Promise and peril - Implementing a regulatory budget

The size of the federal budget tells only one part of the tale of governmen t's presence in the market economy. The enormous amounts of non-tax dollars government requires to be spent on regulation - estimated at $647 billion per year - powerfully argue for some sort of regulatory scorekeeping. Regul atory costs are equivalent to over one-third of the level of government spe nding. A regulatory budget can be an effective tool both for spurring refor m and monitoring regulatory activity. At bottom, today's rulemaking process is plagued by the fact that agency bu reaucrats are not accountable to voters. And Congress - though responsible for the underlying statutes that usually propel those unanswerable agencies - nevertheless can conveniently blame agencies for regulatory excesses. In deed, Americans live under a regime of 'Regulation Without Representation.' A regulatory budget could promote greater accountability by limiting the re gulatory costs agencies could impose on the private sector. Congress could either specify a limit on compliance costs for each newly enacted law or re authorization of existing law, or Congress could enact a more ambitious ful l-scale budget paralleling the fiscal budget, a riskier approach. A compreh ensive budget would require Congress to divide to a total budget among agen cies. Agencies' responsibility would be to rank hazards serially, from most to least severe, and address them within their budget constraint. In eithe r version of a regulatory budget, any agency desiring to exceed its budget would need to seek congressional approval. Regulatory costs imposed on the private sector by federal agencies can neve r be precisely measured, and a budget cannot achieve absolute precision. No netheless, a regulatory budget is a valuable tool. The real innovation of r egulatory budgeting is its potential to impose the consequences of regulato ry decisionmaking on agencies rather than on the regulated parties alone. A gencies that today rarely admit a rule provides negligible benefit would be forced to compete for the 'right' to regulate. While agencies would be fre e to regulate as unwisely as they do now, the consequences could be transfe r of the squandered budgetary allocation to a rival agency that saves more lives. Budgeting could fundamentally change incentives. Under a budget, adopting a costly, but marginally beneficial, regulation will suddenly be irrational. Congress would weigh an agency's claimed benefits against alternative mean s of protecting public health and safety, giving agencies incentives to com pete and expose one another's 'bogus' benefits. Budgeting could encourage g reater recognition of the fact that some risks are far more remote than tho se we undertake daily. In the long run, a regulatory budget would force age ncies to compete with one another on the most important 'bottom line' of al l: that their least-effective rules save more lives per dollar spent (or co rrect some alleged market imperfection better) than those of other agencies . There are clear benefits to regulatory budgeting, but there are also pitfal ls. For instance, under a budget, agencies have incentives to underestimate compliance costs while regulated parties have the opposite incentive. Self -correcting techniques that may force opposing cost calculations to converg e are only at the thought-experiment stage. However, limitations on the del egation of regulatory power and enhancing congressional accountability can help. Certain principles and antecedents can help ensure that a regulatory budget ing effort succeeds. Explicitly recognizing that an agency's basic impulse is to overstate the benefits of its activities, a budget would relieve agen cies-of benefit calculation responsibilities altogether. Agencies would con centrate on properly assessing only the costs of their initiatives. Since a n agency must try to maximize benefits within its budget constraint or risk losing its budget allocation, it would be rational for agencies tea monito r benefits, but Congress need not require it. Other ways to promote the success of a budget are to: establish an incremen tal rather than total budget; collect and summarize annual 'report card' da ta on the numbers of regulations in each agency; establish a regulatory cos t freeze; implement a 'Regulatory Reduction Commission'; employ separate bu dgets for economic and environmental/social regulation; and control indirec t costs by Limiting the regulatory methods that most often generate them. A regulatory budget is not a magic device alone capable of reducing the cur rent $647 billion regulatory burden. Yet a cautious one deserve considerati on. Waving good information is an aid in grappling with the regulatory stat e just as compiling the federal fiscal budget is indispensable to any effor t to plan and control government spending.