Archive for the 'Cost Benefit Analysis' Category

Court to CPSC: Your Magnet Rule’s a Turkey

Zen Magnets, the tiny Colorado company that has challenged the CPSC’s actions turkeyregulating small, powerful magnets, will be having a very good Thanksgiving this year.  That is because, once again, Zen has shown that it is possible to fight the federal government and win.  Today the United States Court of Appeals for the Tenth Circuit ruled that the CPSC’s safety standard banning the magnets sold by Zen did not withstand judicial scrutiny.  The court told the agency that if it wanted to regulate magnets it needed to follow the requirements of the Consumer Product Safety Act, and that it should go back to the drawing board and rethink its justifications for the rule.

The CPSA requires that the agency do a cost-benefit analysis and make findings that identify the nature and degree of the risk of injury weighted against the public’s need for the product and then regulate in the least burdensome manner possible.  The Court found that the agency’s analysis was deficient.  The court found that the agency overstated the number on injuries and neglected to consider the public utility of many of the uses of the product.  In other words, the statutory requirement to weight the costs and benefits of a proposed action is a critical part of regulating.  My experience in the last several years of my term as a CPSC Commissioner was that this statutory requirement was seen as an annoyance rather than as a tool for informed decision-making.  Perhaps the Tenth Circuit’s decision will change the agency’s approach to using this statutory tool.

The agency’s approach to regulating magnets has been characterized by an “ends justifies means” mind-set.  The agency worked to cut off the ability to sell the magnets through retail channels by “asking” retailers to stop selling the product.  The agency sought to recall the product, knowing that consumers would not respond to the recall but also knowing that this device could stop further sales.  The agency sued those few distributors who had the fortitude to challenge the agency’s action.  The one company that has stayed the course is Zen, and its success rate has been quite remarkable.  The administrative law judge that heard the recall action ruled in Zen’s favor.  Now an appellate court has found that the rule the agency issued to ban future sales of the product is defective because it blew by statutory requirements that provide for balanced decision-making.

Zen is like a little Yorkie terrier that has grabbed ahold of the ankle of the CPSC and will not let go.  Yet, through its determination to challenge what it believes is over-reach by the federal government, it has forced the agency to reexamine its approach to a serious issue.  It may be that, through Zen’s actions, the CPSC will come to understand that it can protect consumer safety without disregarding basic notions of due process.  What a good Thanksgiving that would be.

Regulating through the Front Door

Last week, the Hill newspaper published my article supporting a regulatory reform bill, S. 2006, recently introduced by arrows clip art Senator Portman and a bipartisan group of Senators.  Among other things, the bill sets out Congressional expectations for balancing the costs and benefits of rulemaking and directs agencies to adopt the least burdensome rule that addresses the issue in the proceeding.  As I stated in my article, “Regulating is not, and should not be, easy.  Requiring agencies to do the needed up-front hard work before issuing rules, as these reform bills direct, will result in better rules.”

Critics have pointed to these kinds of requirements as regulatory roadblocks—mere ploys designed to slow down the process.  I see them not as roadblocks but as speed bumps–useful tools to assure that the agency gets it right when it regulates. And unless the agency is actually required both to do the work, and then to regulate based on the results of that work, the temptation is to look at these requirements as “check-the-box” exercises that must be done on the way to a rule, often with a predetermined result.

I do have one concern about potential unintended consequences from reform of the rulemaking process.  To the extent that agencies perceive it to be harder to issue rules going forward, they may look for other ways to achieve desired results, thereby circumventing the protections and procedures of the reform bills.  I saw this operating first hand at the CPSC where “backdoor rulemaking” is not only accepted but embraced. Backdoor rulemaking involves taking enforcement or other action on a category- wide or product- class basis to achieve results that one would normally expect to achieve through rulemaking.  So if a product with a particular attribute is deemed to be substantial product hazard and recalled, then that action may, de facto, set the bar for all other products with similar attributes.  Transparency and due process are out the door.

Regulators regulate—that is what they do.  But category-wide enforcement should not be used as a subterfuge to avoid the regulatory process.  As these reform bills advance, Congress will need to be alert to this concern.

Time for Doing the Work, Not Looking for Shortcuts

Those who follow the CPSC closely expect that the President’s new commission nominees will be confirmed soon.  The question is: will new leadership change either the tone or the direction of the agency?  Two exchanges during the confirmation hearings made my ears perk up since they went to that question.  Both exchanges addressed the regulatory approach of the nominees.

The first exchange dealt with testing burden reduction.  Remember that PL 112-28 directed the Commission to undertake actions to reduce the costs of third party testing or report back to Congress if it needed additional authorities.  Senator John Thune noted that the agency has done nothing to implement measures to reduce costs in any meaningful way.  Senator Thune asked each nominee, upon confirmation, to provide the Senate Committee with their plans for implementing efforts to reduce testing costs. Senator Thune has given the nominees a real opportunity to show leadership and provide actual relief from the agency’s overly-expansive and costly testing approach—which does not provide consumers with additional safety but does add additional costs to the products they buy.

So as the two nominees craft their plans in response to Senator Thune’s request, will those plans reflect business as usual, with the agency doing only enough to make it appear that it is doing its legal duty but still managing to avoid any real change?  Or will those plans show a thoughtful and creative approach to fixing a problem that Congress and members of the public have identified but which the leadership of the agency, up to this point, has sought to minimize?

Another interesting exchange during the hearing dealt with procedures for issuing regulations.  While addressing the five-year delay in issuing rules for recreational off-road vehicles, the nominee for Chairman, Mr. Kaye, bemoaned the lack of “express” rulemaking authority in the Consumer Product Safety Act.  He attributed regulatory delays to the findings the agency has to make before issuing a final rule and the cost-benefit analysis that he said was “unique” to the CPSC (implying that such analysis was overly burdensome).  But Mr. Kaye did not identify which findings and what aspects of cost-benefit analysis are overly burdensome to the agency. Having that information would provide the basis for a good discussion on regulatory policy at the agency.

Section 9 of the CPSA (15 U.S.C. 2058) spells out how the agency must go about issuing product safety rules or bans. The law states that before the agency initiates rulemaking it must make some preliminary effort to assure itself that the rule is indeed needed.  Those efforts include:

  • a first-cut at describing the potential costs and benefits of the proposed rule;
  • a discussion of why any existing voluntary standard is not adequate; and
  • a description of reasonable alternatives to the rule and why those alternatives should not be considered.

But which of these points of analysis do those advocating for express rulemaking want to eliminate?  Do we really want federal agencies beginning the rulemaking process without doing initial homework in the form of some upfront analysis to assure the public that the proposed direction is correct? To my ears, the complaint that doing your homework is too hard rings hollow.

But perhaps it is the cost benefit analysis that must been done during the rulemaking process that is the problem for those complaining about burdens and advocating express rulemaking.  The law states that the analysis must include a description of the potential benefits and potential costs of the rule and a description of the alternatives to the rule that the commission considered, the costs and benefits of those alternatives and a description of why they were not chosen.  But the law merely states explicitly what necessarily should be included in any competent regulatory analysis.  Unless we are willing to agree that the feds are always right in their regulatory approach, would we not want any agency to gather, write down and then actually consider that information before regulating?

I suspect that the real problem for those advocating for express rulemaking is the law’s expectation that the data will be used to inform results–that the agency actually will use the data to tailor or perhaps even change its preferred regulatory approach.  The law tells the agency that it may not issue a rule unless it finds, among other things, that

  • the benefits of the rule bear a reasonable relationship to its costs; and
  • the rule imposes the least burdensome requirement to adequately address the risk.

In other words, if the agency’s preferred regulatory approach is not the most efficient way to address a risk, then Congress expects the agency to change its approach.

Here are a couple of follow-up questions to the nominees.  Do we want the agency to be able to regulate without regard to costs and benefits? Should not the agency have to change its preferred approach if the costs and benefits are not reasonably related?  Do we want the agency to impose requirements that are more burdensome than they need to be and do so out of ignorance because it did not bother to consider alternatives?  I submit that we do not.  And I believe that experience over the past four years illustrates the importance of these requirements. Several extremely costly and burdensome rules were put into effect without the analysis described above since the CPSIA did not require that analysis.  Indeed, PL 112-28 was passed because the testing rule, not subjected to that analysis, resulted in costs that are excessive.

Regulation is not and should not be easy.  If data shows the need for a rule, then the agency should roll up its sleeves and get to work, not complain about how hard it is and look for shortcuts.  It will be interesting to see if the new leadership is up for doing the hard work.

Are Many Better Than One?

CommitteeLast week I spoke at a meeting of the American Bar Association’s Science and Technology Committee.  While the topic was the use of cost benefit analysis in formulating regulatory policy, the question I put on the table for discussion is whether the benefits of multi-member independent agencies outweigh the costs.  This is an issue that I have been thinking about for some time.  Based on my experience at the CPSC, I question whether these agencies really deliver to the public any better results than those headed by a single administrator.

The theory behind multi-member independent commissions is that with bipartisan members serving a term of office and who can only be removed for cause, the rules coming out of such commissions will be qualitatively better and have bipartisan legitimacy.  The reality is that the work product is not necessarily bipartisan and indeed, at the CPSC, has been very partisan.  Nor, I would submit, are the rules from independent agencies substantively different or “better” than those coming out of agencies with single administrators, but those rules have substantial process-based costs.

What are those costs?  For starters, each commissioner’s office and staff consume approximately $1 million, adding up to almost $5 million annually.  While for some agencies that is insubstantial, for the CPSC, with a budget of $108 million, that means almost five per cent of the agency’s budget is spent on housing, staffing and paying for commissioners.  But beyond just that obvious cost, there are significant costs associated with a top heavy management system.  For example, senior staff spend hours each week briefing commissioners in repetitive one-on-one meetings.   Having multiple commissioners also generates controversy where it might not otherwise exist.  For example, we have seen the agency start down a path, only to have a commissioner change his mind and, hence, change policy direction of the agency with significant burdens being placed on those who relied on the earlier policy.  As another example, commissioners and staff spend hours grappling with whether an issue is administrative in nature, and can be decided solely by the chairman, or whether the issue presents policy questions and therefore must be presented to the commission for decision.

Given these and other costs, would not a single administrator do better?  A single administrator would be charged with following broader administration policy and there would be clear accountability for agency decisions.  Such a change would avoid the costs of “collegial” decision-making.  With respect to the quality of decisions, with good data, the regulatory results would likely be as good as, if not better than, those coming out of a commission.  And if they were not, it would be an easy task to fix responsibility.

More Data + More Analysis = Better Rules

Readers of this blog know that I am a big supporter of rigorous cost-benefit analysis as a way to make regulations better.  Therefore I was pleased to have the opportunity during a panel last week to discuss why this is true and how the public can participate in shaping such analysis.

Cheryl Falvey, formerly the General Counsel at the CPSC, led the discussion, which also included Michael Fitzpatrick, a former senior official in the current White Houses’ Office of Information and Regulatory Affairs (OIRA), and Reeve Bull, an attorney with the Administrative Conference of the United States (ACUS). We discussed the arguments surrounding cost-benefit analysis, the use of OIRA review in the rulemaking process, and legislation that would affect independent agencies’ use of cost-benefit analysis. Here are a few key takeaways from the panel.

First, the CPSC is hardly the only independent agency grappling with cost-benefit analysis. However, unlike the CPSC which has rejected its use when not required by statute, other independent agencies like the Nuclear Regulatory Commission and the Commodity Futures Regulatory Commission have used such analysis despite their not being required to. This is important, because there is a fallacy out there that cost-benefit analysis kills rules. Cost-benefit analysis makes them better. And vetting rules through an OIRA review process also makes them stronger and more likely to survive judicial scrutiny. Doing this analysis publicly makes an agency have, as Fitzpatrick described it, a “disciplining conversation in public.” Going through that conversation makes rules more legally and politically defensible. That is why, more and more, agencies (with the exception of the CPSC) are using this analysis even when not specifically obligated to.

Second, when it comes to cost-benefit analysis, it is not only agencies that need to step up. It is the public generally and the regulated community more specifically. When a proposed rule is released to the public for comment, affected industries usually provide comments. Many of those comments are heavy on policy arguments and weak on numbers. But policy arguments are easily responded to with other equally powerful policy arguments. What agencies need is fact-and-figure driven comments. That is the kind of information that can actually change a debate. And because agencies have limited ability to get information from the public—thanks, in part, to the strictures of the Paperwork Reduction Act which limits our ability to ask for information from the public—we have to rely on general, publicly available data. If comments come in that have hard data, especially non-anecdotal data, an agency’s staff will have to grapple with it or risk the rule’s survival in a court challenge. And good data is precisely what agencies need to truly refine rules.

Cost-benefit analysis by itself is not sufficient to assure good rules.  But it is a tool that more and more agencies use to improve the rules that affect the American economy. And it is a tool that needs the participation of the regulated community to be as effective as possible.

Show Your Work

In this day and age, who gets to do their own work and not show it to anyone else before it sees the light of day? Surely there are few who let work product out without someone vetting it. That’s why businesses get third-party auditors. That’s why grade school students show their work, so their teachers can correct them. And that’s why, starting with President Reagan, every president has required executive agencies to submit major rules to the Office of Information and Regulatory Affairs (in the White House Office of Management and Budget) to ensure that the rules are supported by thorough, accurate regulatory impact analyses (of which cost-benefit analyses are a key element). So it shouldn’t be surprising that a bipartisan coalition has begun forming to require independent agencies to do the same thing, which is taking shape in the form of the Independent Agency Regulatory Analysis Act (S. 1173), co-sponsored by Sens. Rob Portman (R–Ohio), Susan Collins (R–Maine), and Mark Warner (D–Virginia). Unfortunately, it also isn’t surprising that some (including some of my colleagues here at the CPSC) see this review as an impediment to regulatory independence. Such was suggested in a recent New York Times editorial. Senator Portman and I responded to those misguided concerns here. In addition, I wrote an op-ed in The Hill newspaper arguing in favor of the bill, which you can read here.

The bill is now pending before the Senate Committee on Homeland Security and Governmental Affairs.  Should this idea become law, it would provide a measure of accountability to regulators to better justify the actions they take.

1110: Now It’s Your Turn

Last week, we talked about the shortcomings of the Commission’s proposed amendment to its Part 1110 rule on product certifications—hidden costs, confusion on bans and testing exemptions, recordkeeping disharmony, and questions not asked. Today, I issued my formal statement on the vote, which delves more deeply into the history of our first attempt at this rule and what we should have done this go-round.

That being said, I supported the broad outlines of this package. One key reason I voted to move ahead? I believe it’s high time we asked the public what to do about certificates. So now it’s your turn to let us know how we could improve this rule. Talk to me here, but more importantly, talk to the all of us at the Commission by submitting comments here.


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