Despite a pronounced regulatory slowdown before Election Day, regulators still managed to add $236.7 billion in regulations. 

On paper, or at least in the editorial pages, 2012 was supposed to be a year of deregulation. President Obama’s regulatory Czar, Cass Sunstein, wrote that the government would work “to eliminate unjustified regulatory costs and to reduce burdens.”  In one respect, Administrator Sunstein was correct; in 2012 the government published $2.5 billion in regulatory rescissions.  However, those cost savings were easily dwarfed by more than $236 billion in new burdens.  This caps a $518 billion regulatory expansion during the last four years, more than the combined Gross Domestic Product of Portugal and Norway.

Year

Proposed/Interim Rule Cost

Final Rule Cost

2009

$921 Million

$83 Billion

2010

$21 Billion

$125 Billion

2011

$187 Billion

$43 Billion

2012

$20.7 Billion

$215.9 Billion

 

The year 2012 tops all during the past twelve years in terms of final rule cost but leading up to Election Day, the White House was stalling dozens of regulations.  For example, during the first nine months of 2012, regulators added an average of 315 pages each day, compared to 271 pages leading up to Election Day.  In fact, during the first ten months of 2012, the average review time for “economically significant” rules was 72 days.  Compare to 2011, when the average review time was just 51 days, or another election year, 2004, when the review time was just 35 days.  At one point, more than 84 percent of all rules under review were sitting at the White House for more than 90 days, 50 percent longer than in 2011. 

Some have speculated that politics was the reason for the delay, but perhaps the administration was also afraid of legal ramifications if its rules had been released.  Courts struck down a dozen regulations, which would have cost the U.S. more than $4.5 billion.  The most notable regulation was EPA’s Cross-State Air Pollution rule ($2.7 billion in costs).  

Despite the judicial oversight of the nation’s regulatory state, there was little oversight from Congress or the White House.  The House did pass a resolution disapproving of the so-called welfare-to-work waiver that the administration published in 2012; the Senate never acted on the resolution.  In addition, the Senate also formally rejected a resolution disapproving of the National Labor Relations Board’s (NLRB) “snap elections” rule, which a court later invalidated.

From the other end of Pennsylvania Avenue, the White House openly ignored the Regulatory Flexibility Act, which demands a “Unified Agenda” of regulations in April and October of each year.  The administration never published the spring agenda, the first time in history, and released the only agenda of 2012 days before Christmas.  In addition, the administration never released its final “Report to Congress on the Benefits and Costs of Federal Regulations.”  The White House also withheld the Information Collection Budget of the U.S., detailing new paperwork burdens. 

With the information we did receive, EPA easily outpaced other agencies in terms of cost, with $172 billion; the final CAFE and Utility MACT regulations added more than $161 billion in long-term regulatory costs.  Thanks to the Affordable Care Act (ACA), Health and Human Services (HHS), the Food and Drug Administration (FDA), and the Centers for Medicare & Medicaid Services (CMS) added more than $20.1 billion in costs, easily trumping the Department of Energy ($10.6 billion) for third.

2012 Top Proposed Rules by Cost

Conservation Standards for Transformers

$5.2 Billion

Conservation Standards for Battery Chargers

$4.2 Billion

ACA Notice of Benefit Parameters

$3.2 Billion

Clearing Exemption for Swaps

$685 Million

Unique Device ID System

$588 Million

Aggregate Burden:

$13.8 Billion

 

                                                              2012 Top Final Rules by Cost

CAFE for MYs 2016-2025

$156 Billion

Utility MACT

$10 Billion

Prison Reform Standards

$6 Billion

Community First Choice Implementation

$5 Billion

Conflict Minerals Regulation

$4 Billion

Aggregate Burden:

$181 Billion

 

As for red tape, or federal paperwork burdens, the implementation of the ACA drove HHS, CMS, and FDA to publish more than 44 million additional paperwork burden hours.  The Commodity Futures Trading Commission (CFTC), implementing parts of Dodd-Frank, finished second in the red tape race, with 32.7 million paperwork burden hours.

2012 Top Regulations by Paperwork Burdens

FCC’s Lifeline and Link Up Reform

24.1 Million Hours

HHS’s Medicaid Eligibility

21.2 Million Hours

CFTC’s Swap Data Recordkeeping

19.3 Million Hours

OSHA’s Hazard Communication

11.3 Million Hours

HHS’s Payment Parameters

10.7 Million Hours

Total Burden:

86.8 Million Hours

 

Regulation by Industry

Beyond topline costs, it is instructive to examine how these burdens affect various sectors of the U.S. economy.  It’s also important to determine how initial cost estimates from federal agencies translate in the business community.

AAF conducted a retrospective review of regulatory costs by researching annual (10-k) and quarterly reports (10-q) from U.S. companies.  Some corporations were more forthcoming with regulatory cost burdens than others, but AAF examined 30 companies in four main industries: finance and banking, energy, manufacturing, and health care.

Combined, the 30 companies listed more than $34 billion in regulatory spending during the covered periods, or $1.1 billion per company.  Not surprisingly, the energy sector was the hardest hit, averaging $1.5 billion per company.  Of course, many of the financial companies reported billions of dollars in regulatory compliance, but few of the independent agencies promulgating those rules actually quantified the costs of the new measures.

The manufacturing sector had the highest aggregate cost burden, at $14.7 billion.  This regulatory growth is evident in the Code of Federal Regulations as well.  According to the Mercatus Center’s RegData tool, regulators have added the most burdens to U.S. manufacturers, relative to the three other sectors.

Interestingly, small companies, as a percentage of market capitalization, reported higher regulatory costs than their larger competitors.  For example, regulatory costs consumed 6.7 percent of Honeywell’s market cap ($50 billion), compared to just 1.6 percent for General Electric ($221 billion), even though GE reported higher regulatory spending.  The same was true for energy, where ExxonMobil had the lowest share of costs/market cap, after reporting the highest regulatory burdens, $2.7 billion.

The regulatory cost drivers should now be familiar suspects to most Americans:

1)      Financial companies routinely cited Basel capital standards, the Volcker rule, and Durbin Amendment swipe fees.

2)      Energy companies struggle with greenhouse gas regulation, renewable fuels standards, and Utility MACT, or the Toxics Rule.

3)      Manufacturers listed new CAFE standards, new low-sulfur fuel proposals, and Superfund compliance.

4)      Health care companies cited medical loss ratio rules under the ACA, branded prescription drug fees, and enhanced disclosure requirements.

                              Regulatory Cost Compliance of 30 Large Companies                          

Company

Past Costs

Current Costs

Total

Costs/Market Cap

Bank of America

$0

$4,017

$4,017

3.5%

Wells Fargo

$0

$1,001

$1,001

0.5%

JPMorgan Chase

$0

$600

$600

0.3%

U.S. Bancorp

$77

$430

$507

0.8%

Travelers Insurance

$254

$58

$312

1.1%

INTL FCStone

$0

$50.9

$50.9

14.6%

MetLife

$0

$31

$31

0.08%

ExxonMobil

$2,282

$420

$2,702

0.6%

ConocoPhillips

$1,916

$0

$1,916

2.7%

Marathon Petroleum

$1,331

$548

$1,879

8.9%

Chevron

$1,404

$446

$1,850

0.8%

Hess

$159

$864

$1,083

5.9%

Alcoa

$347

$535

$882

9.5%

Valero

$241

$297.3

$538.3

2.9%

General Electric

$3,361

$400

$3,761

1.6%

Honeywell

$1,983

$1,263

$3,246

6.7%

Dow Chemical

$1,340

$759

$2,099

5.7%

Boeing

$957

$1,003

$1,960

3.4%

Lockheed Martin

$935

$932

$1,867

6.2%

General Motors

$429

$200

$629

1.5%

IBM

$187

$438

$625

0.2%

DuPont

$110

$85

$195

0.4%

Ford

$0

$160

$160

0.3%

United Technologies

$93

$54

$147

0.1%

3M

$0

$28

$28

0.04%

Caterpillar

$0

$2.55

$2.55

0.004%

Pfizer

$289

$1,875

$2,164

1.1%

Merk

$171

$93

$264

0.1%

Abbott Labs

$74

$71

$145

0.1%

Aetna

$0

$90

$90

0.5%

Totals:

$17.7 Billion

$16.3 Billion

$34.6 billion

Average: 2.6%

 

Beyond industry cost estimates and government projections at the time of promulgation, examining actual regulatory costs as reported to the SEC and shareholders might be the most accurate depiction of the nation’s regulatory burden.  The $34 billion figure is not a cost estimate; it is reported spending by companies complying with regulation. The cost of the Durbin Amendment, capping transaction fees for debit cards, lacked any cost estimate.  From this research, however, three companies reported that the Durbin Amendment cost them more than $1.1 billion, with more losses likely in the future.

If the 2.6 percent average of cost/market cap were applied to the Dow 30, aggregate regulatory spending would be $103.6 billion, a figure that should cause many regulators, and regulations, to pause.

Burdens Added to Code of Federal Regulations

In tracking more than 700 regulations in 2012, AAF was able to determine where each regulation added to the Code of Federal Regulations (CFR).  Like the U.S. Code, the CFR is organized by title, 1-50, with each title representing a certain area within the economy.  By volume, the Federal Aviation Administration (Title 14, Aeronautics) generated the most activity, but costs for minor airplane repairs were typically small.  For example, FAA generated 305 regulations with costs, but the total was “a mere $2.8 billion.”

Title 17, Commodities and Securities, generated the next highest activity by volume, with $12.1 billion in costs.  Dodd-Frank implementation was the main cost driver.  However, many of these regulations lacked quantified cost-benefit analyses.  Because many independent agencies implementing Dodd-Frank (SEC, CFTC, and CFPB) are exempt from cost-benefit requirements, actual regulatory impacts to the broader economy are unknown.  Dodd-Frank has driven tremendous activity during the last three years, but agencies routinely omit even attempts to determine implementation costs.

CFR Title-Industry

Regulations

Cost (in millions)

Hours

6-Homeland Security

1

$58

118,348

7-Agriculture

16

$3,235

683,216

8-Immigration

4

$82

282,760

9-Animals

7

$37

530,548

10-Energy

15

$10,663

176,912

12-Banking

42

$536

3,016,399

13-Business Assistance

2

$0.04

929

14-Aeronautics

305

$2,825

13,737.5

15-Commerce, Trade

4

 

38,571

16-Commercial Practices

10

$58

765,422

17-Commodities, Securities

47

$12,125

36,705,730

18-Conservation

19

$75

808,328

19-Customs Duties

5

 

1,039,978

20-Employees’ Benefits

4

$35

16,280

21-Food and Drugs

8

$626

1,412,480

22-Foreign Relations

1

$8

109,000

23-Highways

1

 

356

24-Housing

7

$0.98

2,109,988.5

25-Native Americans

2

 

108,975

26-Internal Revenue

17

 

3,841,503

27-ATF

1

$-0.05

 

28-Judicial Administration

1

 

 

29-Labor

8

$4,576

16,324,137

30-Mineral Resources

2

$149

20,825

31-Treasury

4

$0.03

88,633

32-National Defense

1

 

1,775

33-Navigable Waters

3

$45

184,869

34-Education

2

$1

48,263

36-Forests, Public Property

2

 

3,000

37-Patents, Copyright

7

$1,579

1,619,398.8

38-Pensions, Bonuses

3

 

123,750

40-Environment

47

$16,360

1,743,944

42-Public Health

23

$7,457

26,401,353

43-Interior

1

$376

28,560

45-Public Welfare

15

$12,567

14,125,383.1

46-Shipping

4

$2

-39

47-Telecommunication

27

$337

31,063,359

48-Federal Acquisition

4

 

613,902

49-Transportation

27

$-127

5,489,897

50-Wildlife, Fisheries

3

$0.92

47,481

Multiple Titles

29

$163,054

3,582,749

 

Conclusion

During the last ten years, regulators have added tremendous costs to the economy.  Despite the common perception that EPA is the sole driver of new burdens, efficiency rules routinely top the list.  The top two proposed rules in 2012 and the top final rule this year were either energy or fuel conservation rules.  This year will be no different, with five conservation rules awaiting approval at the White House (see a 2013 regulatory calendar here).  Without a comprehensive accounting of cumulative regulatory burdens, review of independent agencies, or enhanced congressional oversight, the year-in report next year will mimic 2012’s grim regulatory biography.

Methodology

Beginning in 2011, AAF began tracking every proposed and final regulation that appeared in the Federal Register.  Every regulation that imposes a private-sector, intergovernmental cost, or paperwork burden is recorded and each rulemaking is tracked during the year.  For previous years, AAF retrospectively recorded just significant regulations.  This analysis excluded proposed ozone standards, which listed costs upwards of $90 billion, because the White House issued a formal return letter. Any quantified deregulatory measures were also included.  The $518 billion figure represents the cost of proposed rules, final rules, and interim final rules.  However, AAF does not count both the proposed rule cost and final rule cost within a rulemaking.  For example, the costs of Utility MACT were revised lower in the final rule, relative to the original proposal, and AAF only recorded the final rule cost for purposes of this study.  All proposed and final rule costs are logged daily and listed on AAF’s website here.