Statement of the U.S. Chamber of Commerce

Statement of the U.S. Chamber of Commerce FOR: TO: BY: SUBMISSION FOR THE RECORD ON HEARING CONCERNING H.R. 2122, THE REGULATORY ACCOUNTABILITY ACT OF 2013 HOUSE COMMITTEE ON THE JUDICIARY, SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW WILLIAM L. KOVACS, SENIOR VICE PRESIDENT, ENVIRONMENT, TECHNOLOGY & REGULATORY AFFAIRS DATE: JULY 9, 2013 The Chamber s mission is to advance human progress through an economic, political and social system based on individual freedom, incentive, initiative, opportunity and responsibility.

The U.S. Chamber of Commerce is the world s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations. More than 96% of Chamber member companies have fewer than 100 employees, and many of the nation s largest companies are also active members. We are therefore cognizant not only of the challenges facing smaller businesses, but also those facing the business community at large. Besides representing a cross-section of the American business community with respect to the number of employees, major classifications of American business e.g., manufacturing, retailing, services, construction, wholesalers, and finance are represented. The Chamber has membership in all 50 states. The Chamber s international reach is substantial as well. We believe that global interdependence provides opportunities, not threats. In addition to the American Chambers of Commerce abroad, an increasing number of our members engage in the export and import of both goods and services and have ongoing investment activities. The Chamber favors strengthened international competitiveness and opposes artificial U.S. and foreign barriers to international business. Positions on issues are developed by Chamber members serving on committees, subcommittees, councils, and task forces. Nearly 1,900 businesspeople participate in this process. 1

Written Statement for Hearing Record on H.R. 2122, the Regulatory Accountability Act of 2013 Committee on the Judiciary of the U.S. House of Representatives, Subcommittee on Regulatory Reform, Commercial and Antitrust Law Written Statement of William L. Kovacs Senior Vice President, Environment, Technology & Regulatory Affairs U.S. Chamber of Commerce July 9, 2013 On behalf of the U.S. Chamber of Commerce, thank you for the opportunity to submit this written statement for the hearing record on H.R. 2122, the Regulatory Accountability Act of 2013. My name is William L. Kovacs and I am senior vice president for Environment, Technology and Regulatory Affairs at the U.S. Chamber of Commerce. This bill addresses a major problem in our current regulatory process: the rushed, non-transparent process employed by federal agencies to issue new rules. This problem results in multimillion- and even billiondollar rules being written that are poorly conceived, inadequately supported, poorly designed, and, from a legal standpoint, fatally flawed. The Chamber strongly supports the Regulatory Accountability Act and believes the reforms will help the regulatory system to function in the manner that Congress intended. A. The Regulatory Accountability Act Modernizes the Badly Outdated Federal Rulemaking Process Federal agencies very often fail to grasp the full impact that their new regulations added to prior rules and those of other agencies have on businesses, communities, and the economy as a whole. While agencies are currently required to undertake some consideration of the impacts their rules will have on regulated entities and the economy, 1 these reviews are limited and often conducted in a hurried, perfunctory fashion. Agencies increasingly have to take shortcuts to meet tight rulemaking deadlines, and very often fail to perform the full range of scientific and economic analyses necessary to know how best to design and develop a rule that regulated entities can comply with. As a result, rulemakings produce flawed, incoherent rules that become subject to lengthy court challenges, leaving regulated parties struggling to understand what exactly they have to do to comply with the law. 1 See, e.g., Executive Order 12,866 (1993)(requiring interagency economic review of major rules that are likely to have an annual effect on the U.S. economy of $100 million or more); Regulatory Flexibility Act, 5 U.S.C. 601, et seq. (requiring federal agencies to consider the impact their proposed rules will have on small businesses and small governments). 2

To address this problem, the Regulatory Accountability Act of 2013 has been introduced in both the House and the Senate, 2 with bipartisan support. The legislation would put balance and accountability back into the federal rulemaking process, without undercutting vital public safety and health protections. The bill focuses on the process of developing regulations. Better process will produce better substance, which results in better regulations. The Regulatory Accountability Act would achieve these important goals by: Defining high-impact rules as a way to distinguish the 5-7 rulemakings each year that would impose more than $1 billion a year in compliance costs. Giving the public an earlier opportunity to participate in shaping the most costly regulations before they are proposed. At least 90 days prior to the time the rule is proposed, the agency must provide the public with a written statement of the problem to be addressed, as well as the data and evidence that supports the regulatory action. The agency must accept public comments on the proposal. Requiring agencies (including independent agencies) to select the least costly regulatory alternative unless the agency can demonstrate that a more costly alternative is necessary to protect public health, safety, or welfare. Requiring agencies to consider the cumulative impacts of regulations and the collateral impacts their rules will have on businesses and job creation. Allowing stakeholders to hold agencies accountable for complying with the Information Quality Act, 3 which requires agencies to use data that is objective and reliable. The public would also have the opportunity to correct data that does not meet IQA standards. Providing for on-the-record administrative hearings for the very few most costly rules to verify that the proposed rule is well-conceived and well-supported by good scientific and economic data. Requiring agencies to be better-prepared before they propose a costly new rule. It requires agencies to justify the need for the rule and show that their proposal is actually the best alternative. Although agencies often resist undertaking this detailed degree of preparation, making them do their homework produces a better rule that is more likely to survive judicial challenge. Restricting agencies use of interim final regulations, where the public has no opportunity to comment before a regulation takes effect. The Act would require federal agencies do a better job of explaining the rationale for new rules and being more open and transparent when they write those rules. The Act simply requires additional process to ensure a better rulemaking product; it does not compel any particular rulemaking outcome. The Act will bring the Administrative Procedure Act of 1946 ( APA ) into the modern era. Today s regulatory landscape is far different from what it was in 1946. Only a handful of today s federal agencies existed 66 years ago. Many of today s most prolific rule-writing agencies were not created until the 1960s and 1970s (e.g., Department of Transportation (1966), Environmental Protection Agency (1970), Consumer Product Safety Commission (1972), 2 S. 1029 was introduced on May 23, 2013, with original co-sponsors Senators Rob Portman, Mark Pryor, Susan Collins, Bill Nelson, Joe Manchin, Angus King, Kelly Ayotte, Mike Johanns, and John Cornyn. 3 Public Law 106-554, Section 515 (2001); 67 Fed. Reg. 8,452 (Feb. 22. 2002). 3

Occupational Safety and Health Administration (1970), Department of Energy (1977), and Mine Safety and Health Administration (1977)). Each year, these and other agencies write some 30 major rules, each of which has an annual effect on the economy of $100 million or more. Moreover, no less than seven of the rules agencies were poised to issue in 2011 had compliance price tags of $1 billion or more. 4 Rules of this magnitude were unheard of in 1946. A modernized APA is needed to restore the kinds of checks and balances on federal agency action that the 1946 APA was intended to provide the American people. B. Examples of How the Regulatory Accountability Act Would Improve the Most Important Rulemakings If the Regulatory Accountability Act becomes law, it would greatly improve the way that the most important rules are written. Just two recent examples illustrate how the Act would require agencies to conduct better rulemakings: Cement MACT rule. When EPA issued the final Maximum Achievable Control Technology (MACT) standard for the Portland cement industry in 2010, it was the most stringent air toxics standard ever written. In fact, the standard was overly stringent because incomplete emissions testing data for the industry was used to set the standard. EPA also specified monitoring methods in the standard that were technically unachievable. As written, the rule was estimated to cost at least $3.4 billion and result in the closure more than 20% of the cement plants in the U.S. This would have led to more cement having to be imported from overseas, and higher overall emissions and costs for the same amount of cement. If the Act had been law, stakeholders would have been able to present additional relevant emissions data to EPA in an on-the-record hearing. The agency would have learned why regulated plants could not meet the planned monitoring requirements. EPA would have had to consider the impact of the rule on the U.S. economy and related industries (such as concrete companies) that depend on cement for their business. As a result of the Act, EPA would have had the information it needed to select an achievable standard based on adequate data that would still significantly reduce air toxics. The agency would have avoided issuing a final rule that EPA itself subsequently acknowledged was so deficient that it had to be substantially revised. By getting the rule right in the first place, the agency would have had an effective Cement MACT rule in place one that industry could comply with years earlier than it actually did. EPA also perhaps could have avoided the time and effort of protracted litigation over the flawed standard. Revised Ozone National Ambient Air Quality Standard. In September 2011, EPA was on the brink of proposing a reconsidered, significantly tightened National 4 The seven rules: EPA, Reconsideration of the 2008 Ozone NAAQS ($19-90 billion), EPA, Utility MACT ($10 billion), EPA, Boiler MACT ($3 billion), EPA, Coal Ash Rule ($0.6-1.2 billion), DOT, Federal Motor Vehicle Safety Standard Rear-View Mirrors ($2 billion), DOT, Hours of Service On-Board Recorders/Recordkeeping ($2 billion), and DOT, Hours of Service (1 billion). 4

Ambient Air Quality Standard (NAAQS) for ozone. While the planned standard was withdrawn by the Administration on September 2, 2011, EPA is expected to propose a revised ozone NAAQS in late 2013 or early 2014. EPA itself had estimated that the 2011 revised ozone NAAQS would carry compliance costs of up to $90 billion per year. A stringent new ozone standard would have profound economic impacts on many areas of the country that fail to meet the new limit, including growth bans and other restrictions. If the Act were law, EPA would be required to issue an Advanced Notice of Proposed Rulemaking and provide stakeholders with detailed data on the need for a more stringent standard, its benefits, its costs, and its overall impact on the U.S. economy. Those stakeholders would have been able to challenge the agency s assumptions about the data supporting the rule and impact of the rule on communities and businesses. C. The Regulatory Accountability Act Allows Better Public Involvement in the Rulemaking Process And Results In Better Rules For the most costly rules, the opportunity for a hearing with the ability to ask specific questions to the agency gives stakeholders the best way to verify the underlying data an agency relies on, as well as the regulatory alternative the agency selected. In typical notice and comment rulemaking also known as informal rulemaking, the agency is free to discount written comments and information with which it does not agree. Stakeholders have a very limited ability to inquire directly of the agency why various choices were made and get a response. Even if those stakeholders get contrary data or other information into the rulemaking docket, a reviewing court typically defer to the agency s determination of which data to rely on. Under H.R. 2122, however, interested parties in the most costly rulemakings would have an opportunity to probe the data and evidence an agency is using through an administrative hearing 5. This hearing would be on-the-record, meaning that a transcript of the proceedings would become part of the docket for the rulemaking. This transcript would be available for any subsequent legal challenges to the rule. In rulemakings involving the most costly regulations ($1 billion or more per year in compliance costs), where there is concern about whether an agency has grounded its regulation on adequate, reliable data and whether the agency has fully considered reasonable alternatives, an on-the- record hearing is the most effective way to ensure that these critical issues are explored in a manner that is open and transparent. H.R. 2122 references current APA sections 556 and 557 to describe the hearing process, thereby creating a hybrid process for the relatively few (5-7 per year) high-impact rules. Under this hybrid process, notice and comment would come first, followed by a limited administrative hearing. The hearing would most likely be presided over by an Administrative Law Judge, who would hear the evidence and control the order of witnesses. At the conclusion of the hearing, the ALJ would submit the hearing record to the agency with or without recommendations. The agency would consider the comments received during the public comment period, as well as the evidence received during the hearing, 5 In the case of major rules, a stakeholder could petition for the hearing. Stakeholders could also petition for a hearing on the quality of the data used by the agency, under guidelines pursuant to the Information Quality Act, Pub. L. No. 106-554 (2001). 5

and the agency (not the ALJ) would make the ultimate decision on issuing the final rule. Thus this limited hearing would not significantly delay or otherwise alter the agency s conduct of the rulemaking. Any court challenge to the rulemaking would occur after the rule is final; nothing that takes place in the hearing would prevent the issuance of the rule. The Occupational Safety and Health Act (OSHA) currently provides for a similar type of hybrid hearing at the request of interested parties. 6 Experience with these hearings has shown that they have minimal impact on an agency s ability to issue rules in a timely fashion. Indeed, in what was perhaps the highest profile example the ergonomics regulation proposed at the end of the Clinton administration the agency published the proposal, held a hearing, and issued the final rule within one year, even though it was the most complicated and extensive regulation in the agency s history. Hearings on the record are commonplace for other types of administrative proceedings, even relatively routine ones. The U.S. Department of Agriculture, Agricultural Marketing Service, for example, uses on the record hearings as part of the process of issuing milk pricing regulations. This type of hearing is useful because it defines the facts that support or call into question the proposed regulation, it refines the facts under the force of truth testing, and it confines the facts upon which a rule may be issued to those within the hearing record. 7 Some have pointed to formal rulemakings conducted during the 1960s and early 1970s to illustrate what they believe are inherent difficulties with on-the-record hearings during informal rulemakings. It must be remembered these awkward proceedings occurred during a very different era for federal agencies one where extremely complex, billion-dollar regulations were unheard of. The contemporary experience with on-the-record hearings in OSHA and USDA rulemakings demonstrates that these hearings are entirely appropriate for the most costly and farreaching new rules. 8 It is by no means asking too much of an agency to be willing to subject the facts and assumptions it relies on for a $1 billion-plus per year rule to this type of fact testing. H.R. 2122 would require agencies to identify and adopt the least costly alternative that accomplishes the regulatory objective authorized by Congress. If the agency finds that one alternative meets the statutory objective and is less costly than other alternatives, the agency is required to adopt that alternative. If the agency does not believe that an alternative meets the relevant statutory objective, the agency is free to reject the alternative on that basis. Moreover, if the agency believes that a more costly alternative is needed the agency can select the more costly alternative with a showing that the more costly alternative is justified on the basis of public health, safety, or welfare. H.R. 2122 would not affect an agency s ability to determine what the 6 29 U.S.C. 655(b)(3). See also 29 C.F.R. 1911.15-18. Other statutes require agencies to provide formal or hybrid rulemakings: 15 U.S.C. 57a(c)(2)(B)(Federal Trade Commission); 21 U.S.C. 371(e)(Food and Drug Administration); and 15 U.S.C. 2603(b)(5)(EPA Toxic Substances Control Act). 7 Hearings for the most costly rules conducted under H.R. 2122 would have many of the benefits of the Small Business Advocacy Review (SBAR) Panels required under the section 609 of the Regulatory Flexibility Act, as amended. 5 U.S.C. 609(b). Over the past 15 years, the Panel process has proven to be valuable by requiring faceto-face exchanges of information between agency personnel and representatives of small businesses a new rule would regulate. The opportunity to confront an agency concerning the design of its rule often results in a bettercrafted, better-tailored rule. 8 Statement for the Record of Benjamin F. Yale (October 25, 2011), submitted to the House Judiciary Committee for its Hearing on H.R. 3010, the Regulatory Accountability Act of 2011; see Hearing Record Serial No. 112-75 at 175 (available on House Judiciary Committee website for 112 th Congress Hearings, October 25, 2011). 6

relevant congressional objective of a statute is. Where Congress has given an agency the discretion to interpret a broad congressional objective (e.g., promote worker safety ), the agency has the discretion to interpret how to meet the congressional objective. The agency is free to determine (1) how to meet the objective, (2) which regulatory alternatives meet the objective, and (3) the costs and benefits of each alternative. H.R. 2122 would not affect any existing regulations, nor would it affect enforcement actions. Pursuant to executive branch guidelines, federal agencies are currently already responsible for evaluating the costs and benefits of their proposed rules. Even in situations where agencies are not permitted to consider costs, such as when EPA sets air quality standards under the Clean Air Act, they still prepare a cost/benefit analysis. H.R. 2122 would simply require the agency to take the next step and select the lowest-cost alternative or show why a higher-cost alternative is justified. H.R. 2122 s requirement to consider and adopt the lowest cost alternative is analogous to current requirements under section 205 of the Unfunded Mandates Reform Act (UMRA). 9 That law requires that federal agencies shall identify and consider a reasonable number of regulatory alternatives and from those alternatives select the least costly, most cost effective or least burdensome alternative that achieves the objectives of the rule. 10 Like H.R. 2122, UMRA also allows an agency to provide an explanation of why the least costly, most cost-effective or least burdensome method of achieving the objectives of the rule was not adopted. 11 UMRA has been law since 1995, and the statutory mandate to adopt the lowest-cost alternative has not negatively impacted the rulemaking process or discernibly weakened regulatory protections for health, safety, and welfare. For rules that impose the highest burden and costs, H.R. 2122 would require agencies to spend more time at the front-end of the process gathering data and preparing for a rulemaking, which allows agencies to spend less time trying to fix poorly-written rules at the end of the process. The process envisioned by H.R. 2122 is similar in concept to the process that now governs rules required to go through the Small Business Advocacy Review (SBAR) Panel process required under section 609 of the Regulatory Flexibility Act (RFA). 12 The Panel process is designed to force an agency to prepare detailed information about the planned rule, the data that supports it, and the cost of the rule five to seven months before the proposed rule will be published in the Federal Register. Stakeholders have the opportunity to meet with the agency face-to-face and exchange information about the need for the rule, the data underlying the rule, and the cost to comply with the rule. This process results in the rule subsequently being tailored to better fit the regulated community. While the SBAR Panel process typically adds at least five months to the overall rulemaking process, the 50 or so significant EPA and OSHA rules that have gone through SBAR Panels since 1996 with more front-end preparation and stakeholder input were typically finalized and implemented more smoothly than other rules. 13 And, 9 2 U.S.C. 1535. 10 2 U.S.C. 1535(a). 11 2 U.S.C. 1535(b). 12 5 U.S.C. 609(b); in fact, several provisions of the Regulatory Accountability Act are modeled after provisions of existing law. For example, the lowest-cost alternative language of the bill is based on language from section 205 of the Unfunded Mandates Reform Act, 2 U.S.C. 1501 et seq. 13 Examples of this type of positive rulemaking experience include the Line Industry Air Pollution rule (2004) the Non-road Diesel Engines rule (2004), the Mobile Source Air Toxics rule (2007) and the Non-road Spark-Ignition Engines/Equipment rule (2008). 7

because agencies benefitted from stakeholder input early in the process, these rules were more likely to be complied with immediately and less likely to be delayed with lengthy court challenges. With better front end preparation, high-impact rulemakings are much more likely to proceed smoothly on the back end of the process. H.R. 2122 would require independent agencies to comply with the procedural checks and balances contained in Executive Orders, Office of Management and Budget Circulars, and other directives. In addition to its other features, the bill would extend important procedural requirements to independent agencies such as the Federal Communications Commission. This will make the regulatory activities of independent agencies more open and transparent, and allow the public to have a greater voice in important agency decisionmaking. Thank you for the opportunity to present this written statement. 8