KRC has grave concerns regarding imposition of a cost-benefit analysis requirement for proposed state regulations for these reasons:
1. Cost-benefit analyses (CBA) are inappropriate for regulations intended to protect public, worker or environmental health.
A CBA attempts to compare the price in terms of costs and benefits, in theory producing more objective or transparent decisions, but when applied to the area of public health and environmental protection, it does not. Instead, the process of reducing life, health and the natural world to monetary values in order to allow for comparison of costs and benefits is inherently subjective and undervalues actions taken today to protect against future harm to this and the next generation.
2. Cost-benefit analyses tend both to understate the value of health and environmental controls for the next generation, and overstate compliance costs. The use of discounting reduces the value assigned to measures taken today that prevent or lessen future health and environmental problems. Conversely, cost assumptions often overstate actual costs since they do not consider innovation that is brought to bear to reduce compliance costs.
3. Imposing a cost-benefit analysis requirement for the majority of Kentucky agency regulatory actions is wasteful and will not yield better agency decisions. Since almost all state regulations are in direct response to state legislative mandates, since the legislature has directed the state agencies to manage federally-delegated programs at the state level. Because of this:
(a) the vast majority of state regulatory standards adopted have already been subject to some form of cost-effectiveness or cost-benefit assessment at the federal level, making the development of another CBA wasteful and redundant, and
(b) the development of a cost-benefit analysis for those state regulations that are proposed in response to state legislative mandate to implement federal requirements is not a useful exercise. The purpose of a CBA is theoretically to assist the agency in choosing the most effective means for implementing a statutory mandate or policy goal, and in these cases, there is no option available to the agency other than to adopt the federal requirement, so that the CBA is not a useful decisionmaking tool.
4. The requirement to conduct a CBA on all regulations will require significant diversion of staff resources, particularly for agencies that already are suffering shortfalls in technical staff needed to manage regulatory programs.
Finally, the specific language of the bill does not provide for a true cost-benefit analysis, since rather than assessing the full range of costs and benefits across the society, it is restricted to an analysis of the costs imposed on entities subject to regulation and the benefits that will accrue to the entities. In most cases, the imposition of regulatory requirements is an effort to require internalization of existing costs so that the goods and services produced reflect true costs and value. Limiting the consideration of costs and benefits to the regulated entity will not result in a meaningful assessment of the impacts of a proposed regulatory action, since it will not account for the benefits of the regulation to those now indirectly bearing the costs.
For these reasons, KRC will continue to oppose that portion of HB 374 that imposes a cost-benefit requirement for state regulatory actions.