NRCA's comments about the costs and benefits of federal regulations, May 2003
On May 5, 2003, NRCA submitted comments to the Office of Management and Budget (OMB)
regarding its report to Congress about the costs and benefits of federal regulations.
NRCA's comments follow.
May 5, 2003
Office of Information and Regulatory Affairs
Office of Management and Budget
725 17th St., N.W.
Washington, D.C. 20503
Re: Draft 2003 Report to Congress about the Costs and Benefits of Federal Regulations
Dear Ms. Hunt:
On behalf of the National Roofing Contractors Association (NRCA), I appreciate the
opportunity to provide comments about the Office of Management and Budget's (OMB's)
"Draft 2003 Report to Congress about the Costs and Benefits of Federal Regulations"
prepared pursuant to the Regulatory Right-to-Know Act. Established in 1886, NRCA
is one of the construction industry's oldest trade associations and the voice of
professional roofing contractors worldwide. NRCA is an association of roofing, roof
deck and waterproofing contractors; industry-related associate members, including
manufacturers, distributors, architects, consultants, engineers, and city, state
and government agencies; and international members. NRCA has more than 5,000 members
from 50 states and 54 countries and is affiliated with 105 local, state, regional
and international roofing contractor associations.
Recent studies estimate the annual compliance costs of federal regulations at more
than $850 billion, and this figure is projected to grow dramatically in coming years.
These costs are manifested in the form of higher prices for goods and services,
reduced wages and benefits for workers, job losses, lost productivity, slower technological
innovation and diminished economic growth. Alarmed by the enormous and growing volume
of federal regulations and concerned that much of the underlying data and assumptions
are of poor or questionable quality, NRCA believes it is imperative that the data,
methodology and analytical assumptions used by agencies in the federal rulemaking
process conform with the most stringent and demanding rigors of sound scientific
and statistical standards.
Before proceeding to specific concerns with the draft guidelines, it is important
to highlight that NRCA is encouraged by OMB's demonstrated appreciation of the impact
of regulatory action. In particular, NRCA is pleased to note OMB's recommendation
to agencies to strive for greater transparency in their analysis. NRCA equally is
delighted by OMB's attention to the importance of evaluating distributional effects.
Many NRCA members are classified as small businesses, and they know all too well
that the costs of regulatory compliance fall disproportionately and most heavily
on small businesses.
Although OMB saw fit to address the issue of data quality last year, NRCA believes
it appropriate to highlight again the absolute necessity for using only data of
the highest quality and integrity in the federal rulemaking process. The data itself
informs and is linked inextricably to the methodology and analytical assumptions
and as such will necessarily drive the variables entertained in sound regulatory
analysis. As you are aware, the Data Quality Act was passed as part of the Treasury
and General Government Appropriations Act for Fiscal Year 2001 (Public Law 106-554).
Included as an amendment without great fanfare, the Data Quality Act required OMB's
director to issue guidelines that provide policy and procedural guidance to Federal
agencies to ensure and maximize the quality, objectivity, utility and integrity
of information disseminated by agencies. Pursuant to this congressional mandate,
on Feb. 22, 2002, OMB issued a notice of standards to improve the quality of various
types of information disseminated by governmental agencies (67 Fed. Reg. 8452-60).
Specifically, OMB directed agencies "with regard to analysis of risks to human health,
safety and the environment…to either adopt or adapt the quality principles applied
by Congress to risk information used and disseminated pursuant to the Safe Drinking
Water Act Amendments of 1996 (SDWA)." The Department of Labor (DOL), one of the
agencies subject to OMB's notice, then sought to implement this directive with its
own agency-specific guidelines, which it issued on May 1, 2002. NRCA submitted comments
to DOL about OMB's data quality guidelines in June 2002 and commends OMB's effort
to ensure data conform to the highest standards.
NRCA believes OMB's effort raises numerous questions and poses difficult challenges
for regulating agencies and the stakeholder community. Questions that need to be
addressed include the following:
Is there any such thing as too little data?
How is data of different quality to be treated?
What is the threshold of reliability?
What if further research yields additional information?
These questions must be answered because federal agencies possess a finite amount
of resources and will limit and tailor their actions accordingly. Alternatively,
the regulated audience has an interest in ensuring that only the best data be incorporated
into the rulemaking process. And yet, even the notion of relying on the "best available
data" is fraught with risk. For instance, if there is only one study about an endangered
species or the health effects of asphalt fumes on humans, the particular regulating
agency could move forward while claiming that it is proceeding with the "best available
data." And though a tautology, the statement would be true because it's the only
data available. At a minimum, OMB should encourage further debate about the issue
of data quality.
Concerns with the OMB draft guidelines
Despite the admirable qualities of the Feb. 3 draft, NRCA believes the draft guidelines
include a number of opportunities for improvement and further consideration. NRCA
is aware OMB will receive numerous and extensive comments from a broad spectrum
of interested parties, many of whom are industry allies of NRCA with similar objections.
As such, NRCA will limit its discussion to Appendix C of the draft report and will
focus on the following three points:
OMB's draft expresses qualified support for a controversial value-estimation methodology
known as contingent valuation. NRCA is in full agreement with OMB's acknowledgment
that "value estimates derived from contingent-valuation studies require greater
analytical care than studies based on observable behavior." Despite such limitations,
OMB suggests the technique should be available to regulating agencies because contingent-valuation
methods "may provide the only analytical approaches" for estimating "nonuse" values.
NRCA does not disagree that the method may be the only tool available for estimating
nonuse values but believes the standard is so flawed fundamentally as to warrant
exclusion altogether. The central problem with contingent valuation is that it relies
on stated-preference methods because revealed-preference estimates are unavailable.
And the underlying assumption of the method is that values, or preferences, are
nonrelative and static. In truth, values are relative and dynamic. When confronted
with decisions that will have a discernible impact on an individual's welfare, that
individual will make choices informed by anticipated costs and benefits.
As such, contingent valuation is inappropriate because it attempts to graft an unsuitable,
subjective paradigm onto the federal rulemaking process. In other words, contingent
valuation imposes a normative notion, uninformed by revealed preferences. NRCA believes
federal agencies should not be placed in the position of having to render or be
given the opportunity to make such political decisions. These decisions reflect
societal attitudes at a particular point in time - they are normative judgments,
properly reside within the province of politics and should be made by elected officials.
In short, our political system is not designed for regulators to craft policy. To
illustrate this point, one need only consider the fact that attitudes tend to change
over time, and in today's culture, media play a growing role in shaping and altering
those attitudes. It's probably no small coincidence that as public awareness about
the environment grows through greater exposure to mass media, environmental regulation
has become more prominent in the public debate.
Avoided costs as a surrogate for benefits
Put simply, this is flawed logic. The assumption is that the costs of a particular
action will equal the benefits of such action. But this assumption fails to stand
up to reason. Take wetlands restoration, for example. It is easy to imagine a scenario
in which a wetland of poor ecological quality (perhaps the wetland is in a remote
or inaccessible area but has never served as critical habitat) would require significant
funds to restore to its original state. In this case, the wetland would be restored
at great cost while yielding little environmental or ecological benefit. NRCA believes
OMB should instruct agencies to avoid such substitutive reasoning.
Assumptions about technical change and innovation
OMB's proposed guidance appears to rely on the belief that technical change and
innovation will provide future solutions and remedies to regulated targets. NRCA
believes that under no circumstances should federal agencies assume facts not in
evidence. In other words, agencies should make no assumptions regarding the appearance
of future technologies capable of providing the means to achieve particular regulatory
goals. It certainly is reasonable to believe that the wheels of progress will continue
to move forward and that faith in innovation must remain grounded in the realm of
technologies that have been shown to be economically practical and physically possible.
On behalf of NRCA, I want to thank OMB for providing the public the opportunity
to comment on its draft guidelines. NRCA applauds OMB's efforts to assess the costs
and benefits of regulatory action and hopes federal agencies embrace its initiative,
as such risk assessment marks a tangible improvement over the status quo. NRCA is
convinced that adherence to sound methodological techniques and analytical assumptions
will improve the existing rulemaking process, better enable OMB to fulfill its commitment
to high-quality risk assessment and provide federal agencies strong direction in
answering OMB's challenge. Therefore, NRCA encourages OMB to give careful consideration
to the concerns outlined above and to comments offered by other informed and well-intentioned