STATEMENT OF SALLY KATZEN
ADMINISTRATOR
OFFICE OF INFORMATION AND REGULATORY AFFAIRS
OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
February 12, 1997

Mr. Chairman, Members of this Committee. I am pleased to be here today to discuss EPA's recent proposals revising the ozone and particulate matter (PM) ambient air quality standards (NAAQS). These EPA proposals have sparked extraordinary interest from a wide variety of affected groups -- environmentalists and health professionals, who view these standards as a necessary and important step to improving air quality; State and local governments, who have the front-line responsibility for implementing these standards; and industry and other entities, who will have to take the steps necessary so that areas comply with the proposed standards. The interests and concerns that have been expressed range from the health effects to be ameliorated by these standards -- and the scientific support and other science policy issues underlying these standards -- to the administrative and other practical means by which these standards will be implemented, to the economic effects of complying with these standards -- the costs incurred by those who will have to change their conduct to implement these standards.

At least in my experience as Administrator of OMB's Office of Information and Regulatory Affairs (OIRA), there is more public interest in these two proposals than in any other recent rulemakings. And I am acutely aware of the interest and questions that have been raised about OMB's review of these proposed rules -- from the simple logistics of how and when we did the review, to the substance of what we thought of the proposed rules and the accompanying regulatory analyses that EPA prepared.

The EPA Administrator has prepared extensive testimony, describing in detail the agency's basis for the proposed environmental standards. The regulatory agency has the statutory authority and bears the responsibility for developing substantive regulatory standards. Executive Order No. 12866 specifically recognizes the primacy of Federal agencies in the regulatory decision-making process.

OIRA's role under the Executive Order is to provide dispassionate, objective review of the agency's work. Our task is to assure that the regulatory agency asks the right questions, considers the relevant scientific and other data, employs sound analysis, and balances the competing concerns in a reasonable, practical way. In addition, for proposed rules, it is important that the regulatory agency presents its proposal, and the justification for it, in a way that assures informed, meaningful input from the public.

E.O. 12866 sets forth a number of principles generally applicable to regulatory decision-making. It was, however, purposefully qualified to apply "to the extent permitted by law." That qualification is particularly important in this case. Under the Clean Air Act (CAA), the EPA Administrator is to set air quality standards that "protect public health with an adequate margin of safety." Indeed, the EPA Administrator is not to consider economic factors in determining the appropriate standards.

Having said this, E.O. 12866 nonetheless requires agencies to prepare economic analyses for proposed and final rules and to submit them to OIRA for review, even if economic considerations cannot be a determining factor -- or even a secondary or tertiary factor -- in formulating the proposal. Where a statute prohibits the consideration of economic factors, such analysis is still important because it helps to inform the Administration, Congress, and the public of the benefits and costs of regulatory actions.

In fact, EPA prepared extensive benefit-cost analyses -- over three inches of material -- for these proposed standards. These analyses are based on ambitious and sophisticated modeling efforts using inventories of known emissions sources in which the agency attempted to identify, locality by locality, the most efficient set of control measures for attaining the standards, the costs of these measures, and the extent of air quality benefits that would be achieved. Projected air quality improvements served as the basis for an assessment of potential health benefits, which were monetized by assigning dollar values to each health outcome.

It was particularly important that EPA prepared these economic analyses for these standards. While the standards themselves are health-based, and may not reflect economic considerations, they are not self-executing. Instead, EPA must follow-up these standards with regulations to implement them. In the ordinary course, this would include: specifying how one would determine whether localities are, or are not, in attainment; the timing for achieving attainment; guidance on control strategies to achieve attainment; etc. In this implementation phase, costs should and will play a very significant role. Preparing the benefit-cost analyses during the standard-setting phase will ensure that those addressing the implementation issues -- EPA, its advisory committees, the State and local governments who are responsible for implementing these standards, and all those affected by the standards -- have the best information available.

Let me now discuss briefly the specifics of OMB's review of these proposed standards. Before we received the proposed rules, OIRA staff had attended a number of meetings at which EPA explained in general terms the methodology it was using in its analysis of these rules (e.g., data, assumptions, models, etc.). In addition, EPA and OIRA staff had hosted a number of interagency meetings with EPA staff briefing other Federal agencies on the general issues surrounding EPA's review of ozone and particulate matter standards.

EPA submitted the proposed rules on November 4, 1996. We had to work quickly because of a court-ordered deadline to issue the particulate matter standard by November 29, 1996. Although there was no court-ordered deadline for the ozone standard, EPA thought it important to publish the two proposals simultaneously. This would allow the regulated community and other interested entities to evaluate each of the proposals with the other in mind, and to consider how the two proposals would interact.

During these three weeks available for review, my staff worked intensively, often late into the evenings and weekends. We gave this matter top priority, putting aside or postponing other responsibilities. We were able to identify a number of issues that require further work, and while the court-ordered deadline precluded full discussion and resolution of these issues with EPA, we have been advised by EPA that some of these issues will be analyzed as part of the economic analyses that will be provided to us as part of the package for our review of the final standards.

At the final rule stage, we will fulfill our obligations for review of these rules under the Executive Order. There are important policy issues that need to be considered. And, as at the proposed stage, we expect that many affected parties will want to meet with us and share their views to assure that we give careful consideration to the relevant issues.

Thank you for the opportunity to comment. I welcome any questions.