The Office of Management and Budget (OMB) is currently developing a critical update to its guidance on analysis of benefits and costs of federal regulations, known as Circular A-4. This guidance, which hasn’t been revised since it was issued in 2003, can have a major impact on the extent of public health protections in a regulation – and can even impact whether a regulation is ever issued. We encourage OMB to revise Circular A-4 to provide stronger safeguards for communities experiencing health disparities.
OMB reviews all significant federal regulations before they can be issued
Federal agencies like EPA are unable to issue significant regulations until OMB approves, and draft regulations must include an analysis of benefits and costs. This analysis is frequently a key focus for OMB in determining whether a regulation can be issued.
President Biden’s Executive Order 14094, “Modernizing Regulatory Review,” issued earlier this year, directs OMB to revise Circular A-4 to implement the following policy:
Regulatory analysis should facilitate agency efforts to develop regulations that serve the public interest…Regulatory analysis, as practicable and appropriate, shall recognize distributive impacts and equity, to the extent permitted by law. (emphasis added)
OMB’s draft update to Circular A-4 includes several important revisions that will enable agencies to better account for the benefits of regulations (such as reduced risks to public health) and to consider the effects of regulations on different groups within the population.
Circular A-4 must do better to promote evaluation of equity
Critical improvements to OMB’s draft are necessary, however, to fulfill the directive of Executive Order 14094 to improve regulatory analysis and serve the public interest.
In particular, the draft revised Circular A-4 falls short regarding the “distributive impacts and equity” of regulations. A distributional analysis evaluates how a regulation may address existing health disparities by accounting for the benefits accruing to different population groups that may be defined by factors like race/ethnicity, income, educational attainment, housing status, or life stage. It is important for agencies to conduct a distributional analysis of regulations because of the significant health disparities in the U.S. For example, Black people have higher rates of preterm birth, childhood asthma, and chronic kidney disease than other racial groups. Federal health and safety regulations provide critical opportunities to address these health disparities.
“Net benefits” vs Who benefits and who doesn’t
Although it does provide more details on methods for conducting a distributional analysis, the draft revision of Circular A-4 makes distributional analysis optional for agencies, and the revision maintains OMB’s past emphasis on determination of “net benefits,” which is the comparison of the total benefits of a regulation to the total costs. A net benefits calculation does not consider what segments of society are incurring the costs and what groups are expected to realize the benefits; it also focuses the attention of OMB and the regulatory agency on efficiency (do benefits exceed costs?) and away from equity (who benefits and who incurs the costs?).
The critical problem with a focus on net benefits is that it assumes that all dollars of costs and all dollars of benefits are equally important. For example, with a focus on net benefits, $10 million of cost to industry would outweigh $9 million worth of health benefits to a low-income community. Treating all dollars of costs and benefits as equally important is a hidden value judgment that de-emphasizes the health benefits to over-burdened communities. Executive Order 14094 instead recognizes that the distribution of the benefits of regulation among affected groups is important and must be considered along with the total costs and benefits, and this should be reflected in Circular A-4.
Only upon determining whether different approaches to a regulation increase or decrease inequities by conducting a distributional analysis can agencies move forward in determining which approach best advances health equity.
OMB should revise Circular A-4 to:
- Require agencies to conduct a distributional analysis for all regulations that affect public health;
- recognize that maximizing aggregate net benefits is not the sole determinant of a desirable policy; and
- elevate the consideration of distributional effects relative to the consideration of net benefits.
Incorporation of these changes into Circular A-4 is necessary to meet the charge given to OMB in Executive Order 14094 and will lead to increased opportunities for federal regulations to address existing inequities.
PRHE’s recommendations to OMB on revising Circular A-4 are available here.
For more on cost/benefit analyses:
About the author
Daniel Axelrad worked at the U.S. Environmental Protection Agency for 33 years in the Office of Pollution Prevention and Toxics (1987-1993) and the Office of Policy (1993-2020). His areas of expertise include science policy, children’s environmental health, benefit-cost analysis and risk assessment. He has a bachelor’s degree in economics from Occidental College and a master’s in public policy from Harvard University.