Saw Hearing Shows Need to Sharpen CPSC Regulatory Tools

 

Last week the CPSC held a hearing to address its pending proposed rule to require active injury mitigation (“AIM”) technology on table saws.  In recent years, too often CPSC hearings have devolved into little more than theater, obviously intended to generate press but little understanding of the complex issues the agency is so often called upon to decide. Last week’s hearing was different.  For much of the hearing, the Commissioners were actually discussing the complex regulatory issues the NPR presents and doing it in a knowledgeable, engaged and interested manner.

To recap, the proposed rule would require that all table saws use the AIM technology to help prevent the 33,000 injuries that occur each year from use of these saws. Such technology can detect human contact with the saw blade and stop the saw before that contact occurs.  However, the only available technology that meets the standard is owned, patented and being sold by one table saw producer, a company called Saw Stop.  Because Saw Stop has so many patents, the agency recognizes that it is unlikely that other technology that would not violate those patents could be developed to meet the proposed standard. While the technology owner states that he is willing to license it to the rest of the industry, he is unwilling to enter into a legally-enforceable commitment to do so either with a voluntary standards organization or before a mandatory rule is finalized.  By mandating AIM, the agency will both create a monopoly and significantly increase the price of the saws.  The agency recognizes that both will occur.

The agency has to grapple with a number of important issues.  Obviously, the AIM technology would reduce the number of serious injuries associated with the product and addressing those injuries is a priority for the agency.  However, the technology is currently in the marketplace and available to consumers who wish to pay for it. Is it the proper government role to require people to buy technology that they have determined they do not wish to pay for?  Should the CPSC, a safety agency, be concerned about the market distortions its rules may bring about?  Everyone, including the CPSC, anticipates that the rule will result in significant price increases. Will those increases create disincentives for consumers to buy new  AIM-equipped saws, with the result that old saws will stay in use longer than expected and injuries will increase, at least in the short run? Has the agency’s analysis of the costs and benefits of the rule correctly considered these issues?

These are all serious questions and it is good that the agency is giving them serious thought.  The agency has now received comments from the George Washington University Regulatory Studies Center. These comments to the proposed rule look at the way the agency did its required cost-benefit analysis and finds that there is room for improvement.  The methodology the agency uses for such analyses has not changed in years; nor has it received much critical review.  Since both analyzing regulatory costs and benefits and regulating in the least burdensome way that effectively addresses safety concerns are mandated by the law, this analysis should be a more important regulatory tool than it has been in practice.

The GW comments show sufficient weaknesses in the analysis to raise questions about the validity of the conclusions the agency reaches.  For example, the agency may be overstating the benefits of the rule given the lack of detail in the injury incident data the agency relies on.  (The shortcoming in the data has also been recognized by the Commissioners who have directed the staff to develop more data.)  The agency’s estimates of the societal costs are also predicated on suspect data and open to challenge, as the report points out. The GW study not only finds fault with the agency’s analysis of potential benefits of the proposed rule but also its disregard for the negative impact market distortions may have on consumers.  It concludes that if the “CPSC finalizes these standards it is more likely to produce a market failure by creating a monopoly than to address an existing one.”

Given the concerns raised by the GW comments and by others, one can rightly ask whether it is good policy for the agency to create a monopoly on the basis of flawed data.  And even if the data is good, one still must ask whether creating a monopoly is appropriate government regulatory behavior. Considering the serious and important policy questions this proposed rule presents, the Commissioners are right to give it a more thorough evaluation than what has occurred to date.

 

 

 

 

 

Court to CPSC: Your Magnet Rule’s a Turkey

Zen Magnets, the tiny Colorado company that has challenged the CPSC’s actions regulating small, powerful magnets, will be having a very good Thanksgiving this year.  That is because, once again, Zen has shown that it is possible to fight the federal government and win.  Today the United States Court of Appeals for the Tenth Circuit ruled that the CPSC’s safety standard banning the magnets sold by Zen did not withstand judicial scrutiny.  The court told the agency that if it wanted to regulate magnets it needed to follow the requirements of the Consumer Product Safety Act, and that it should go back to the drawing board and rethink its justifications for the rule.

The CPSA requires that the agency do a cost-benefit analysis and make findings that identify the nature and degree of the risk of injury weighted against the public’s need for the product and then regulate in the least burdensome manner possible.  The Court found that the agency’s analysis was deficient.  The court found that the agency overstated the number on injuries and neglected to consider the public utility of many of the uses of the product.  In other words, the statutory requirement to weight the costs and benefits of a proposed action is a critical part of regulating.  My experience in the last several years of my term as a CPSC Commissioner was that this statutory requirement was seen as an annoyance rather than as a tool for informed decision-making.  Perhaps the Tenth Circuit’s decision will change the agency’s approach to using this statutory tool.

The agency’s approach to regulating magnets has been characterized by an “ends justifies means” mind-set.  The agency worked to cut off the ability to sell the magnets through retail channels by “asking” retailers to stop selling the product.  The agency sought to recall the product, knowing that consumers would not respond to the recall but also knowing that this device could stop further sales.  The agency sued those few distributors who had the fortitude to challenge the agency’s action.  The one company that has stayed the course is Zen, and its success rate has been quite remarkable.  The administrative law judge that heard the recall action ruled in Zen’s favor.  Now an appellate court has found that the rule the agency issued to ban future sales of the product is defective because it blew by statutory requirements that provide for balanced decision-making.

Zen is like a little Yorkie terrier that has grabbed ahold of the ankle of the CPSC and will not let go.  Yet, through its determination to challenge what it believes is over-reach by the federal government, it has forced the agency to reexamine its approach to a serious issue.  It may be that, through Zen’s actions, the CPSC will come to understand that it can protect consumer safety without disregarding basic notions of due process.  What a good Thanksgiving that would be.

Regulating through the Front Door

Last week, the Hill newspaper published my article supporting a regulatory reform bill, S. 2006, recently introduced by Senator Portman and a bipartisan group of Senators.  Among other things, the bill sets out Congressional expectations for balancing the costs and benefits of rulemaking and directs agencies to adopt the least burdensome rule that addresses the issue in the proceeding.  As I stated in my article, “Regulating is not, and should not be, easy.  Requiring agencies to do the needed up-front hard work before issuing rules, as these reform bills direct, will result in better rules.”

Critics have pointed to these kinds of requirements as regulatory roadblocks—mere ploys designed to slow down the process.  I see them not as roadblocks but as speed bumps–useful tools to assure that the agency gets it right when it regulates. And unless the agency is actually required both to do the work, and then to regulate based on the results of that work, the temptation is to look at these requirements as “check-the-box” exercises that must be done on the way to a rule, often with a predetermined result.

I do have one concern about potential unintended consequences from reform of the rulemaking process.  To the extent that agencies perceive it to be harder to issue rules going forward, they may look for other ways to achieve desired results, thereby circumventing the protections and procedures of the reform bills.  I saw this operating first hand at the CPSC where “backdoor rulemaking” is not only accepted but embraced. Backdoor rulemaking involves taking enforcement or other action on a category- wide or product- class basis to achieve results that one would normally expect to achieve through rulemaking.  So if a product with a particular attribute is deemed to be substantial product hazard and recalled, then that action may, de facto, set the bar for all other products with similar attributes.  Transparency and due process are out the door.

Regulators regulate—that is what they do.  But category-wide enforcement should not be used as a subterfuge to avoid the regulatory process.  As these reform bills advance, Congress will need to be alert to this concern.

Time for Doing the Work, Not Looking for Shortcuts

Those who follow the CPSC closely expect that the President’s new commission nominees will be confirmed soon.  The question is: will new leadership change either the tone or the direction of the agency?  Two exchanges during the confirmation hearings made my ears perk up since they went to that question.  Both exchanges addressed the regulatory approach of the nominees.

The first exchange dealt with testing burden reduction.  Remember that PL 112-28 directed the Commission to undertake actions to reduce the costs of third party testing or report back to Congress if it needed additional authorities.  Senator John Thune noted that the agency has done nothing to implement measures to reduce costs in any meaningful way.  Senator Thune asked each nominee, upon confirmation, to provide the Senate Committee with their plans for implementing efforts to reduce testing costs. Senator Thune has given the nominees a real opportunity to show leadership and provide actual relief from the agency’s overly-expansive and costly testing approach—which does not provide consumers with additional safety but does add additional costs to the products they buy.

So as the two nominees craft their plans in response to Senator Thune’s request, will those plans reflect business as usual, with the agency doing only enough to make it appear that it is doing its legal duty but still managing to avoid any real change?  Or will those plans show a thoughtful and creative approach to fixing a problem that Congress and members of the public have identified but which the leadership of the agency, up to this point, has sought to minimize?

Another interesting exchange during the hearing dealt with procedures for issuing regulations.  While addressing the five-year delay in issuing rules for recreational off-road vehicles, the nominee for Chairman, Mr. Kaye, bemoaned the lack of “express” rulemaking authority in the Consumer Product Safety Act.  He attributed regulatory delays to the findings the agency has to make before issuing a final rule and the cost-benefit analysis that he said was “unique” to the CPSC (implying that such analysis was overly burdensome).  But Mr. Kaye did not identify which findings and what aspects of cost-benefit analysis are overly burdensome to the agency. Having that information would provide the basis for a good discussion on regulatory policy at the agency.

Section 9 of the CPSA (15 U.S.C. 2058) spells out how the agency must go about issuing product safety rules or bans. The law states that before the agency initiates rulemaking it must make some preliminary effort to assure itself that the rule is indeed needed.  Those efforts include:

• a first-cut at describing the potential costs and benefits of the proposed rule;
• a discussion of why any existing voluntary standard is not adequate; and
• a description of reasonable alternatives to the rule and why those alternatives should not be considered.

But which of these points of analysis do those advocating for express rulemaking want to eliminate?  Do we really want federal agencies beginning the rulemaking process without doing initial homework in the form of some upfront analysis to assure the public that the proposed direction is correct? To my ears, the complaint that doing your homework is too hard rings hollow.

But perhaps it is the cost benefit analysis that must been done during the rulemaking process that is the problem for those complaining about burdens and advocating express rulemaking.  The law states that the analysis must include a description of the potential benefits and potential costs of the rule and a description of the alternatives to the rule that the commission considered, the costs and benefits of those alternatives and a description of why they were not chosen.  But the law merely states explicitly what necessarily should be included in any competent regulatory analysis.  Unless we are willing to agree that the feds are always right in their regulatory approach, would we not want any agency to gather, write down and then actually consider that information before regulating?

I suspect that the real problem for those advocating for express rulemaking is the law’s expectation that the data will be used to inform results–that the agency actually will use the data to tailor or perhaps even change its preferred regulatory approach.  The law tells the agency that it may not issue a rule unless it finds, among other things, that

• the benefits of the rule bear a reasonable relationship to its costs; and
• the rule imposes the least burdensome requirement to adequately address the risk.

In other words, if the agency’s preferred regulatory approach is not the most efficient way to address a risk, then Congress expects the agency to change its approach.

Here are a couple of follow-up questions to the nominees.  Do we want the agency to be able to regulate without regard to costs and benefits? Should not the agency have to change its preferred approach if the costs and benefits are not reasonably related?  Do we want the agency to impose requirements that are more burdensome than they need to be and do so out of ignorance because it did not bother to consider alternatives?  I submit that we do not.  And I believe that experience over the past four years illustrates the importance of these requirements. Several extremely costly and burdensome rules were put into effect without the analysis described above since the CPSIA did not require that analysis.  Indeed, PL 112-28 was passed because the testing rule, not subjected to that analysis, resulted in costs that are excessive.

Regulation is not and should not be easy.  If data shows the need for a rule, then the agency should roll up its sleeves and get to work, not complain about how hard it is and look for shortcuts.  It will be interesting to see if the new leadership is up for doing the hard work.

Are Many Better Than One?

Last week I spoke at a meeting of the American Bar Association’s Science and Technology Committee.  While the topic was the use of cost benefit analysis in formulating regulatory policy, the question I put on the table for discussion is whether the benefits of multi-member independent agencies outweigh the costs.  This is an issue that I have been thinking about for some time.  Based on my experience at the CPSC, I question whether these agencies really deliver to the public any better results than those headed by a single administrator.

The theory behind multi-member independent commissions is that with bipartisan members serving a term of office and who can only be removed for cause, the rules coming out of such commissions will be qualitatively better and have bipartisan legitimacy.  The reality is that the work product is not necessarily bipartisan and indeed, at the CPSC, has been very partisan.  Nor, I would submit, are the rules from independent agencies substantively different or “better” than those coming out of agencies with single administrators, but those rules have substantial process-based costs.

What are those costs?  For starters, each commissioner’s office and staff consume approximately $1 million, adding up to almost $5 million annually.  While for some agencies that is insubstantial, for the CPSC, with a budget of $108 million, that means almost five per cent of the agency’s budget is spent on housing, staffing and paying for commissioners.  But beyond just that obvious cost, there are significant costs associated with a top heavy management system.  For example, senior staff spend hours each week briefing commissioners in repetitive one-on-one meetings.   Having multiple commissioners also generates controversy where it might not otherwise exist.  For example, we have seen the agency start down a path, only to have a commissioner change his mind and, hence, change policy direction of the agency with significant burdens being placed on those who relied on the earlier policy.  As another example, commissioners and staff spend hours grappling with whether an issue is administrative in nature, and can be decided solely by the chairman, or whether the issue presents policy questions and therefore must be presented to the commission for decision.

Given these and other costs, would not a single administrator do better?  A single administrator would be charged with following broader administration policy and there would be clear accountability for agency decisions.  Such a change would avoid the costs of “collegial” decision-making.  With respect to the quality of decisions, with good data, the regulatory results would likely be as good as, if not better than, those coming out of a commission.  And if they were not, it would be an easy task to fix responsibility.

More Data + More Analysis = Better Rules

Readers of this blog know that I am a big supporter of rigorous cost-benefit analysis as a way to make regulations better.  Therefore I was pleased to have the opportunity during a panel last week to discuss why this is true and how the public can participate in shaping such analysis.

Cheryl Falvey, formerly the General Counsel at the CPSC, led the discussion, which also included Michael Fitzpatrick, a former senior official in the current White Houses’ Office of Information and Regulatory Affairs (OIRA), and Reeve Bull, an attorney with the Administrative Conference of the United States (ACUS). We discussed the arguments surrounding cost-benefit analysis, the use of OIRA review in the rulemaking process, and legislation that would affect independent agencies’ use of cost-benefit analysis. Here are a few key takeaways from the panel.

First, the CPSC is hardly the only independent agency grappling with cost-benefit analysis. However, unlike the CPSC which has rejected its use when not required by statute, other independent agencies like the Nuclear Regulatory Commission and the Commodity Futures Regulatory Commission have used such analysis despite their not being required to. This is important, because there is a fallacy out there that cost-benefit analysis kills rules. Cost-benefit analysis makes them better. And vetting rules through an OIRA review process also makes them stronger and more likely to survive judicial scrutiny. Doing this analysis publicly makes an agency have, as Fitzpatrick described it, a “disciplining conversation in public.” Going through that conversation makes rules more legally and politically defensible. That is why, more and more, agencies (with the exception of the CPSC) are using this analysis even when not specifically obligated to.

Second, when it comes to cost-benefit analysis, it is not only agencies that need to step up. It is the public generally and the regulated community more specifically. When a proposed rule is released to the public for comment, affected industries usually provide comments. Many of those comments are heavy on policy arguments and weak on numbers. But policy arguments are easily responded to with other equally powerful policy arguments. What agencies need is fact-and-figure driven comments. That is the kind of information that can actually change a debate. And because agencies have limited ability to get information from the public—thanks, in part, to the strictures of the Paperwork Reduction Act which limits our ability to ask for information from the public—we have to rely on general, publicly available data. If comments come in that have hard data, especially non-anecdotal data, an agency’s staff will have to grapple with it or risk the rule’s survival in a court challenge. And good data is precisely what agencies need to truly refine rules.

Cost-benefit analysis by itself is not sufficient to assure good rules.  But it is a tool that more and more agencies use to improve the rules that affect the American economy. And it is a tool that needs the participation of the regulated community to be as effective as possible.

Show Your Work

In this day and age, who gets to do their own work and not show it to anyone else before it sees the light of day? Surely there are few who let work product out without someone vetting it. That’s why businesses get third-party auditors. That’s why grade school students show their work, so their teachers can correct them. And that’s why, starting with President Reagan, every president has required executive agencies to submit major rules to the Office of Information and Regulatory Affairs (in the White House Office of Management and Budget) to ensure that the rules are supported by thorough, accurate regulatory impact analyses (of which cost-benefit analyses are a key element). So it shouldn’t be surprising that a bipartisan coalition has begun forming to require independent agencies to do the same thing, which is taking shape in the form of the Independent Agency Regulatory Analysis Act (S. 1173), co-sponsored by Sens. Rob Portman (R–Ohio), Susan Collins (R–Maine), and Mark Warner (D–Virginia). Unfortunately, it also isn’t surprising that some (including some of my colleagues here at the CPSC) see this review as an impediment to regulatory independence. Such was suggested in a recent New York Times editorial. Senator Portman and I responded to those misguided concerns here. In addition, I wrote an op-ed in The Hill newspaper arguing in favor of the bill, which you can read here.

The bill is now pending before the Senate Committee on Homeland Security and Governmental Affairs.  Should this idea become law, it would provide a measure of accountability to regulators to better justify the actions they take.

1110: Now It’s Your Turn

Last week, we talked about the shortcomings of the Commission’s proposed amendment to its Part 1110 rule on product certifications—hidden costs, confusion on bans and testing exemptions, recordkeeping disharmony, and questions not asked. Today, I issued my formal statement on the vote, which delves more deeply into the history of our first attempt at this rule and what we should have done this go-round.

That being said, I supported the broad outlines of this package. One key reason I voted to move ahead? I believe it’s high time we asked the public what to do about certificates. So now it’s your turn to let us know how we could improve this rule. Talk to me here, but more importantly, talk to the all of us at the Commission by submitting comments here.

Talking Business

Yesterday, I had the pleasure of speaking at the 13th Annual Legal Reform Summit, hosted by U.S. Chamber of Commerce’s Institute for Legal Reform. I discussed regulatory review, cost-benefit analysis, and how little of each is happening at the CPSC.

Given the organization’s long and illustrious history, naturally, I wasn’t the first public official to speak to a Chamber audience about the administrative state. Here’s what one visitor had to say about 18 months ago: “[I]f there are rules on the books that are needlessly stifling job creation and economic growth, we will fix them.”

That speaker was President Obama, outlining an executive order on regulatory review. The order tells agencies like the CPSC to look at our rules and shed whatever wasn’t working or necessary. It envisions a regulatory system that “promot[es] economic growth, innovation, competitiveness, and job creation.” The order urges regulation “based on the best available science” that can “promote predictability and reduce uncertainty,” using “the best, most innovative, and least burdensome tools,” and taking “into account benefits and costs.”

The CPSC has failed every aspect of that order. Key recent rules stifle growth and discourage innovation. They also stifle competition and slant the playing field toward the biggest businesses. About the only jobs they create are for lawyers.

Here’s hoping that, regardless of what happens November 6th, we’ll see a renewed effort from the White House to bring CPSC into compliance with prudent government. Here is an article about my presentation at this meeting.

Competing Realities

In Washington, unlike the rest of the nation, competing realities are what we live with every day.  As I was doing my daily reading, this came home to me in two articles. One is a report of the extraordinary number of new regulations coming out of the federal government.  In the other, a former Administration official touts the feds’ record in reducing the regulatory burdens imposed by Washington.  I wish to could say that reducing regulatory burden was important but here at the CPSC, that is rarely the case.  Gosh, we couldn’t even agree on how to design a plan to look at the issue, much less do it.  Here is a statement I recently posted about our failed attempt to do regulatory review.