Page images

a procedure for compliance under existing rules, the rules tend to change. So far we have been through a freeze, then mandatory price and wage controls, then a voluntary set of rules, then another freeze, and then a new set of mandatory price rules. Food companies have even found their most recent phase subdivided into "Stage A" and "Stage B." I am not suggesting that the program should not be flexible to meet changing conditions, but undoubtedly the problems of compliance for all companies have been greatly magnified by the frequent shifts from one regulatory approach to another.

I have dwelled on these procedural problems at some length not in any sense to attack the Cost of Living Council or the IRS. They are clearly competent men working under enormous burdens to carry out a difficult assignment. And in many respects the Council has learned from past experience and is tending to solve some of the problems I have discussed. But it is necessary, I believe, to focus on these procedural issues and to emphasize the fundamental importance of administrative fairness and regularity-to the regulators as well as to the regulated.

I would like to end with a statement by Justice William O. Douglas which summarizes my concerns. He said:

Unless we make the requirements for administrative action strict and demanding, expertise, the strength of modern government, can become a monster which rules with no practical limit on its discretion. Absolute discretion, like corruption, marks the beginning of the end of liberty.

Senator MATHIAS. Well, I would like to thank you very much, Mr. Dunkelberger, for a very thoughtful and helpful and constructive contribution to the committee's hearings. I would agree with you in your expression of concern in the absence of very firm rules. In a legislative body like the Congress, the only protection a minority has is in the rules, and if there are not rules and if the rules aren't observed, we can have the tyranny of the majority which is a far cry from our concept of an orderly government of laws.

Mr. DUNKELBERGER. Particularly if the rules reside only in the heads of the people who make the decisions.

Senator MATHIAS. Absolutely.

Can you tell us what are the statutory standards that are to be followed by agencies in economic controls?

Mr. DUNKELBERGER. Well, I hate to sound a sour note here. I must say Congress did not bend over backward itself in establishing the guidelines that were to govern the establishment of economic controls. The authority granted to the President is indeed extremely broad. He can adopt regulations to establish prices, rents, wages, and salaries at levels not less than those of May 25, 1970. That is in section 203 (a) of the Economic Stabilization Act. Section 203 (b) does have a general requirement that the regulations be fair and equitable-one would hope that would be the case without congressional stipulation—that they provide for the making of general exceptions and variations, take into account changes in productivity, and provide for appropriate reductions when there have been lower costs, but none of these standards really govern the substantive rules.

You have got to remember that in the act the basic authority given by Congress to the agencies, even in the original act before its amend

ment and now, has remained essentially unchanged. If you look at the different kinds of regulations that have emerged from that authority— including the first freeze, phase II, phase III, the second freeze, and a complete new set of rules in phase IV-it is apparent that the agency does not regard itself as hemmed in very substantially by the congressional directive, and indeed I think that is the case. Whether or not it would be feasible for Congress to spell out substantive limitations I do not know. I am not any kind of an economist and do not know much about economic policy. It might be that the degree of flexibility is necessary if you are going to have this kind of abominable regulation, but that underlines all the more that once you decide upon those substantive rules in the Agency, that decision process must be open to the public for full participation.

Senator MATHIAS. But what you are really saying for the time being is that the statutory standards are too broad to have very much meaning.

Mr. DUNKELBERGER. I don't know what standards the courts can apply. Generally in the cases the courts are groping with an equitable or fairness approach, or with the question of whether the Agency has properly interpreted its own regulations. But there is little if anything that the court can find in the act itself. There is some detail, and some precise points, but generally there is not much in the act that can hem in the Agency.

Senator MATHIAS. So the regulations for all intents and purposes are the creatures of the Agency.

Mr. DUNKELBERGER. Yes, sir. They are. And again, if you would look at the immense variety of controls that have been promulgated, you would see that that is the case.

Senator MATHIAS. Which would underscore again the question that you and I seem to agree on. There is all the more need for public participation in the development of those standards. If they are not statutory, if they haven't been through the mill of the congressional process, therefore they should have been exposed to public comment and to incorporate the benefits of public experience as they are being developed.

Mr. DUNKELBERGER. It is hard to recreate the weird atmosphere of 2 years ago, that has continued up to quite recently. Citizens, companies, and firms that have been so used to other aspects of their activities being regulated through procedures involving public participation found themselves just waiting to see what appeared in the Wall Street Journal, the New York Times, or CLC press releases, and being told what their rights were going to be, and how their businesses were going to be regulated. Indeed, after hearing the comments of the small independent gas stations. I have the feeling that that is the experience that they are living through right now. They are really hanging upon the edicts and pronouncements of the Agency.

Senator MATHIAS. Of course, we are talking again in terms of the procedures by which standards are adopted and not about the equities or the hardships that may result in individual cases.

Mr. DUNKELBERGER. No, no, I realize that, and that is what I was addressing myself to. Even the small gas station people, although they are having some input, are really in the position of sitting and listening

to their futures being decided by an alien agency. I cannot question the wisdom of the substantive controls. It is the absence of public participation that concerns me.

Senator MATHIAS. What difference do you think that participation makes?

Mr. DUNKELBERGER. Participation makes a huge difference.

No. 1, no Federal agency is all wise. It cannot understand all of the complexities of the businesses that it is regulating. The American economy is as diverse as you can imagine, and in trying to come out with general rules applicable to everyone, it is just so clear that there are going to be fundamental mistakes of fact and of policy and theory. If the agencies give those whom they are regulating an opportunity to comment, even though it is recognized that those commenting will be advancing their own personal interests, the comments will point out fundamental mistakes, why the proposed system would not work, and what its unanticipated effects may be, so that the agency can correct its original promulgation without having to amend and amend later on. No. 2, it puts those regulated into the system itself. If the fight against inflation is as important as it is said to be, it is a fight of all citizens, and they should feel a part of it. If they have participation in the development of the rules they are going to be governed by, then I think you will get greater acceptance of what those rules require.

I tried to make the point in my statement that public participation is not a luxury. It is not a vague general standard of fairness. It really is for the benefit of the program and-as I have said beforethe CLC has seen this in its phase IV regulations. The time provided for the opportunity to comment was extremely brief-10 or 12 days and trying to get trade associations and companies turned around long enough to look at proposals and develop comments was not easy, but comments did get in. I think in many instances they shed light on the proposal and enabled the agency to improve the regulations substantially.

Senator MATHIAS. What do you think the general impact of the economic stabilization program has been on the business community and on the legal community which attempts to guide the hand of the business community in making decisions?

Mr. DUNKELBERGER. Well, one obvious factor to lawyers, I guess, is that it certainly has created an awful lot of business. No doubt about it. Some people have called this the "Lawyers Full Employment Act." Senator MATHIAS. That is one of the criticisms leveled at Congress since it is composed of more lawyers than any other single body, that it is constantly making work for the profession.

Mr. DUNKELBERGER. It certainly does that, but if you are going to have rights protected there is no way around it. Seriously, in terms of the business community, again, I would not try to evaluate it economically, and I do not understand your question to point at that direction. One effect it has had, I believe, is that the way the program has been run, it tends to undercut somewhat the respect of companies for all kinds of regulations. At one stage there was expressed a considerable concern about getting the IRS involved in this kind of a program.

If people began to feel that they can make their own decisions because the Government is so vague and maybe doesn't really mean what it says and is not very fair, those attitudes may be transferred over to the administration of the Internal Revenue Čode. That would be disastrous because the Internal Revenue Code depends upon a high degree of compliance without enforcement. I generally think that most of our clients are probably more cynical about Federal regulation than they were before, and that may be not all bad.


Mr. HODGES. I might add to this that the burden on corporations is tremendous. I suppose you could call this another hidden cost of the economic stabilization program. The program takes an extraordinary amount of time of the corporate controller, president of the company and of other employees. I run into situations numerous times in which the controller of a company will say that they had geared up for a particular set of regulations and then we sent them out a new set which would impose on a new set of requirements. Certain controllers have said they spent from 40 to 90 percent of their time during the last couple of years working on compliance with the Economic Stabilization program. There may be no way to get around this burden, but it certainly is something that we ought to realize exists.

Senator MATHIAS. Have either of you physically participated in the preparation of, say, form 22, the Cost of Living Council form for whatever time investment is required for that?

Mr. HODGES. Well, this is a very difficult thing for us to assess because outside lawyers come into this process very much at the end of the line. The corporations spend a tremendous amount of time running their computers and preparing the forms, and the lawyers come in at the late stages.

I wouldn't want to hazard a guess as to the number of hours that would be involved in filling out one of these forms, but I think that for a large company it could be at least several hundred hours.

We have seen the PC-1 during phase II. We saw the CLC-2 during phase III, and now we are facing a CLC-22 in phase IV. I have been informed by the CLC that the reason for naming it the "CLC-22" was because of the novel "Catch 22," and I think that this may give some indication of the complexity that form has.

We might add another point which is fairly obvious. The large companies can afford to fill out the forms and do it very well. I think the degree of the burden on smaller companies is tremendous as compared to the larger companies which are really tooled up to do this kind of job.

Senator MATHIAS. Curiously we just received this morning an estimate from the Office of Management and Budget which indicates that form-22 requires an estimated average of 2,000 man-hours per response. We will put it in the record.1

[The form referred to follows:]

1 This document is a copy of Office of Management and Budget form 83, required reporting on CLC form 22.

Cost of Living Council

2000 M Street, N.W.

Washington, D.C. 20508

Special Instructions for the Preparation of Form CLC-22 as a Report of Construction Operations

A. Purpose

General Instructions

These instructions are designed to prescribe the rules for the annual report of sales and profit margins pursuant to 6 CFR, Part 150, Subpart N.

B. Who Must Use Form CLC-22

1. Reporting. Each firm with $10 million or more of "annual
sales or revenues" from "construction operations" as
those terms are defined in 6 CFR 150.452 must report
annually to the Internal Revenue Service on Form CLC-22
in accordance with these instructions.
However, a firm is not required to report if:

(1) it must treat its construction operations as part of its
other operations because (i) more than 50 percent of its
total annual sales or revenues are from other than con-
struction operations and (ii) the firm cannot separate its
construction and nonconstruction operating income, or
(2) during its most recent fiscal year, the firm derived
both (i) 90 percent or more of its annual sales or rev.
enues from the sale of exempt items or exempt sales and
(ii) less than $50 million of its annual sales or revenues
from the sale of nonexempt items.

2. Recordkeeping. Each firm with more than $1 million, but
less than $10 million of "annual sales or revenues" from
"construction operations" as those terms are defined in
6 CFR 150.452 should place among its records on an
annual basis a Form CLC-22 completed in accordance with
these instructions.

3. General Rules. The following rules apply for the purpose of determining who must use Form CLC-22:

a. Determination of "Firm." If a firm is not directly or indirectly controlled by another firm, that firm is called a "parent" for the purposes of this Form CLC-22. The parent and the consolidated and unconsolidated entities (if any) which it directly or indirectly controls taken all together, constitute the "firm" for the purposes of paragraphs B.1. and B.2., above.

b. Parent and Consolidated Entities. Once the reporting status is determined, only the sales or revenues of the parent and the sales or revenues of the controlled entities (if any), consolidated with the parent in its financial statements prepared in accordance with gen. erally accepted accounting principles are combined for purposes of preparation of the Form CLC-22 applicable to the "Parent and Consolidated Entities." The Form CLC-22 is prepared by the parent for and on behalf of the entire consolidated group for submission to the Internal Revenue Service.

c. Unconsolidated Entity. In addition to preparing Form CLC-22 for and on behalf of the entire consolidated group, the parent must prepare a separate Form CLC-22

for and on behalf of each unconsolidated entity with annual sales or revenues of $1 million or more. An "unconsolidated entity" is any entity directly or indirectly controlled by a parent but not consolidated with the parent for purposes of financial statements filed with the SEC or, if the firm does not file such reports, financial statements prepared in accordance with generally accepted accounting principles. An "unconsolidated entity" includes any entity consolidated with that unconsolidated entity for purposes of financial statements prepared in accordance with generally accepted accounting principles.

d. Entity. For purpose of this form and all supporting schedules, entity means the "parent and consolidated entities" or an "unconsolidated entity."

C. When To Submit or Prepare

Firms required to report construction operations must submit and firms required to recordkeep should retain a Form CLC-22 in accordance with these special instructions beginning with the first annual period which ended on or after June 13, 1973. Form CLC-22 must be submitted no later than 90 days after the last day in the entity's fiscal year.

D. What To Submit or Prepare

This form and instructions require only basic information. However, the CLC or the IRS may request additional data in particular cases. Firms must submit two copies of the Form CLC-22 and all other supporting schedules and documentation indicated in these instructions. Firms which submit a Form CLC-22 which contains incomplete or incorrect information will be required to submit a corrected Form CLC-22 and will be considered in violation of the reporting requirements if a complete and correct form is not submitted within the time period prescribed.

E. Where To Submit

Firms required to file Form CLC-22 as a report of construction operations must forward the Form and attachments to the IRS office designated in the table at the end of these instructions.

F. Suggestions for Improvement

The CLC welcomes suggestions for improving this and other forms, and seeks ways of obtaining the information it needs to exercise its responsibilities under Phase IV of the Economic Stabilization Program with the minimum amount of public burden. Suggestions should be submitted to:

Cost of Living Council

Office of the Executive Secretariat 2000 M Street, N.W.

Washington, DC 20508

« PreviousContinue »