: Streamline the Enforcement Process.

Environmental Protection Agency, EPA01: Improve Environmental Protection through Increased Flexibility for Local Government; EPA04: Promote the Use of Economic and Market-based Approaches to Reduce Water Pollution; and EPA05: Increase Private Sector Partnerships to Accelerate the Development of Innovative Technologies.

ENDNOTES

  1. Telephone interview with Norman A. Strickman, Chief, Consumer Affairs Division, Office of the Secretary of Transportation, August 13, 1993.
  2. Telephone interview with Susan Conley, Manager, Meat and Poultry Hotline, Food Safety and Inspection Service, U.S. Department of Agriculture, August 17, 1993.
  3. Telephone interview with Mike L'Ecuyer, Environmental Protection Specialist, Environmental Protection Agency, August 2, 1993.
  4. Estimates of the total cost to the private sector of complying with federal regulation range from $430 billion to $562 billion annually. See Office of Management and Budget, Budget of the United States Government Fiscal Year 1993 (Washington, D.C., 1992),
  5. 397 for a discussion based on Hopkins, Thomas D., Cost of Regulation, Public Policy Working Paper (Rochester Institute of Technology, December 1991).
  6. Environmental Protection Agency, Environmental Investments: The Cost of a Clean Environment, Report of the Administrator of the Environmental Protection Agency to the Congress of the United States (Washington, D.C., November 1990).
  7. National Highway Traffic Safety Administration and the Federal Highway Administration, Moving America More Safely: An Analysis of the Risks of Highway Travel and the Benefits of Federal Highway, Traffic, and Motor Vehicle Safety Programs (September 1991),
  8. 30. The agencies estimate that these programs produced benefits totaling $380 billion due to averted injuries and deaths. All figures are 1990 dollars.
  9. For example, it would be interesting to see whether, in the environmental, health, and safety areas, independent auditors could supplement or enhance existing enforcement efforts. Agencies could require high-risk firms or firms with a high violation rate to use an independent certified auditor to verify compliance with regulations, including reporting requirements. Auditors could also serve as consultants to firms to identify where further compliance efforts were needed and how to best correct problem areas. The Federal Aviation Administration currently designates private persons to act as representatives of the administrator in examining, inspecting, and testing persons and aircraft for the purpose of issuing airman and aircraft certificates. 14 C.F.R. Part 183.
  10. For general discussions of economic incentives see Carlin, Alan, Environmental Protection Agency, The United States Experience with Economic Incentives to Control Environmental Pollution (Washington, D.C., July 1992); and Office of Management and Budget, Regulatory Program of the United States Government, April 1, 1992 - March 31, 1993 (Washington, D.C., January 1993), pp. 11-19.
  11. Nichols, Albert, and Richard Zeckhauser. "OSHA after a Decade: A Time for Reason," in Leonard W. Weiss and Michael W. Klass, eds., Case Studies in Regulation. Revolution and Reform (Boston: Little, Brown and Company, 1981).
  12. Telephone interview with Terry Smith, Occupational Safety and Health Specialist, Occupational Safety and Health Administration, July 27, 1993. See 55 FR 13360 (April 10, 1990).
  13. Creekmore, Andrew T., "Emission Trades for Sources of Volatile Organic Compounds," paper presented at a conference of the Air and Waste Management Association Annual Meeting, 1989. In Carlin, Chapter 3, note 8.
  14. Title IV of the Clean Air Act, 42 U.S.C. 7651- 7651o (1991 Supp.).
  15. 56 FR 63002-63351 (December 3, 1991).
  16. 14 C.F.R. 93.121-93.133, 93.211-93.227.
  17. 50 C.F.R. Part 652.
  18. Carlin, Chapter 3, note 8.
  19. Project on Alternative Regulatory Approaches, Information Disclosure (Washington, D.C., September 1981).
  20. 49 C.F.R. 575.104.
  21. Project on Alternative Regulatory Approaches, Information Disclosure, p. 17.
  22. 42 U.S.C. 11001-11050 (1988).
  23. Environmental Protection Agency, 1991 Toxics Release Inventory (Washington, D.C., May 1993), p. 6.
  24. Publications under the Project on Alternative Regulatory Approaches include Marketable Rights, Performance Standards, Monetary Incentives, Information Disclosure, and Tiering. Copies may be obtained through the Administrative Conference of the United States (ACUS).
  25. The impact of market-oriented approaches is sometimes more difficult to predict. For example, nationwide trading systems for pollution can result in heavier pollution emissions in some locations than would have occurred under a command-and-control approach. For example, a nationwide marketable permit system generally would not be appropriate for solving a local pollution problem.
  26. See note 22. Also for foreign experience see Organization for Economic Co-Operation and Development (OECD), Economic Instruments for Environmental Protection (Paris, 1989).
  27. The effectiveness of traditional command-andcontrol regulation depends heavily on enforcement efforts. The Deskbook should examine effectiveness of regulation not only from the perspective of regulatory design, but also from the enforcement perspective. It should discuss innovative approaches to enforcement, including the use of private audits.

REG03:
Encourage Consensus-Based Rulemaking

Background

The traditional model for rulemaking is that of agency experts deciding the best way to regulate, offering the public an opportunity to comment on the agency's proposed rule or to object to its adoption, and then issuing binding rules telling regulated entities what to do. Even if the agency experts choose wisely, the traditional model has very little buy-in from outside the agency, which undermines the rule's effectiveness. This traditional process encourages adversarial, uncooperative behavior on the part of private industry or others who might be affected by an agency's decisions, which frequently leads to protracted litigation. Agencies routinely find themselves under attack from various private parties who are unhappy with the rule. This has been particularly true in controversial areas such as environmental regulation or the health and safety of workers.

The traditional process rarely leads to cooperative efforts to resolve problems. On the contrary, a barrage of written critical comments followed by litigation in the federal courts is frequently inevitable, accompanied by long delays and excessive costs. These costs include the direct costs of pursuing or defending the court case and the cost to industry and society of long periods of uncertainty about the final outcome. The expectation of litigation usually sharpens the divisions between parties during the rulemaking process and may eliminate any willingness to recognize others' legitimate views. The parties have little incentive to focus on finding constructive, creative solutions that address differing legitimate needs. [Endnote 1]

NEED FOR CHANGE

A small number of federal agencies have successfully pioneered a consensus-based approach to drafting regulations--negotiated rulemaking (sometimes called regulatory negotiation or "reg neg"). Reg neg brings together representatives of the agency and the various affected interests in a cooperative effort to develop regulations that not only meet statutory requirements, but also are accepted by the people who ultimately will have to live with the regulations[Endnote 2]

Since 1982, approximately 35 federal agency negotiated rulemakings have taken place or are currently under way. Almost half have been at the Environmental Protection Agency (EPA), which is the only federal agency with a small office assigned specifically to assist other parts of the agency in doing reg negs. Other users include the Departments of Agriculture (Animal and Plant Health Inspection Service), Education (required in certain programs by statute), Labor (Occupational Safety and Health Administration), and Transportation (Office of the Secretary, Federal Aviation Administration, Federal Highway Administration, National Highway Traffic Safety Administration, Coast Guard), Farm Credit Administration, Federal Communications Commission, and Nuclear Regulatory Commission[Endnote 3] The Negotiated Rulemaking Act of 1990 establishes a statutory framework for agency use of reg neg.[Endnote 4]

HOW DOES REG NEG WORK? First, an agency would normally ask one or more "conveners"--either outside contractors or government employees who are not otherwise involved in the proceeding--to determine whether the rule is appropriate for reg neg. (As discussed below, reg neg is not appropriate for all rules.) If the convener recommends reg neg and if the agency head determines that use of reg neg is in the public interest, a reg neg committee would be chartered under the procedures of the Federal Advisory Committee Act.[Endnote 5]

A reg neg committee must be composed of representatives of all affected interests. The agency and the convener must make reasonable efforts to ensure that all relevant interest groups and others affected by the rule are aware of the proceeding. The agency must also publish a notice explaining the proposed reg neg and offering the opportunity to apply for participation by interests not already adequately represented.[Endnote 6]

Meetings of the negotiating committee are conducted by a mediator or facilitator (often the convener), who may be a government employee or an individual from the private sector. The agency should participate fully in the negotiations, making sure that at all times the participants are aware of what action the agency is likely to take if the committee does not reach an agreement.

The goal of the negotiators is to reach consensus on the text of a "proposed" regulation or rule through a process of evaluating their own priorities and making trade-offs to achieve an acceptable result. In this way, the competing interests try to work out a practical solution to the problem necessitating regulatory action. Through the give-and-take of the negotiating process, participants try to obtain a favorable outcome on the issues of greatest importance to them, while recognizing and accommodating the legitimate needs of others. Throughout the process, the agency's function is to protect the public interest by implementing all applicable statutory and other legal requirements. The public may observe the procedure, and public comments are invited before, during, and after the negotiations.

If consensus is reached, the agency ordinarily would publish the consensus draft rule in a notice of proposed rulemaking. If consensus is not reached, the agency ordinarily publishes its own proposal for a rule, often making good use of the information it has obtained through the course of the negotiations.

BENEFITS OF NEGOTIATED RULEMAKING. The long-term benefits of negotiated rulemaking include:

--more innovative approaches that may reduce compliance costs,

--less time, money, and effort spent on developing and enforcing rules,

--earlier implementation,

--higher compliance rates, and

--more cooperative relationships between the agency and other affected parties.[Endnote 7]

These benefits flow from the broader participation of the parties, the opportunity for creative solutions to regulatory problems, and the potential for avoiding litigation.

If the parties reach consensus, the resulting rule is likely to be easier to implement and the probability of subsequent litigation is diminished. Negotiations that do not result in consensus on a draft rule can still be very useful to the agency by:

--narrowing the issues in dispute,

--identifying information necessary to resolve issues,

--ranking priorities,

--finding potentially acceptable solutions, and

--improving the agency's understanding of the real-world impact of alternative regulatory options.

Negotiation sessions provide all participants with an opportunity to have their assumptions and data questioned and tested by parties with other perspectives. The dynamic nature of negotiating forces each party to participate in crafting solutions to issues that are on the table for resolution. In short, the process fosters creative activity by a broad spectrum of interested persons, targeted at producing better, more acceptable rules.

In regulatory programs with a history of adversarial rulemaking, it is not unusual for parties to negotiate a settlement under the supervision of a court after the rule has been published. Particularly in such programs, negotiation of a rule prior to the agency's publication of a proposed rule can save the agency and other parties both time and resources. By avoiding litigation, programs become effective sooner and regulated businesses can plan capital expenditures or production changes earlier than if they faced years of litigation and uncertainty about the outcome. Moreover, at EPA (which is the most frequent user of the technique) regulatory negotiations, on average, take less time than other rulemakings.[Endnote 8]

Time savings can translate into both monetary savings for industry and greater satisfaction all around. For example, because of a reg neg, EPA's wood-stove emission standards went into effect as much as two years earlier than expected. The participant from the Natural Resources Defense Council was quoted as expressing satisfaction on behalf of environmental interests that over 1.5 million wood-stoves sold during the 2-year period would be covered by the new regulation. Manufacturers were spared 2 years of uncertainty and could begin re-tooling for the new standards.[Endnote 9]

There can also be important intangible benefits. Even in programs with no history of adversarial rulemaking, the agency may obtain a better factual basis for the regulation and a better understanding of the practical consequences of different regulatory choices--whether or not consensus is attained. Regulatory negotiations can help enfranchise parties with important interests at stake, who may otherwise feel relatively powerless. Rules drafted with assistance of persons who must ultimately be governed by them are more likely to be practical, and therefore more acceptable.

LIMITS ON REG NEG. Negotiated rulemaking is not appropriate for all rules. Certain characteristics of rulemaking proceedings favor using reg neg.

--The number of distinct interests concerned with the proposed rule, including any relevant government agencies, must be small enough so that they can be fairly represented by not more than 20 to 25 negotiators.

--There should be a number of diverse issues that participants can rank according to their own priorities, so that there will be room for compromise on some of the issues as an agreement is sought.

--It is essential that the issues to be negotiated not require compromise of principles so fundamental to the parties that productive negotiations are unrealistic.

--Parties must be willing to negotiate in good faith, and no single interest should be able to dominate the negotiations.

--The parties cannot have an incentive to stall; therefore, they must believe that the agency itself will issue a rule if consensus is not reached. A statutory requirement that the agency issue some type of rule is often helpful.

In rulemakings where reg neg is inappropriate for these or other reasons, agencies should consider using policy discussion groups.

The most significant deterrent to using negotiated rulemaking is its up-front cost.The process can be resource-intensive in the short term for both the agency and the other participants. While there are likely to be considerable long-term savings in total resources required, the concentrated investment of effort and expense in the short term may be a serious obstacle. This is particularly true if the savings and the costs appear in the budgets of different operating components of the agency. Additional costs may include services of mediators and conveners, research conducted on behalf of the negotiating committee, administrative support for the committee, expenses of participation for some of the negotiators, and some training costs.

Action

Increase the use of negotiated rulemaking. (1)

The President should encourage agencies to use reg neg. This is consistent with the new regulatory review executive order. Regulatory agencies that have not used reg neg since enactment of the Negotiated Rulemaking Act of 1990 should identify at least one candidate for using reg neg during the coming year or explain why it would not be feasible to do so.[Endnote 10] The administration should facilitate efforts to use reg neg by identifying and removing any administrative barriers to its use.

Reg neg should rarely, if ever, be required by statute for particular rulemakings because its success depends on the voluntary participation of all participants, including the agency.[Endnote 11] Moreover, Congress should recognize that short statutory deadlines to issue proposed or final rules, especially if they are shorter than two years, may preclude the use of negotiated rulemaking.

CROSS-REFERENCES TO OTHER NPR ACCOMPANYING REPORTS

Department of Labor, DOL03: Expand Negotiated Rulemaking and Improve Up-front Teamwork on Regulations.

Department of Transportation, DOT03: Use a ConsensusBuilding Approach to Expedite Transportation and Environmental Decisionmaking.

ENDNOTES

  1. See Harter, Philip J., "Negotiating Regulations: A Cure for Malaise," Georgetown Law Journal, vol. 71 (1982), p. 1.
  2. Administrative Conference of the United States, Recommendations 82-4 and 85-5, "Procedures for Negotiating Proposed Regulations," 1 C.F.R. 305.82-4 and 305.85-5 (1993); and Pritzker, David M., and Deborah S. Dalton, eds., ACUS, Negotiated Rulemaking Sourcebook (Washington, D.C., 1990).
  3. Administrative Conference of the United States, "Federal Agency Experience with Negotiated Rulemaking," (March 1, 1993), staff paper updating Chapter 10 of Pritzker and Dalton, Negotiated Rulemaking Sourcebook.
  4. 5 U.S.C.A. 561-570 (1993 Supp.).
  5. 5 U.S.C. App. (1988).
  6. For a recent notice, see Environmental Protection Agency, Notice of Wood Furniture Manufacturing Negotiated Rulemaking Committee, 58 FR 34011 (June 23, 1993).
  7. It is difficult to obtain reliable data about the costs of regulatory proceedings. However, some information is available that may give an indication of potential savings from using regulatory negotiations. Speaking in 1984, former EPA Administrator William Ruckelshaus estimated that more than 80 percent of EPA's major rules were challenged in court and that approximately 30 percent of the rules were changed significantly as a consequence. Ruckelshaus, W., "Environmental Negotiation: A New Way of Winning," address to the Conservation Foundation's Second National Conference on Environmental Dispute Resolution 3, October 1, 1984, cited in Susskind and McMahon, "The Theory and Practice of Negotiated Rulemaking," vol. 3, Yale Journal on Regulation (1985), p. 133. Ruckelshaus also estimated that the annual effort to handle this litigation took 50 person-years from EPA's Office of General Counsel, 75 person-years from EPA program offices, 25 person-years from the Department of Justice, and 175 person-years on the part of plaintiffs' counsel. Administrator Lee Thomas, in a 1987 address to a colloquium of the Administrative Conference of the United States, pegged the level of litigation at more than 75 percent. Thomas, Lee, "The Successful Use of Regulatory Negotiations by EPA," vol. 13, Admin Law News (Fall, 1987), p. 1. By contrast, of the first 10 negotiated rulemaking proceedings brought to completion by EPA, only two were challenged in court, and both rules were essentially upheld. See Safe Buildings Alliance v. EPA, 846 F.2d 79 (D.C. Cir. 1988); and Natural Resources Defense Council v. EPA, 907 F.2d 1146 (D.C. Cir. 1990). Reduction of litigation rates from 75 percent to 20 percent obviously would produce great savings if this level of improvement were maintained.
  8. Kerwin, Cornelius M. and Scott R. Furlong, "Time and Rulemaking: An Empirical Test of Theory," Journal of Public Administration Research and Theory, vol. 2 (1992), p. 124. In a study of 150 rules completed between October 1, 1986, and September 30, 1989, the rulemaking process (from development of the proposal to issuance of the final rule) took an average of 26 months for the four negotiated rulemakings in the sample and 37 months for all rules in the sample. The article does not contain sufficient information to determine whether regulatory negotiations would be quicker for rules with similar resources, complexity and prioritization. Based on a sample of seven reg negs, EPA estimates a saving of 6 to 18 months as compared to the normal rulemaking process. Telephone interview with Chris Kirtz, Director, Consensus and Dispute Resolution Program, EPA, August 13, 1993.
  9. McClintock, Mike, "Regulating Wood-Stove Emissions," Washington Post (September 25, 1986), Home Section, p.5.
  10. In this and all other recommendations in this report, "regulatory agencies" are those agencies that are named to the Regulatory Coordinating Group (see REG01) and subagencies (or subdepartments) that are designated by department or agency heads as engaging in significant regulatory activities. Generally, this should include those subagencies that are listed in the most recent Unified Agenda of Federal Regulations as having over 40 regulatory issuances. The Negotiated Rulemaking Act of 1990, Pub. L. No. 101- 648 was enacted on November 29, 1990.
  11. Three statutes have mandated that the Department of Education use reg neg for specific rulemakings and another statute required the Nuclear Regulatory Commission (NRC) to do so. All were subject to relatively short statutory deadlines and these deadlines constrained the negotiation process. In addition, the NRC was required to convene a regulatory negotiation on issues that most observers felt were non-negotiable.

REG04:
Enhance Public Awareness and Participation

BACKGROUND

Under the Administrative Procedure Act (APA), agencies are required to provide only a minimal opportunity for public comment before issuing regulations--generally, agencies must accept only written comments filed between issuance of the proposed and final rules. The agency then reviews these comments and responds to them when the rule is finalized. If affected interest groups or members of the public disagree with the rule, they can challenge it in court.

The traditional rulemaking model, particularly for controversial rules, can be very adversarial. For example, the Environmental Protection Agency (EPA) believes that 80 percent of its major rules are challenged in court.[Endnote 1] A court challenge may delay or hinder implementation of a rule because, during the year or more that it takes to litigate a case, challengers may not comply with the rule or, if the effective date of the rule is not stayed, challengers may do only that which is minimally required. Court remand of a rule can set a program back several years more.

The adversarial nature of the rulemaking process also hinders development of a rule. Parties may raise a host of objections just to preserve issues for appeal, and they may be unwilling to acknowledge the legitimacy of other parties' positions. Agencies may spend more time than is really beneficial preparing detailed rationales for rules and responses to comments to protect themselves in case of court challenges.

NEED FOR CHANGE

PUBLIC PARTICIPATION DURING THE RULEMAKING PROCESS. Without exception, everyone from outside the government whom the National Performance Review (NPR) interviewed on the regulatory process--whether from industry or public interest groups--said they wanted earlier and more frequent opportunities to participate in the rulemaking process. Although granting this wish is not cost-free, there are many good reasons for agencies to do so. Earlier and more interactive public participation can help the agency develop innovative regulation and provides information otherwise unavailable to the agency. It can also build bridges among the agency and affected interest groups, and improve compliance with the rule by increasing acceptance, or lowering resistance, from some affected parties.

The traditional rulemaking model limits public participation in ways that dampen the type of interaction likely to lead to innovative solutions. First, by the time the agency proposes a rule, it has often committed much time, resources, and energy to the proposal. Therefore, although it may be open to changing the details of the approach, it may not be inclined to change direction significantly. (For example, if the agency has chosen a command-andcontrol approach, it is unlikely that the agency will shift to information disclosure or marketable permits.) This is particularly true if the agency is operating under a statutory or court-ordered deadline because, even if it had the inclination to change the approach, it is unlikely to have the time.

Second, public input under the traditional rulemaking model often does not include a real dialogue between the public and the agency or among different segments of the public. This makes it difficult to probe the reasons for a suggested change or to obtain comments if an approach is modified based on public comments. Solving problems, particularly with innovative approaches, is often an iterative process, i.e., a suggested approach elicits information, which causes a change in or clarification of the approach, which elicits additional information, and so on. A one-ortwo shot opportunity for public comment is inconsistent with this type of process.

The traditional model tends to place the agency and affected interest groups in adversarial relationships. The possibility that a rule will be challenged in court may make interested parties hesitant to release information or recognize the validity of another party's point. Giving outside parties more meaningful opportunities for affecting the regulatory outcome can create more cooperative relationships among agencies and outside parties.

Agencies should improve regulatory programs by increasing public involvement in the rulemaking process and moving towards a more consensus-based model. However, there is no one method or level of public participation that is appropriate for all rules. Increasing the level of public participation can make it more difficult to achieve some of the objectives of the rulemaking process--it may take additional staff time or increase costs (e.g., for obtaining hearing rooms or publishing additional notices), and may delay issuance of the rule. Regulators must balance these costs of increased public participation with the benefits when they choose from the various methods to craft appropriate opportunities for public participation for each rule.

Agencies have a wide variety of methods for increasing public participation, including:

--negotiated rulemaking,

--policy discussion groups,

--public meetings,

--focus groups,

--more useful and accessible public meetings and hearings, and

--early requests for input.

Negotiated rulemaking ("reg neg") is a structured way to increase public participation through the assembly of all affected interest groups. Agencies have also used less formal mechanisms to increase public participation. These mechanisms offer some of the benefits of reg neg. For example, affected parties can learn from each other, and the agency can test hypotheses and tentative conclusions.

An agency can form a "policy discussion group," with membership very similar to a reg neg committee, and then call the group in at various times for advice on such things as agency options papers, draft proposals, and specific issues. The Occupational Safety and Health Administration (OSHA) has found it helpful to have such committees write "majority" and "minority" reports on disputed issues[Endnote 2] A policy discussion group has some benefits over reg neg. The formal convening process is avoided and the quest for consensus need not drive the process. If the agency is seeking to use the group as a source of consensus advice or recommendations, the group must be chartered as a federal advisory committee and meetings must be open to the public[Endnote 3] EPA used such a group for assistance in developing the acid rain program regulations.[Endnote 4] The Department of Transportation (DOT) used such a group for assistance in developing regulations under the Americans with Disabilities Act.[Endnote 5] A more formal use of outside policymaking bodies is required by the Magnuson Fishery Conservation and Management Act. Under the Act, regional fishery management councils are charged with developing regulations after extensive public input.[Endnote 6]

An agency can hold "public meetings" after it has selected an approach but before the details are worked out, or at other stages of the rulemaking process. A description of the agency's preferred approach, draft rule proposals, or options papers usually should be made available prior to or at the meeting so the agency can get comments from the public and answer questions. Public meetings would not require a federal advisory committee charter. The National Park Service and the Forest Service recently convened several symposiums where rock climbing enthusiasts, environmentalists, and land managers gathered for several days to listen to speeches and discuss the issues arising from rock climbing in national parks and forests.[Endnote 7]

Agencies can convene "focus groups" when they need quick, anecdotal information about how different approaches to or aspects of a regulation would work in practice. When used for that purpose, neither the Paperwork Reduction Act nor the Federal Advisory Committee Act should be triggered.[Endnote 8]

Agencies should experiment with ways to make public meetings and hearings more useful and accessible. Possibilities include:

--providing the public opportunities to ask questions of agency experts at public hearings or meetings about the proposed regulatory initiative. (DOT has made agency experts available for informal discussions one hour prior to the start of a hearing or meeting.)

--arranging meetings by topic so that presenters will have to stay, listen to, and learn from others' presentations rather than present testimony and leave.

--having roundtable discussions rather than formal presentations.

--holding some hearings after working hours.

--broadcasting proceedings or using teleconferencing.

Agencies can issue early requests for input or notices of impending agency action for rules, policy statements, or guidance documents. Agencies should use traditional means, such as publishing Notices of Inquiry or Advance Notices of Proposed Rulemaking in the Federal Register, or nontraditional means, such as using (or establishing) specialized computer bulletin boards to circulate requests for information or draft agency papers.[Endnote 9] Early public participation may pave the way for an agency's subsequent use of "direct final" rulemaking.

Agencies should consider providing funding for participants in reg neg committees or policy discussion groups where such funding is needed to ensure representation of all affected interests or improve the quality of the information presented. Funding could be limited to reimbursement for travel and other expenses, rather than for labor or time. Such funding would be less than what the government is now required to pay in attorneys' fees when a person or group successfully challenges a rule in court.[Endnote 10]

PUBLIC INVOLVEMENT DURING IMPLEMENTATION OF A RULE. Members of the public can be affected by the implementation of a rule either because they have to comply with it or because they are supposed to benefit from it. Agencies need to continue to communicate with the public after issuance of the rule to help people comply. At a minimum, agency policy statements, guidance documents, and other papers explaining how a program works must be made easily accessible to the public. This is not always the case now. As an example, in some program areas, EPA has numerous guidance documents that explain details of program implementation, but these documents are neither published nor collected in one place that is accessible to the public. Ombudsmen offices may also help implementation efforts. The IRS has established a high-level taxpayer ombudsman with a large and nationally dispersed Program Resolution Program Staff. The Food and Drug Administration (FDA) recently created an office of Chief Mediator and Ombudsmen, which has been lauded by the FDA Commissioner as "invaluable...an integral part of the agency."11 The newly appointed Comptroller of the Currency announced in June that he would appoint an ombudsman and establish a toll-free telephone number to provide banks and consumers a new channel for challenging regulatory decisions.[Endnote 12] Other agency ombudsmen have been created by the EPA (Hazardous Waste Ombudsman; Small Business/Asbestos Ombudsman) and Social Security Administration. The Administrative Conference of the United States has recommended the technique to other agencies and provided useful guidelines about the role and authority of the office.[Endnote 13]

Developments in information technology provide useful new tools to assist compliance efforts. DOT developed an automated system that provides the opportunity to obtain information on demand, via touch-tone telephone or modem connection, to help implement drug testing requirements for transportation workers. For a modest fee, small trucking firms and others can call in, receive assistance to determine their obligations related to drug testing, order documents to be delivered by fax or modem download, or leave a question or comment. Support materials are provided at no cost.[Endnote 14] EPA's Office of Air Quality Planning and Standards has set up a project to cover segments of clean air programs. It gives the public access to EPA databases and informs users of (and seeks comments on) upcoming policy statements and guidance documents. It is generally used as a means of providing information to EPA regional offices, the regulated community, state and local air quality authorities, and the general public.[Endnote 15]

Agencies also need to seek public input after the rule has been issued to determine how effective it is or what unintended problems it has caused. For example, when seat belt usage dropped to about 14 percent in 1979, the National Highway Traffic Safety Administration (NHTSA) conducted a public study asking drivers why they did not wear safety belts. [Endnote 16] After public response showed the decline in usage resulted from inconvenient, uncomfortable belts and doubts about seatbelt effectiveness, NHTSA responded with automatic restraint requirements and public education programs.[Endnote 17]

Seeking public input after a rule is issued is not common practice for agencies--in part because getting Office of Management and Budget (OMB) clearance for focus groups and customer surveys has been a barrier to seeking such information and because it is not viewed as a significant enough activity to warrant scarce resources.[Endnote 18] The value of such information will continue to increase with the passage of the Government Performance and Results Act of 1993 and increasing emphasis in the government on total quality management principles.[Endnote 19]

ACTIONS

  1. Increase public participation during the rulemaking process. (2)

The President should direct agency heads to provide opportunities for early, frequent and interactive public participation in a way that is transparent and open to all interested parties. This is consistent with the new regulatory review executive order. The administration should facilitate agency efforts by identifying and removing any administrative barriers. The President should direct the Chair of the Regulatory Coordinating Group (RCG) to promote and exchange information to assist agencies in implementing this direction.

Regulators need to realize that they have a variety of tools for getting public comments on a rule and to learn when it is appropriate to use which tool. Information should be exchanged on how to manage the process carefully to prevent abuses or perceived abuses. Although increased public participation is an important goal that should help improve the quality and acceptability of agency regulations, granting access behind closed doors to interest groups representing only one side of an issue creates major problems.[Endnote 20] Care must be taken to allow access by a wide variety of interests and to ensure that all truly affected groups are represented in formal or informal negotiations. Docketing of agency contacts with outside parties should also be addressed.

Agencies should be encouraged to use the following methods of interacting with the public in the rulemaking process in addition to methods required by the APA:

--negotiated rulemaking,

--policy discussion groups,

--public meetings,

--focus groups,

--more useful and accessible public hearings and meetings, and

--early requests for input.

2. Enhance public awareness and evaluation of programs. (1)

Heads of regulatory agencies should require their staffs to check the effectiveness and workability of their programs periodically. In addition to measuring results (e.g., reduced fatalities from car accidents), agencies should consult with the people who have to comply with the regulations. This could be done through the use of focus groups or customer surveys. The Administrator of the Office of Information and Regulatory Affairs should work with agencies to define the conditions under which surveys of regulated entities by regulators can receive accelerated approval.[Endnote 21]

Heads of regulatory agencies should provide assistance to entities that must comply with regulatory programs. Agencies should ensure that these entities are given the information necessary to comply. Informal guidance and policy statements should be collected in one place and be accessible to the public. Electronic access also should be provided. Agencies also should consider establishing an ombudsman office to assist compliance efforts.

3. Increase use of information technology. (4)

The application of information technology in rule development and implementation should be explored by agencies individually, through the RCG, and in coordination with existing information resources management groups. At a minimum, agencies should explore computerization of rulemaking dockets. DOT found that the cost savings in storage space would exceed the costs of implementing such a program. It would also give the public easier and more meaningful access to rulemaking and policy guidance documents. Agencies also should consider establishing computer bulletin boards or automated systems that could be accessed by interested parties.

CROSS-REFERENCES TO OTHER NPR ACCOMPANYING REPORTS

Department of Transportation, DOT03: Use a ConsensusBuilding Approach to Expedite Transportation and Environmental Decisionmaking.

Executive Office of the President, EOP01: Delegate Routine Paperwork Review to the Agencies and Redeploy OMB's Resources More Effectively.

Improving Customer Service, ICS05: Streamline Ways to Collect Customer Satisfaction and Other Information from the Public.

Reengineering Through Information Technology, IT03: Develop Integrated Electronic Access to Government Information and Service.

ENDNOTES

  1. U.S. Environmental Protection Agency, "Important Characteristics of EPA Rulemaking," Regulation Development in EPA (1991 Training Materials), Chapter 1.
  2. Memorandum for Lita Orefice, Special Assistant, Office of the Secretary of Labor, from David Zeigler, Acting Assistant Secretary, Occupational Safety and Health Administration, re: NPR Systems Paper, August 4, 1993.
  3. Federal Advisory Committee Act, 5 U.S.C. App. (1988).
  4. Telephone interview with Thomas L. Montgomery, Branch Chief for Permits and Evaluation, Acid Rain Division, Environmental Protection Agency, July 13, 1993.
  5. Telephone interview with Robert Ashby, Deputy Assistant General Counsel, Regulation and Enforcement, Department of Transportation, August 6, 1993.
  6. Memorandum to Jeffrey Lubbers, Team Leader, NPR Improving Regulatory Systems Team, from Gloria Gutierrez, Acting Chief Financial Officer and Assistant Secretary for Administration, Department of Commerce, August 5, 1993, p. 2.
  7. Telephone interview with Anthony Sisto, Park Ranger, Ranger Activities Division, National Park Service, Department of Interior, August 20, 1993.
  8. See discussion in the NPR Accompanying Report, Improving Customer Service, "ICS05: Streamline Ways to Collect Customer Satisfaction and Other Information From the Public."
  9. See notes 14 and 15 and accompanying text.
  10. Under the Equal Access to Justice Act (EAJA), 5 U.S.C. 504, 504 note, 28 U.S.C. 2412, 2412 note (1988), certain parties are entitled to an award of attorneys' fees and other expenses if they successfully challenge certain agency rules. EAJA awards and litigation costs, however, would not be charged to the same account as would funding for participants in reg neg or policy discussion groups.
  11. Telephone interview with Dr. David Kessler, Commissioner, Food and Drug Administration, July 12, 1993.
  12. Bacon, Kenneth, "Banking Industry to Get Ombudsman for Rulemaking Appeals," Wall Street Journal (June 11, 1993), p. A12.
  13. Administrative Conference of the U.S., Recommendation 90-2, The Ombudsman in Federal Agencies, 1 C.F.R. 305.90-2. See also Anderson and Stockton, Ombudsmen in Federal Agencies: The Theory and Practice, 1990 ACUS Recommendations and Reports,
  14. 105.
  15. Fax to Magnolia Samadani, White House Intern, from Bea Vanderwalk, Director, Anti-Drug Information Center, DOT, August 11, 1993. Unfortunately, this system is under review for termination or reconsideration. The system has been operating for only five months and is not self-supporting. Telephone interview with Bea Vanderwalk, August 13, 1993.
  16. U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Transfer Technology Network (North Carolina, September 1992).
  17. Ziegler, Peter N. and Robert P. Knaff, Improving Safety Belt Acceptability to the Consumer (Warrendale, PA: Society of Automotive Engineers, Inc., June 1979), pp. 1-3.
  18. The National Highway Traffic Safety Administration (NHTSA) initiated the popular public service messages with the Vince and Larry characters demonstrating the benefits of seatbelts. Telephone interview with Barry Felrice, Associate Administrator for Rulemaking, NHTSA, August 6, 1993.
  19. The Paperwork Reduction Act, 44 U.S.C. 3501-3520 (1988), requires agencies to obtain clearance from the Office of Information and Regulatory Affairs for most information collection requests of 10 or more people. See note 8 above.
  20. Pub. L. 103-62 (1993).
  21. One of the major complaints against the Council on Competitiveness was that it selectively allowed back-door access for big business interests to influence the rulemaking process.
  22. See note 8 above.