It’s Time for OMB to Refashion Its Guidance on Analytical Time Frames
Peering out from behind large, tinted lenses, Anna Wintour once summed up the importance of When: “It’s always about timing,” she said. “If it’s too soon, no one understands. If it’s too late, everyone’s forgotten.”
Ostensibly, she was talking about fashion. But she may as well have been talking about analytical time frames in cost-benefit analysis. Because cost-benefit analysis, too, is about timing. And an analysis that ends too soon may obscure understanding of the relationship between costs and benefits, potentially leading to suboptimal regulation.
Suppose an agency proposed a policy today that would significantly reduce leachate from landfills. In the absence of regulation, toxic leachate formed this year may take a decade or more to reach and contaminate groundwater. Following human exposure, another decade might pass before the onset of illnesses such as cancer, after which point those afflicted would incur significant medical expenses for treatment that, for some, may be unsuccessful.
A cost-benefit analysis that ends in 2042 would not capture some of the policy’s most significant benefits — namely, avoided illness and death in 2043 and beyond. At the same time, this analysis would likely encompass the policy’s most significant compliance costs, thereby distorting the true picture of costs and benefits. Certainly, if the agency is going to end its analysis in 2042, it should offer a detailed and compelling justification for doing so. This would ensure that the agency has thoroughly considered its choice of time frame and that the public has the ability to provide meaningful input on the agency’s choice.
Straightforward as this may seem, federal agencies often fail to provide a justification for the analytical time frames they use in their cost-benefit analyses, even when their chosen time frame clearly truncates a policy’s costs and benefits. A recent report by the Institute for Policy Integrity examined various rulemakings from six different agencies dating back to 2010 and found numerous regulatory analyses where this was the case. The result is that agencies are at risk of overlooking key long-term impacts, particularly long-term benefits that might justify stronger regulation, as illustrated in the example above. Anna Wintour would not approve.
Due to its prevalence across agencies, this deficiency can best be addressed by the Office of Management and Budget (OMB) through standardized guidance and practice. OMB is currently considering updates to its main guidance document on regulatory impact analysis, and Policy Integrity’s report contains five recommendations OMB should incorporate into its updated guidance. These recommendations would help agencies avoid overlooking future costs and benefits, and help ensure that, for any given rulemaking, both the agency and the public understand whether and how the analytical time frame affects the overall policy choice.
The Recommendations
1. Agencies should identify and discuss the analytical time frame in a dedicated section of the regulatory impact analysis. Within this section, the agency should explicitly identify how far into the future a rule and its alternatives are expected to generate significant costs and benefits and explain the basis for that expectation.
2. The agency should explain any limitations affecting the choice of analytical time frame. If there are significant long-term costs or benefits the agency is unable to analyze due to data limitations or uncertainty, the agency should describe those limitations in detail.
3. Agencies should explicitly discuss the extent to which the sign of net benefits (i.e., whether a regulation is net-costly or net-beneficial) or the relative rankings of policy alternatives are sensitive to the choice of analytical time frame.
4. Agencies should conduct a temporal break-even analysis when significant costs or benefits occur beyond the analytical time frame. When a regulation has significant costs or benefits that go beyond the analytical time frame but cannot be reasonably quantified, the agency should identify the number of additional years, if any, the policy under consideration would need to produce net benefits to become cost-benefit justified (or to improve its relative ranking among alternatives).
5. For rulemakings on the same or similar subjects, agencies should try to maintain the length of analysis in subsequent rulemakings. Thus, if a regulation issued ten years ago analyzed costs and benefits out to 2050, a new regulation of the same kind issued today should analyze costs and benefits out to at least 2060, barring a compelling reason otherwise.
For too long, agencies have given short shrift to analytical time frames in cost-benefit analysis. But with adherence to these recommendations and greater scrutiny from OMB, careful attention to this critical component of regulatory analysis would finally be in vogue.
