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Under President Clinton's Executive Order 12866 and the Unfunded Mandates Reform Act of 1995, federal agencies are required to analyze the costs, benefits, and other effects of proposed regulations. In many cases, those regulatory impact analyses (RIAs) cost agencies significant time, money, and staff effort. Recent proposals to extend such analysis to the legislative process could impose similar analytic and reporting requirements on Congressional committees, the Congressional Budget Office (CBO), and other support agencies of the legislative branch.

This CBO paper--prepared at the request of the House Committee on Commerce--examines the personnel, contracting, and other costs associated with recent RIAs, as well as the time required to prepare them. It focuses on a sample of federal agencies whose regulations have some of the largest impacts on the U.S. economy. The paper also looks at the implications of extending such analytic requirements to the legislative process. In keeping with CBO's mandate to provide objective, impartial analysis, the paper makes no recommendations.

Barbara Johnson, formerly of CBO's Natural Resources and Commerce Division, prepared the paper under the supervision of Jan Paul Acton. Carl Muehlmann wrote Appendix B and provided statistical support. The authors are grateful for the cooperation and comments of various federal employees who prepare RIAs, including Bret Snyder, Neil Patel, Carl Kessler, Ron Evans, Gary Ballord, Barnes Johnson, Lyn Luben, Sue Stendebach, Janice Wagner, and Judy Lebowich of the Environmental Protection Agency; Paul Larson of the Federal Aviation Administration; Bob Shelton and Jim Simmons of the National Highway Traffic Safety Administration; and agency staff at the Coast Guard and the Occupational Safety and Health Administration. In addition, Perry Beider, Jim Blum, Kim Cawley, Arlene Holen, Elliot Schwartz, and Bruce Vavrichek of CBO provided helpful comments on earlier drafts of the paper. (Despite the help of those individuals, responsibility for the final content rests solely with the authors.)

Sherry Snyder and Christian Spoor edited the paper, and Marlies Dunson provided editorial assistance. Angela McCollough prepared it for publication.

June E. O'Neill
Director
March 1997
 
 

SUMMARY

I - INTRODUCTION

• Regulatory-Reform Laws and Bills
• Previous Studies of the Cost of Cost-Benefit Analysis
• Scope and Methods of CBO's Study

II - RESULTS OF THE STUDY

• Costs Vary Considerably
• The Average RIA Took More Than Two Years to Complete
• Agencies Devote Varying Numbers of Staff to RIA Work
• Determining What Constitutes an RIA Is Difficult

III - WHY DO COSTS VARY SO MUCH?

• Political Controversy
• The Rule's Cost to Society
• Technical Difficulty of the Analysis
• High Public Profile of the Rule
• Type of Information Needed for the Analysis

IV - CONCLUSIONS

• There Is No Such Thing as a Typical RIA
• Agencies Do Not Separately Track Costs for Each RIA
• RIA Costs Do Not Reflect Some Necessary Supporting Analysis
• Isolating the Universe of RIAs Is Difficult
• Implications For Extending Regulatory Analysis to the Legislative Process

APPENDIXES

A - History of Requirements for Regulatory Impact Analyses
B - How the Environmental Protection Agency Conducts a Regulatory Impact Analysis
C - CBO's Method for Calculating Resource Costs
 

TABLES
1.	Selected Studies of the Costs of Preparing Regulatory Analyses
2.	Overview of 85 Regulatory Impact Analyses By Four Agencies
FIGURES
1.	Median and Average Costs of Regulatory Impact Analyses, 1988-1996
2.	Costs of Seven Regulatory Impact Analyses Conducted by the National Highway Traffic Safety Administration, 1992-1995
3.	Costs of 23 Regulatory Impact Analyses Conducted by the Office of Water, Environmental Protection Agency, 1990-1996
4.	Costs of 25 Regulatory Impact Analyses Conducted by the Office of Air and Radiation, Environmental Protection Agency, 1990-1996
5.	Costs of 17 Regulatory Impact Analyses Conducted by the Office of Solid Waste, Environmental Protection Agency, 1990-1996
6.	Costs of Regulatory Impact Analyses and Section 411l(b) Studies Conducted by the Coast Guard, 1990-1996
7.	Median Time to Complete a Regulatory Impact Analysis
8.	Costs of Regulatory Impact Analyses and a Regulatory Evaluation at the Federal Aviation Administration

 

Recent proposals for regulatory reform would subject the regulations that federal agencies issue to increased cost-benefit analysis. Various laws and executive orders already require such analyses (known as regulatory impact analyses, or RIAs) for any "significant" rule--defined as one that would cost more than $100 million a year or have adverse effects on the U.S. economy or the federal budget. Some recent legislative proposals would also have the Congressional Budget Office (CBO) or other Congressional support agencies perform similar work.

Many studies have explored whether the benefits of regulation justify its costs, but few have examined the nature and level of resources necessary for the government to conduct cost-benefit analyses. CBO has tried to fill that gap by studying the costs of 85 RIAs from six offices in four agencies: the Environmental Protection Agency (EPA), the Coast Guard, the Federal Aviation Administration (FAA), and the National Highway Traffic Safety Administration. CBO chose those agencies because they are frequently cited as imposing significant regulatory costs on the economy.

CBO also examined cost data on regulatory analyses from the Occupational Safety and Health Administration, but OSHA was unable to distinguish RIAs from other analyses. Thus, OSHA's analyses are not included in the final RIA count, but some of its cost information is presented for purposes of comparison. Examining other regulatory agencies, such as the Food and Drug Administration and the Department of Agriculture, would also have been instructive, but CBO was unable to do so because of time limitations.

The majority of the RIAs in CBO's study date from 1990 through 1996, although some of the analyses are still going on, and five were published before 1990. (The FAA submitted some RIA data from 1988 and 1989.) CBO reviewed that seven-year period to capture the most recent analyses and to account for the fact that RIAs can take years to complete.

Based on the sample of 85 analyses, the average cost per RIA was about $570,000, with a range of $14,000 to more than $6 million per analysis. The median cost (the value below which half of the costs per RIA are found) was $270,000, indicating that a few relatively expensive analyses were skewing the average upward. When the four RIAs that cost more than $2 million were excluded, the average and median costs were about $390,000 and $270,000, respectively. (All values are stated in 1995 dollars.)

The RIAs in CBO's study also varied considerably in the amount of time they took to complete, with an average of three years and a range of six weeks to more than 12 years. For agencies that use outside contractors (all EPA offices and the Coast Guard), in-house personnel costs--salary, fringe benefits, and estimated overhead--accounted for about one-third of all RIA costs; spending on outside contractors accounted for the remaining two-thirds.

Although CBO's study represents a best attempt to collect and verify original data from a sample of agencies that conduct RIAs, it leaves many questions unanswered. The most difficult is why the costs of analyses vary so much, both among agencies and within them. CBO identified several possible reasons based on anecdotal evidence from agency staff. A thorough exploration would require investigating the history of each rule, which was beyond the scope of CBO's review.

Despite those limitations, the Congressional Budget Office identified several features of regulatory impact analyses and similar analytic efforts by federal agencies:

• There Is No Such Thing as a Typical RIA. The cost of the analyses and the time needed to complete them varied tremendously in CBO's survey. Anecdotal evidence suggests several reasons for that variability, including the scope and complexity of the rule being analyzed, the nature of the information required to perform the RIA, and the degree of political consensus surrounding the rule. The costs and time needed to perform similar regulatory analysis in the future will probably also vary--both at executive agencies and at CBO or other parts of the legislative branch that might be required to undertake similar analysis.
  
  
• Agencies Do Not Track Costs Separately for Each RIA. Although agencies employ both government personnel and outside contractors to perform RIAs, none of the agencies that CBO reviewed keep track of the total contract and personnel costs incurred for each regulatory impact analysis. In addition, estimates of the time that government personnel spend on RIAs are imprecise because agencies do not keep time sheets by activity. Estimates of contractor costs are more reliable because they can be traced through billing records. However, even contractor costs can be hard to allocate if one contract includes work on several RIAs. As a result, accurately projecting the costs that another office might experience in undertaking regulatory analysis is difficult because the components of the baseline costs are not well documented.
  
  
• Reported RIA Costs Do Not Reflect the Cost of Some Supporting Analysis. Agencies routinely perform economic analysis on proposed rules. Some of that analysis is included in the RIA and some is not, but even analysis excluded from the final document plays a role in the decisionmaking process. Moreover, agencies often need to perform other types of analysis--such as risk analyses or engineering studies--to determine the costs and benefits of a regulation. Although those studies are necessary precursors to the RIA, they are not included in the costs attributed to preparing it. By excluding the costs of those studies, the agencies in CBO's survey may underestimate the costs of performing regulatory impact analyses. Other agencies--including CBO--would therefore probably need to establish some added analytic infrastructure to support a regular program of regulatory analysis.
  
  
• Determining What Constitutes an RIA Is Difficult. Although the term "regulatory impact analysis" usually signifies a cost-benefit analysis performed for a significant rule, other working definitions exist. Some officials define an RIA as any analysis that considers benefits as well as costs, or that considers alternatives as well as the preferred option, even if it is not for a significant rule. Also, some RIAs are never published because the rules they are associated with are never finished and put into effect. Consequently, although much work has gone into the analysis, the RIA will never show up on any list of published analyses. Given all of those difficulties, it can be hard to define and isolate the universe of RIAs. That problem will be compounded if such analysis is moved to the legislative stage, because the form the potential regulations might take and whether they will be significant or minor are generally even more uncertain at that point.

In sum, regulatory impact analyses generally require a considerable amount of resources and time. Conducting comparable analysis within the current legislative process would be difficult even if sufficient resources were made available. The Congress has the ability to consider and vote on a bill the same day the bill is reported by a committee if it chooses to do so, and normal rules permit a bill to be considered in as few as three days. By contrast, even the quickest analysis in CBO's review took six weeks. Furthermore, the average duration per analysis--three years--is longer than the two-year session of Congress between national elections.

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