RESPONSE TO SENATOR DURENBERGER'S GOVERNMENTAL AFFAIRS HEARINGS ON At the March 20, 1979, hearings before the Committee on Governmental Affairs on regulatory reform, Senator Durenberger requested of Victor Millar, Deputy Vice Chairman of Arthur Andersen & Co., information from the Business Roundtable Study on the following: 1. excessive and unintended costs caused by regulatory 2. conflicting regulations, 3. 4. regulation impeding national policy goals, and meeting the goals established by Congress in more In our study we uncovered the following situations. 1. EXCESSIVE AND UNINTENDED COSTS Participating companies reported unintended costs were incurred because of: a. relatively short lead times allowed for meeting b. delayed decisions and amended previous decisions, C. requirements only remotely related toward meeting d. requirements leading to the establishment of unrealistic goals, e. insistence on more costly methods of attaining an f. highly unlikely benefits received from payments a. Short lead times. 1 Participating companies reported that the relatively short lead times allowed for researching and developing motor vehicle emission control systems to achieve legislated standards ir reased the costs of compliance and caused inefficiencies in implementing certain regulations. Government Regulation Study for The Business Roundtable, о Multiple research and development projects to Investing major incremental capital expenditures Obtaining tooling and resolution of production Postponement of efforts to develop other engineering economical. An example of inefficiency caused by short lead times occurred in 1977 where gas tank filler pipes required modification to accommodate the requirement that only unleaded gasoline could be used in cars equipped with catalytic converters. EPA required service station operators to install special antipollution nozzles on gas pumps. However, it was learned subsequently that the new nozzles were not compatible with previously required gas tank anti-vapor mechanisms on cars. The result was that additional actions and costs resulted in 1977 to make them compatible. b. Delayed decisions and amended previous decisions.2 Delays in construction are often among the most costly effects of dealing with regulation. It is not unusual for such indirect costs to outweigh the direct incremental costs of compliance. One of the electric utilities in the study reported that substantial indirect costs were incurred as a result of delays in obtaining permits for water discharge in a nuclear power plant under construction. During this period of construction. EPA regulations caused significant construction delays through delayed decisions and amended previous decisions. As a result, a large sum of investment capital was unproductive for an extended period of time and the power generation facility was late in becoming operational. One company in the oil and gas industry reported that the start of production from important offshore oil and gas fields discovered nine years ago has been delayed five years, to-date by a host of federal, state and local regulatory obstacles. To date, the company has invested over $500 million, and still has no assurance of when production can begin. In cases where there were objections to proposed permit requirements, companies reported that there were further time delays. Uncertainty during the permitting period can delay planning efforts construction of a project or new plant. or even halt c. Requirements remotely related to the objectives of the regulation. The participating companies expressed their support of the objective of the affirmative action regulations to end discrimination against minorities and women. However, several said they believe that most incremental costs of complying with the regulations represent the cost of unnecessary and burdensome administrative activities that are only remotely related to taking "affirmative action."3 For example, the participating companies reported that they incurred $5 million of incremental costs in complying with employee selection guideline regulations in 1977. These costs were almost entirely administrative in nature and were incurred by the companies primarily in reviewing their selection processes for "adverse impacts" and reviewing and validating their testing procedures. 4 Companies said, these incremental costs constituted another layer of nonproductive overhead. That overhead, they said, is manifested in the need to employ affirmative action managers and staff exclusively to monitor compliance with the regulations, develop or expand recordkeeping capabilities at great cost and undergo costly and time-consuming compliance reviews. 5 d. Unrealistic goals. 6 EEO requires that companies analyze their work are underrepresented. forces to identify job categories in which minorities and women One of the participating companies reported that it is compelled to use more than 50 job categories in its work force analysis at more than 300 locations. 31bid., p. 7-17. Ibid., p. 7-15. Sibid., pp. 7-17, 7-18. ibid.. pp. 7-16, 7-17. With regard to the EEO requirement that a company compare its utilization of minorities and women to their "availability" in the geographical area in which the company recruits for employees, many companies objserved that "availability" is not defined in the regulations. In the absence of more accurate statistics, it is often construed by compliance agencies to be the availability reflected in Department of Labor or Bureau of Census statistics. However, companies stated that these statistics often are outdated or are not sufficiently detailed to accurately portray the availability of minorities or women in specific job categories. For instance, they said that Bureau of Census and Department of Labor statistics are not always consistent with each other; they do not include "technicians"; and, generally, Department of Labor statistics do not include Hispanics in national minority statistics. Companies reported that, in cases where availability cannot be well defined, the result often is that unreasonable and unrealistic goals and timetables are established. e. Insistence on costly methods of achieving objectives.7 Companies believe that the insistence on engineering controls defined by OSHA allows companies little flexibility and causes higher costs of attaining a given level of protection for workers. For example, companies expressed concern about the requirement that engineering controls be exhausted before resorting to the less costly alternative of personal protective equipment against coke oven emissions and against excessive noise levels: f. O With respect to coke over emissions, companies о With respect to protection against excessive noise Because Fension Benefit Guaranty Corporation premium payments will not be returned to companies or their employees unless their plans are terminated with insufficient assets, whien the companies in the study viewed as highly unlikely, the premiums were regarde i pr some participating companies to be the equivalent of ar. increased social security tax. 7Ibid., pp. 8-21, 8-23. Ibid., p. 10-17. 5 2. CONFLICTING REGULATIONS Many companies expressed concern over the inherent conflict in the objectives of the DOE and the EPA with regard to use of coal and natural gas. DOE in 1977 was striving toward the burning of coal as a primary fuel source rather than natural gas. The DOE regulations affecting coal use required new power plants or major fuel burning installations to be constructed so that they are capable of using coal as a primary fuel source. In effect, these regulations authorize DOE to prohibit such installations from burning petroleum products or natural gas as a primary energy source. However, because burning coal emits more particulates than natural gas, the concern over the air quality was intensified. The EPA national ambient air quality standards for total suspended particulates stipulated a maximum concentration of particulates that may be emitted. This resulted in a major cost to control the stack emissions attributable to coal use. Companies sought the Host effective and economical means of controlling particulate emissions and generally either installed or upgraded systems for removing particulates from stack emissions. Alternatives to control particulate emissions associated with burning coal are burning oil or gas. However, these were possible only when permitted by the DOE.10 3. REGULATIONS IMPEDING NATIONAL POLICY GOALS Participating companies reported that regulations impeded national goals by aggravating: Participants noted that incremental costs of regulation ultimately are passed on either to the consumer in the form of increased prices or to the shareholder in the form of diminished equity. For 1977, the incremental costs for six agencies were equivalent to a price-level impact of more than 1% -- ar addition to costs that aggravated the pressures of inflation on their operations. pp. 9-14, 9-15. P. 6-20. 50-941 0-80-6 |