Risk & Compliance

A Graham of Prevention

The Bush Administration has changed its tactics for ridding business of regulations deemed undesirable. Meet the man who's now in charge.
Stephen BarrJanuary 1, 2002

John D. Graham isn’t a well-known Bush Administration official, even inside the Beltway. But CFOs ought to acquaint themselves with this bureaucrat in the Office of Management and Budget (OMB), since he is responsible for making sure federal regulations don’t impose too great a burden on business.

Graham, administrator of the OMB’s Office of Information and Regulatory Affairs (OIRA), is in fact overseeing an approach to regulation that differs from what the Bush White House first set out to pursue. In fact, the change reflects the hasty retreat the Administration was forced to beat in the face of public protests over its initial plans, with complaints about the White House’s position on arsenic in drinking water just the loudest such brouhaha.

The new approach is embodied in a seven-page memo, dated September 20, in which Graham outlined how he and his staff would review all “significant” regulations for strict compliance with a host of guidelines, including “science-based” risk assessments, cost- benefit analyses, and peer review.

At first glance, this might not suggest much change from the Clinton Administration’s policy. Cost-benefit analyses, after all, have long been required before major regulatory changes take place. But under President Clinton, such analyses rarely led to revisions in proposed rules or their outright withdrawal. Or so the Bush Administration claims. It is in any case determined to enforce federal rules for rulemaking more stringently. And while it has appointed a number of regulatory skeptics to put its policy into place, John Graham is spearheading the effort.

“There has been a long-standing concern that when we adopt regulations without adequate consideration of science, engineering, and economics, we run the risk of both hurting the economy and hurting the intended beneficiaries of regulation,” Graham told CFO in his first extensive interview since he took office in July.

By imposing more demanding analytical requirements on the regulatory process, he expects fewer new rules overall, as well as modifications to some existing ones and the elimination of others. But, he adds, “we’re not looking necessarily for across-the-board deregulation. We’re looking for smarter regulating that picks targets better, saves more lives, and does it in a more cost-effective manner.”

A former Harvard University professor and director of the Harvard Center for Risk Analysis, Graham has a reputation for research, largely corporate- funded, that argues that the costs of many environmental and public-safety rules far outstrip their benefits. A study in 2000 paid for by AT&T Wireless, for instance, concluded that the timesaving benefits from talking on a cell phone while driving outweigh the costs of likely accidents.

Our Hero

Not surprisingly, the business community has hailed Graham’s arrival. “With Clinton, any agency that wanted a regulation put it out,” says Bill Kovacs, vice president of environment, technology, and regulatory affairs at the U.S. Chamber of Commerce. “There was no traffic cop. Bush has a traffic cop who will bring some discipline to the process.”

Consumer, labor, and environmental advocates worry that this discipline will put too much power in a single office and ignore the benefits of regulation that are hard to quantify. “Graham has established a very strong presence, and I find it very troubling,” says Gary Bass, executive director of OMB Watch, a regulatory watchdog group. “He has usurped agency authority, and he has placed heavy emphasis on economic tools for determining whether a rule goes forward.”

Regardless, the Bush Administration is no less intent on lightening companies’ regulatory load now than it was at the outset. On its first day in office, it issued an unprecedented order that stopped some 70 regulations that had been finalized in the waning days of the Clinton Administration from taking effect. These last-minute rules dealt with everything from the privacy of medical records to bus and truck emissions. Six days later, the White House told the agencies to withdraw all standards that were still pending review at OMB.

“We saw a flurry of ‘midnight regulations’ by Clinton, and Bush put a hold on them on day one,” says Susan Dudley, a senior research fellow at the Mercatus Center at George Mason University. Many were eventually allowed to go through, she notes, but by reversing some and amending others, the Bush Administration sent a clear message that regulatory reform was a major agenda item.

No Clinton-era proposal drew more scorn than the so-called ergonomics rule on workplace injuries issued by the Occupational Safety and Health Administration (OSHA) last November. Business leaders decried the regulation, and Bush felt their pain, signing legislation in March to overturn the rule. The Labor Department is expected to announce soon whether it will develop a more limited rule or mere guidelines.

Poison Polls

But the aggressive rollback effort hit a snag in early spring when the Environmental Protection Agency (EPA) said it would rewrite a Clinton regulation that would have lowered the acceptable level of arsenic found in drinking water. For the first time, Bush’s poll numbers dipped. A day after the Agriculture Department said it would stop testing ground beef in federal school- lunch programs for salmonella, something the meat industry urged, the agency secretary said a “low-level” employee had made a mistake and the testing would continue.

“Pre-arsenic, in every case where industry was monolithic, it got what it wanted,” says OMB Watch’s Bass. “After being skewered on arsenic and school lunches, the Administration has had the same mindset about regulations, but has approached things in a more subtle and savvy way.” And nothing is more indicative of that subtlety and savvy, he notes, than putting John Graham in the driver’s seat on regulatory affairs.

Graham contends that his battle plan is not to see certain rules added or subtracted from the Federal Register, but to apply in real-world terms the ivory-tower notion that rigorous analysis of regulations can achieve more protection of the public at less cost to business. “It’s fair to say that’s why I’m here,” he notes.

Since July, he has been meeting almost daily with representatives of agencies that have new regulations in the pipeline. In the week after he issued his September memo, he had twice as many such powwows, including with the Food and Drug Administration on dietary supplements, the National Transportation Safety Administration on tire safety, and the Energy and Defense departments on criteria for compensating workers who get sick from radiation exposure.

For years, agencies have been required to prepare a cost-benefit analysis on rules expected to have an effect on the economy of $100 million or more, but Graham says that what he has seen to date falls far short of his expectations. “The quality is very uneven, both within agencies and between agencies,” he explains. “One thing to keep in mind is that the incentive for a regulator to do a good cost-benefit analysis is not very high if the threat of their rule being returned is very low.”

According to Graham, no rules were returned in the last few years of the Clinton Administration for failure to perform a quality analysis of the regulation’s impact. In contrast, in his first three months on the job, he has sent a dozen “return” letters requesting that the agency make a better case for why the proposed rule is needed. In October, for instance, he wrote to the EPA that new water-quality standards for tribal lands contained “no quantitative analysis of the costs and benefits” for this action.

Due Process?

To show that he is more than a foe of overregulation, Graham has also issued two “prompt” letters that call for rules in underregulated areas–something his predecessors at OIRA never did. In one, he asked the Department of Health and Human Services to regulate transfatty acids, which increase the risk of heart disease; in the other, he urged OSHA to come up with rules for increasing the availability of defibrillators in the workplace.

Graham also plans to use this new tool to prompt agencies to rescind or modify certain rules. He has asked for suggestions from the public for where he might act, and business interests have made appeals on behalf of several dozen unpopular rules. “I appreciate the substance of his prompt letters, but not the process,” says Bass. “He’s set himself up as the expert, telling the agencies what to do.”

Bass is also concerned that Graham will use his notions of what are proper cost-benefit analyses to paralyze the regulatory process. Graham’s definitions of data quality are “arbitrary,” Bass argues; his use of peer review gives the regulated a greater say in the need for new regulations, and his reliance on science-based risk assessments can be easily manipulated with slight changes in assumptions. “There’s a real problem having a single person shaping our rule-making process throughout government,” he concludes.

To which Graham shrugs: “I have been very surprised to hear how potent and hefty the powers of this office are. I’m learning more about the realities of Washington, and what’s most fascinating is that it takes a high degree of consensus among a wide variety of actors to accomplish things.” But for now, at least, Graham occupies center stage.

Regulatory Scoreboard

Below is a sampling, by agency, of efforts in the first year of the Bush Administration to ease the regulatory burden on business.

Treasury. Modified corporate tax shelter disclosure rules to allow companies to avoid reporting certain legitimate business transactions that might trigger an IRS review.

Health and Human Services. Proposed inspecting nursing homes that have good records less frequently and shifting resources to homes with a history of poor-quality care.

Interior. Rescinded a rule that would phase out snowmobile use in Yellowstone and Grand Teton national parks.

Energy. Supports easing or eliminating sections of new rules governing the process by which black-lung victims can claim their federal disability benefits.

Environmental Protection Agency. Decision to drop tougher standards on the allowable level of arsenic in drinking water has been subject to further review because of public outcry. Reversed Bush’s campaign pledge to regulate carbon dioxide emitted by electric power plants.

General Services Administration. Suspended rule that requires government contracting officers to take into consideration a company’s record of complying with tax laws, labor laws, environmental laws, and others before awarding federal dollars.

National Labor Relations Board. Plans to scale back the use of its statutory authority to petition federal courts to seek injunctions to halt unfair labor practices, such as mass firings of workers.

Bureau of Land Management. Has proposed suspending a new rule that restricts hard-rock mining on public lands to better protect ground and surface water.

Bush’s Deregulators

In addition to John D. Graham, who runs the Office of Management and Budget’s Office of Information and Regulatory Affairs, the Bush Administration has appointed to key regulatory posts several individuals known for their probusiness sentiments:

Timothy J. Muris. A top antitrust official in the Reagan years, the head of the Federal Trade Commission frequently criticized the Clinton Administration for being insensitive to the economic benefits of large corporate mergers.

Michael K. Powell. Son of Secretary of State Colin Powell, the new chairman of the Federal Communications Commission has been skeptical of rules that limit the size of cable and broadcasting companies and that make it hard for regional Bell companies to enter the long-distance market.

Gordon R. England. As Navy secretary in the Defense Department, the former General Dynamics executive has vowed to reexamine procurement practices. So has the Air Force secretary, James G. Roche, who comes from Northrop Grumman Corp., another military contractor.

B. John Williams. The Internal Revenue Service chief counsel, in charge of cracking down on corporate tax shelters, recently won a case for Rite Aid Corp. in which the court found that the IRS had overstepped its authority when it enforced a regulation often used to go after tax shelters.

Eugene Scalia. Son of Supreme Court Justice Antonin Scalia, the Labor Department’s top lawyer opposes workplace safety regulations and has said that the recent attempt to regulate ergonomics-related injuries was based on “junk science.”