In a 1979 message to Congress calling for regulatory reform, President Jimmy Carter noted: “Our society’s resources are vast, but they are not infinite. Americans are willing to spend a fair share of those resources to achieve social goals through regulation. Their support falls away, however, when they see needless rules, excessive costs, and duplicative paperwork.” Nearly four decades later, hundreds of agencies and thousands of programs are not producing the results they promise in their Regulatory Impact Analyses or budget justifications to Congress. As a result, social costs are higher and net social benefits are lower than they should be.

To reduce the costs of new regulations, agencies should face a regulatory budget constraint. Heads of regulatory agencies already face budgetary choices with the resources appropriated to them by Congress for staff, office space, supplies, and travel. But the agencies do not face an explicit constraint on the regulatory compliance costs they impose on firms and consumers. Congress has noticed this and has passed bills, particularly through the House of Representatives trying to implement the concept of a regulatory budget. To date, the results of these efforts have been disappointing to say the least.

The first proponent of a regulatory budget was Robert Crandall of the Brookings Institution, and the first legislative attempt at this idea was offered by Sen. Lloyd Bentsen (D–Texas) and Rep. Clarence “Bud” Brown Jr. (R–Ohio) in 1979. John Morrall III, then the top career staffer in the Office of Information and Regulatory Affairs, suggested in a 1992 paper that a regulatory budget should result in 1) a more cost-effective allocation of society’s resources, 2) require an explicit consideration of the cost of private resources and, 3) rely more on decentralized decisionmaking.

The very fact that there have been academic articles and legislation supporting regulatory budgets for almost 40 years would suggest that it is difficult to get bipartisan agreement on such measures. Certainly one objection might come from economists who would argue that net benefits—i.e., regulatory benefits minus regulatory costs—are the appropriate measure rather than just costs. But to determine net benefits, agencies would actually have to conduct cost–benefit analyses accurately and then pay attention to them, which the evidence suggests they do not do.

I believe the federal government can initiate a regulatory budget without new legislation from Congress. True, Congress should begin to exercise its proper role under Article 1, Section 1 of the Constitution that states that all power to make laws are vested in the Congress, while carrying out those laws is vested in the executive. But budgeting—whether for the agencies’ own resources or how they prioritize what they will regulate—rests squarely in the hands of the administrators of those agencies.

In 1978 the Senate Governmental Affairs Committee concluded in Vol. VII of its Study of Federal Regulation that agencies should issue statements of goals and priorities, including specific objectives for actions in their respective programs including “projected dates for their accomplishment, along with proposed resources allocations for these areas, sufficient to accomplish each objective by the specified date.” Agency administrators (politically appointed department secretaries and commissioners) can establish their own regulatory budgets for their agencies as a way to constrain the total expenditures they impose on regulated entities and, more importantly, on American consumers. If done at the agency level, the administrator may determine the best way for her particular agency to carry out such a budget.

These budgets could be considered “pilot” projects and, over time, agencies could try different ways to budget their expenditures of social resources. There are multiple ways in which these budgets may be enacted, such as the “one-in, two-out” rule recently adopted by the Trump administration (where, for every new regulation, two older ones must be removed) or an overall social cost budget. This could be done for the agency overall, by program, or even by authorizing legislation. These tools could be developed entirely inside the agency with help from the Office of Management and Budget or by sharing plans for budgets and prioritization with the regulated public (asking for comment). The latter is illustrated by the Consumer Product Safety Commission’s policy of sharing potential prioritization of annual rules with both the entire staff of the CPSC and the public for comment.

Over time and with experience, agencies could develop regulatory budgets as a matter of good governance and Congress, as it proceeds with its deliberations, could use the results to better inform its efforts to constrain the growth of the administrative state. It can insist on annual reports describing what appears to be working and what does not, and ultimately can establish budgets that square up with what it tasks agencies to do in authorizing legislation.

One immediate effect of such budgeting perhaps would be for agencies to focus on, as Adam Finkel has written, “Worst Things First.” A secondary effect might ultimately be that bad regulations (those that don’t accomplish much) don’t crowd out compliance with good regulations.

The point is, as part of good management, agency leaders can start now under their own volition or simply under command from a presidential memo to properly budget their own resources and the ones they command from us. President Trump has already issued one order intended to improve regulation. More such efforts would be welcome.

Readings

  • “Benefit-Cost Analysis on the Chehalis Basin,” by Ryan Scott, Richard O. Zerbe Jr., and Tyler Scott. Regulation 36:2 (Summer 2013), 20–25.
  • “Controlling Regulatory Costs: The Use of Regulatory Budgeting,” by John F. Morrall III. Organisation for Economic Co-operation and Development, 1992.
  • “OIRA Quality Control Is Missing for Most Regulations,” by Richard A. Williams and James Broughel. Mercatus Center at George Mason University, Oct. 1, 2014.
  • “OMB’s Reported Benefits of Regulation: Too Good to Be True?” by Susan Dudley. Regulation 36:2 (Summer 2013), 26–30.
  • “Regulatory Budgeting: Lessons from Canada,” by Sean Speer. R Street Institute, March 2016.
  • Worst Things First: The Debate over Risk-Based National Environmental Priorities, edited by Adam Finkel and Dominic Golding. Resources for the Future, 1994.