They’re Back: Controversial Researchers Contracted for Regulatory Study

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By Cheryl Bolen

The Small Business Administration’s Office of Advocacy will pay researchers W. Mark Crain and Nicole V. Crain $136,250 to study the disproportionate cost impact of rules on small businesses—despite widespread criticism of their previous research.

SBA’s Office of Advocacy has seen its influence rise after declaring support for President Donald Trump’s executive orders on deregulation and is currently conducting public listening sessions across the country to determine which rules are the best targets for elimination.

But the choice of Jupiter, Fla.-based Interaction Analytics, which employs only the Crains, to conduct a cost study raises red flags because of their two previous, highly controversial reports: one in 2010 for the Office of Advocacy and a similar one in 2014 for the National Association of Manufacturers.

Criticism of their report grew so intense that in 2013, the Office of Advocacy added an introduction clarifying that “the findings of the study have been taken out of context and certain theoretical estimates of costs have been presented publicly as verifiable facts.”

Past Performance a Factor

The Crains were awarded the contract on Sept. 21 over another bidder, who was not publicly identified. Their report is due in 15 months, or by December 2018.

In the solicitation notification for the contract, SBA stated that “past performance” would be one of the factors considered in making the award, including previous experience in researching the topic.

The notification also stated that “[f]or those contracts with less than positive performance, provide a description of the problems and the efforts made to correct and prevent future occurrences.”

A spokesman for the Office of Advocacy could not provide an immediate explanation as to why the Crains were chosen, explaining that the director of its economic research office who handles research contracts was not available.

Urban Legend

At a congressional hearing in June 2011, former administrator of the Office of Information and Regulatory Affairs Cass Sunstein called the Crains’ report “an urban legend,” while former chairman of the White House Council of Economic Advisers Austan Goolsbee called it “utterly erroneous.”

Despite detailed criticism of the data, methodology and assumptions used in the Crains’ studies, their 2014 report for NAM finding that regulations cost the economy $2.028 trillion annually continues to be cited by key Republican committee chairmen and opponents of regulation.

Among their critics, when the Congressional Research Service tried to replicate the Crains’ findings using similar, but not identical, supporting data and methods, it found that “the analysis is highly sensitive to the choice of control variables and measures.”

Additionally, the Crains’ 2010 report used a composite World Bank measure of “regulatory quality” that one of its creators said was misinterpreted and had nothing to do with the stringency of regulations in a country, said an analysis in 2011 by the Economic Policy institute.

Continuing Flaws

A 2014 Government Accountability Office report raised issues with the Crains’ study related to federal data quality standards, asserting that the Office of Advocacy failed to uphold those standards.

After the Crains issued their 2014 report, the CRS reiterated its criticism of the study’s methodology, noting the difficult, yet critical, role of obtaining an accurate proxy measure of regulation.

The Crains created their index from three survey questions included in the World Economic Forum’s annual executive opinion survey, the CRS said. “[C]an the responses to these three questions be considered a useful proxy of the burden of economic regulation?” it asked.

Different Study This Time

This time, instead of using indices such as “regulatory quality” to derive an estimate of total regulatory costs, SBA requested that the research focus only on the 26 major rules in the Office of Management and Budget’s 2016 report on regulatory costs and benefits for which cost information was quantified and monetized.

Then, it asks that the contractor summarize this information and prepare a research plan to study differences in the relative burden of regulations between small and other businesses.

Similar to its 2010 request, SBA did not request that the contractors provide any information on the impact of regulatory benefits.

Resurgence of Office of Advocacy

The contract comes at a time when the Office of Advocacy has become an active participant in implementing the president’s executive orders on deregulation.

It has publicized its work hosting regional roundtables to hear “first-hand” from small businesses which federal regulations are most troublesome and should be considered for change or elimination.

On Oct. 3, the president sent to the Senate the nomination of David Tryon to be the chief counsel for advocacy at the SBA, but a confirmation hearing has not yet been set. Tryon is a litigation partner in the Cleveland law office of Porter Wright.

Looking for Legislation

Sen. Jim Risch (R-Idaho), chairman of Senate Committee on Small Business and Entrepreneurship, in an op-ed for the Idaho Statesman newspaper, said he had introduced two bills to help small businesses find regulatory relief: the Advocacy Empowerment Act ( S. 1558) and the Hearing Small Businesses Act ( S. 1559).

These bills give the Office of Advocacy the power to make sure agencies have considered how many small businesses will be affected by a regulation, if additional regulations overlap, and other alternatives to making an additional regulation, Risch said.

This legislation also would allow small businesses to provide direct input on interim final rules, which are agency rules that could be issued and go into immediate effect, Risch said.

Determining Costs ‘Likely Impossible’

It is often hard to determine what should be counted as regulatory costs, said Curtis Copeland, a legislative specialist retired from the CRS and the GAO. For example, should a tally include the costs associated with requirements from decades ago to get rid of lead in gasoline, now that leaded gasoline is not even sold?

Many regulatory requirements have now become standard industry operating practices, Copeland said. So, regulatory costs should only include incremental expenses that are over and above what regulated entities would incur in the absence of regulations, he said.

However, to calculate that, when companies say, “we would never harm the environment,” or “we would never put our workers at risk,” researchers need to know what environmental or worker safeguards those companies would have had in place if there were no regulations at all, Copeland said.

Also, to know the cost of federal regulatory requirements, researchers need to separate those requirements from other types of requirements, such as requirements in state or local law or regulation, Copeland said.

“Individual companies are unlikely to have data showing their incremental costs that are specifically attributable to federal regulatory requirements, so accurately tallying up such costs for all regulated entities in the U.S. is likely impossible,” Copeland said.

To contact the reporter on this story: Cheryl Bolen in Washington at cbolen@bna.com

To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com

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