issued an amendment to the existing rules governing "present responsibility" to clarify what constitutes a "satisfactory record of integrity and business ethics" for contracting with the government (commonly called the "blacklisting" rule). This change requires the contracting officer to determine whether a potential contractor's record is satisfactory on issues, such as their labor, environmental and consumer protection records, including unproven allegations. Agencies commenting on the proposal rule stated that it was "seriously flawed" and would: (a) add cost, time and effort to procurement; (b) result in subjective and inconsistent determinations, increased protests and disputes, and additional litigation; and (c) appear to be punitive rather than protecting the government. This rule was scheduled to become effective on January 19, 2001.

The agencies stated that, "This rule is not regarded as a significant rule," even though Federal procurement amounts to nearly $200 billion annually and the rule's changes could result in redistribution of over $100 million in awards, potentially adversely effecting competition, etc. Under the existing regulatory executive order (E.O. 12866, Sec. 6), significant rules require preparation of a regulatory impact analysis (RIA). Since the agencies and the Office of Management and Budget (OMB) improperly categorized this rule as not significant, the agencies failed to prepare a RIA. Under the CRA (5 U.S.C. §804), major rules (with an annual effect of $100 million or more) cannot become effective until 60 days (versus 30 days under the APA) after issuance, i.e., this rule should have been available for review by the new Administration prior to becoming effective. In addition, since the rule's changes could potentially have a significant impact on a substantial number of small businesses, the agencies mistakenly certified that the rule "will not have a significant impact on a substantial number of small entities," and, thus, the agencies failed to prepare the required initial and final Regulatory Flexibility Analyses (5 U.S.C. §601 et seq.). This rule is currently being litigated.

On January 12, 2001, the Department of Agriculture published a major rule prohibiting the construction of roads and banning timber harvesting on 58 million acres of national Forest Service land, or 31 percent of all national forest land. For comparison, all of New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) encompasses only 44 million acres. In the vast majority of the areas affected by this rule, the biggest threat does not come from timber companies but from fire. Last year, more than 84,000 fires raged across the country, scorching nearly 7 million acres of public land. The number of acres harvested each year by comparison is roughly half a million acres. The stated goal of the rule is to preserve the forests for endangered species, recreation and maintenance of water quality. Unfortunately, a forest ravaged by a serious fire is unlikely to provide any habitat for species, little in the way of recreation, and probably degraded water quality. The rule, originally scheduled to become effective on March 13th, is being reviewed by the new Administration and is also being litigated.

Two days before the inauguration of a new President, the Environmental Protection Agency published a major rule establishing new standards for diesel fuel. Under the rule, oil refiners must remove 97 percent of the sulfur in diesel fuel by 2006. The current standard of 500 parts per million (ppm) was reduced to 15 ppm. The reason that sulfur needs to be reduced from

diesel fuel is not because sulfur itself is a major source of pollution but because it interferes with catalytic converters and other pollution control devices necessary to produce cleaner burning diesel engines.

I completely support the environmental goals of the diesel sulfur rule. Diesel engines account for a substantial portion of the ozone and particulates that pollute the air of our cities. This pollution has a wide range of adverse health affects, particularly the evidence linking diesel exhaust to an increased risk of lung cancer. Dozens of studies link airborne fine particle, such as those in diesel exhaust, to increased hospital admissions for respiratory diseases, chronic obstructive lung disease, pneumonia, heart disease and up to 60,000 premature deaths annually in the United States.

Despite my support for the environmental benefits that will be achieved by this rule, I am concerned by the timing - both the timing of the rule's publication and the timing of its implementation. Economic studies have suggested that our nation's refineries may not be able to produce enough low sulfur diesel to meet expected demand. As a Member representing California, I can tell you first hand it is not a good thing when energy supplies fail to meet energy demands. That this rule was finalized days before the end of an Administration and just as our nation is struggling with several energy issues is somewhat disconcerting.

I want to welcome our witnesses today. Panel I includes a distinguished expert in agency rulemaking: Dr. Wendy Lee Gramm, former Administrator, Office of Information and Regulatory Affairs, OMB and Director, Regulatory Studies Program, Mercatus Center, George Mason University. Panel I also includes Marshall Whitenton, Vice President, Resources, Environment and Regulation Development, National Association of Manufacturers; Dr. Robert Nelson, Professor, University of Maryland School of Public Affairs; and Ray Ory, Vice President, Baker and O'Brien, Inc. Panel II includes Terry Gestrin, Chairman, Valley County Commissioners, Cascade, Idaho; Evan Hayes, a wheat farmer from Idaho, representing the National Association of Wheat Growers; Sharon Buccino, Senior Attorney, Natural Resources Defense Council; and Thomas McGarity, W. James Kronzer Chair, University of Texas School of Law.

Mr. OSE. Mr. Otter, would you care to make an opening statement?

Mr. OTTER. Thank you, Mr. Chairman. I do have an opening statement that I would like to submit for the record. But I will be very brief in the comments that I make now.

Mr. OSE. Without objection.

Mr. OTTER. I, too, am concerned, Mr. Chairman, about the rush to judgment, the rush to regulate that we've had not only in the two agencies that are coming before us this morning and the devastating effects that they have had on our abilities to produce, to travel, to indeed carry on the commerce that needs to be carried on not only in my State but also in the entire Union. And, because of that, I am particularly happy, Mr. Chairman, that you have sought to call this hearing, and I look forward to talking to the panels that will be coming before us this morning.

But, I do want you to know that the outcome of this hearing and the results that we will be able to go forward on are extremely important to us because there's a lot of folks back home in Idaho and in the Pacific Northwest that are hoping to at least get some relief as a result of this subcommittee hearing, Mr. Chairman. So I applaud you in your efforts this morning.

Mr. OSE. Thank you, Mr. Otter.

This committee typically swears in its witnesses, so if you would all rise.

[Witnesses sworn.]

Mr. OSE. Let the record reflect the witnesses answered in the affirmative. I would like to introduce the witnesses. Joining us today on my left is Dr. Wendy Lee Gramm, the former administrator of the Office of Information and Regulatory Affairs, OMB. She's currently at the Mercatus Center, where she is a distinguished senior fellow and runs the regulatory studies program.

Next to her is Marshall Whitenton who is the vice president of Resources, Environment and Regulation Department for the National Association of Manufacturers.

And sitting next to him is Dr. Robert Nelson, who is a professor in the School of Public Affairs at the University of Maryland.

And our final witness on this panel is Raymond Ory who is the vice president of Baker & O'Brien, Inc.

If you could be so kind as to summarize your testimony within the 5-minute timeframe, that would be most appreciated and we would be able to get to questions quicker.

STATEMENTS OF DR. WENDY LEE GRAMM, FORMER ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OMB, AND DIRECTOR, REGULATORY STUDIES PROGRAM & DISTINGUISHED SENIOR FELLOW, MERCATUS CENTER, GEORGE MASON UNIVERSITY; MARSHALL E. WHITENTON, VICE PRESIDENT, RESOURCES, ENVIRONMENT AND REGULATION DEPARTMENT, NATIONAL ASSOCIATION OF MANUFACTURERS; DR. ROBERT H. NELSON, PROFESSOR, SCHOOL OF PUBLIC AFFAIRS, UNIVERSITY OF MARYLAND; AND RAYMOND E. ORY, VICE PRESIDENT, BAKER AND O'BRIEN, INC.

Dr. GRAMM. Thank you for inviting me to testify on the issue of the Congressional Review Act and recent Federal regulations. Please note that this testimony reflects my own views and not that of either the Mercatus Center or George Mason University.

The objective of the Regulatory Studies Program is to advance knowledge of regulations and their impact on society. What we do is to analyze regulations and regulatory issues from the perspective of the public interest and the typically underrepresented consumer. We've long been concerned about the growing burden of regulations and recently have focused on the phenomenon of midnight regulations, or those regulations promulgated during the 3 months following a national election.

Mercatus scholar Jay Cochran analyzed the number of pages in the Federal Register in post-election quarters since 1948; although an imprecise measure of regulatory activity, it's about the best we have. Dr. Cochran found this phenomenon of midnight regulations to be systemic and nonpartisan. This year was no exception when the page count in the Federal Register jumped by 51 percent when compared with the same quarters in the preceding 3 years.

I have outlined in my written testimony some examples of regulations that were finalized during this election period. And, you, Mr. Chairman, have commented on many of them. More detailed analyses of many of these regulations are available on our Web site in the form of public interest comments that we submitted during the comment period, as required by the Administrative Procedure Act.

Our public interest comments provide independent analyses of agency proposals from the perspective of the public interest and not any special interest. Some analyses are performed by Mercatus scholars; others are done for Mercatus by outside academics and practitioners. Last year, alone we wrote 24 public interest comments covering most of the regulations being discussed today and many more.

While our public interest comments may be lengthy, we have a one-page summary with each public interest comment, along with a checklist appended to each one. In the checklist, we provide a very simple list of questions that policymakers should address when crafting a regulation, and then summarize whether or not the agency answered each question, along with a grade ranging from A to F for excellent to unsatisfactory. The kinds of questions we ask, for example, are did the agency identify a specific problem that can't be addressed by either market regulation or by other levels of government-State and local government.

We ask whether agencies examined alternative approaches to the ones they're proposing, whether they attempted to maximize net benefits, whether there is a strong scientific or technical basis for the regulation, and, finally, we ask whether or not the agencies understood and considered both the distributional effects of the regulation on different populations, but also how individual choices would be affected.

I would like to just say a few sentences on some of the important midnight regulations, some of which you have commented on. The Forest Service roadless area regulation covers biologically diverse areas, as you said in your opening comments. And, while much public attention has been paid to the impact on logging, our concern is that the Forest Service has not shown that the ban on road construction is necessary or appropriate for protecting other important values, such as water quality, wildlife, and recreation in these

areas.

The agency did not consider alternatives to a complete ban, such as allowing low-impact temporary roads as needed for forest health, fire protection, or ecosystem restoration.

The Federal Acquisition Regulation Council's blacklisting rule shifts the burden of determining whether a firm meets proper ethical standards from the agencies authorized by Congress to government procurement agents. Under this regime, blacklisting replaces the formal process and firms cannot answer the charges against them and may be blacklisted for an administrative complaint even before evidence is heard.

HHS's medical privacy regulations are costly, but HHS has not identified any net social benefits that can be expected to flow from this regulation.

Arsenic is a naturally occurring substance for which health risks have not been observed at the levels found in U.S. drinking water systems. EPA justified these standards using evidence of risk from high arsenic doses in other countries, although those populations smoke more, and have poorer health in general. And actually there was a U.S. study of U.S. populations where there was no statistical arsenic risk.

The reporting thresholds for lead under the toxic release inventory would be reduced substantially, but release here means the amount transferred offsite as waste, or even recycled or retreated.

There are a number of other regulations. I see my time is running out. I would like to point out that washing machine standards and the energy efficiency standards are also very costly to consumers. For the washing machine standards, for example, the Department of Energy in their estimates would imply that these standards would reduce energy use by 0.16 percent over a 24-year period, but we think its estimates are overstated.

There are many other regulations worth reviewing, but I thank you for your interest in regulations, especially midnight regulations, because these are regulations pushed through at the end of an administration's term when congressional oversight is unavailable and can result in potentially costly mandates that may do lit