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PAYGO Proposed to Manage Agency Regulations

| May 5, 2011 | Analysis

Senator Mark Warner (D-VA) is drafting legislation that would implement what he has called “a regulatory ‘pay as you go’ system.” The idea would be basically for a regulatory agency to eliminate one old regulation for every new regulation it sought to add.

MarkWarnerHeadshot.jpgWarner’s regulatory policy of pay as you go (PAYGO) differs in important ways from the original (and now recently revived) policy of legislative PAYGO.

Legislative PAYGO applies budget neutrality principles to the federal budget, basically forbidding the legislature from enacting new laws that will increase the budget deficit.  Legislators can assess the budgetary impact of legislation in advance and offset a bill’s costs by proposing spending reductions elsewhere or by raising taxes to meet the bill’s projected costs.

In contrast, regulatory agencies lack the power to tax and spend – or to take other fine-grained steps to offset new regulations. Under Warner’s idea, agencies would be able to introduce new regulations only if they retired others with comparable economic impacts.

To determine the economic impact of regulations, Warner suggests that the Office of Management and Budget (OMB) should attach a dollar value to every rule. Executive Orders 12866 and 13563 already require agencies to measure the costs and benefits of regulations from a social perspective.

Of course, some regulations generate a net positive economic impact. For example, some Environmental Protection Agency regulations have a monetized value of cleaner air that exceeds the costs of air pollution control.

Calculator.jpgIt is unclear whether rules that deliver net positive benefits to society would need to be eliminated in order for an agency to add additional rules that might also deliver positive net benefits on their own.

And if other rules are already unnecessary or are imposing costs that exceed their benefits, they presumably should be eliminated even if an agency has no new regulations it wants to issue. Furthermore, how if at all should equity considerations factor into regulatory PAYGO decisions?

Regulatory PAYGO raises questions that are distinct from those presented by legislative PAYGO. If Senator Warner does eventually introduce a regulatory PAYGO bill, perhaps some of these questions will start to be answered.


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