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1976/07/16 - Economic Policy Board
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1976/07/16 - Economic Policy Board
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The original documents are located in Box 60, folder "1976/07/16 - Economic Policy Board"
of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 60 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
THE WHITE HOUSE
WASHINGTON
Attached is the agenda, and
the papers, for the Friday
Economic Policy Board
Executive Committee Meeting.
You will note that considera-
tion of the Esch-Kemp bill
has been moved from Thursday
to Friday.
ECONOMIC POLICY BOARD
EXECUTIVE COMMITTEE MEETING
JULY 16, 1976
8:30 a.m.
ROOSEVELT ROOM
AGENDA
1.
Report on Status of Esch-Kemp Bill
Gorog Jobs
2.
Proposed Mandatory Oil Import Program
Changes and Alternative Options
Zarb ever
3.
A Strategy for Determining the Effects
of Federal Regulatory Activities
MacAvoy/Schmults
THE WHITE HOUSE
WASHINGTON
July 14, 1976
MEMORANDUM FOR:
THE ECONOMIC POLICY BOARD
FROM:
Paul MacAvoy
Pm
Edward Schmults (For the DCRG)
SUBJECT:
A Strategy for Determining the Effects of
Federal Regulatory Activities
For the past two years, public attention and concern has
become more focused on federal regulatory activities. The
Administration has initiated a broad program of legislative
and administrative reform. Congress has initiated several
special studies of regulatory activities, has held a wide
variety of oversight and legislative hearings and has
enacted three major regulatory reform bills within the last
year.
Each initiative has made the public aware of a specific
regulatory problem. But it has become increasingly apparent
that there is a significant lack of knowledge on the effects
of Government's regulatory functions on sectors of the
economy and on consumers. Even the most basic budget and
program information pertaining to regulatory functions is
not collected, aggregated, and presented in a useable
fashion. The data that does exist is fragmentary and not
comparable over any sustained period of time. In addition,
most agencies fail to provide a systematic accounting of
private sector costs that result from federal requirements.
Proposed First Steps
A number of steps could be taken over the next several months
aimed at improving our understanding of regulatory impacts.
We are seeking EPB concurrence on proceeding with the following
efforts.
-2-
1. Defining and Measuring Federal Regulatory Activities
in the Budget.
The objective is a clearer understanding of what programs
within the Federal Government are regulatory, how these
programs work, the costs of administering them, their
financing, and how they are enforced. The product would
be a Special Report on Federal Regulatory Activities,
which presents budget and program information in a
useful way and analyzes selected issues. In addition to
budgetary issues, the Report would give in-depth treat-
ment to selected cross-cutting issues (e.g., enforcement
techniques in the regulatory agencies, why we rely on
public enforcement in some areas and private enforcement
in others). The Report could be available shortly after
the 1978 Budget is submitted.
2.
Improving Economic Analysis for Decision-Making.
We must devote more efforts to improving the use of
rigorous economic analysis for decision-making--
starting with the Inflation Impact Statement evaluation
to be completed by OMB and CWPS this fall. See outline
and timetable at Tab A. This evaluation will deal with
the quality of analysis and problems encountered in
evaluating prospective changes in policies as a result
of legislation or of rulemaking. It will also consider
how agencies use economic analysis in their regulatory
process. We might also want to propose to consider
related problems such as procedures for revising
old rules and regulations.
A decision paper on the future directions of IIS will
be available for DCRG and EPB review by the end of
November. A Presidential decision will be sought
shortly thereafter.
3. Analyzing the Economy-Wide Costs of Federal Regulatory
Activities.
Some major costs of regulation turn on interactions
among various sectors and activities. For example,
increased capital spending required by environmental
regulation tends to increase interest rates and certain
prices and these changes in turn indirectly affect other
parts of the economy. Furthermore, distortions
produced by regulation in one sector tend to cause
distortions in other sectors.
is
FORD
GERALD
-3-
There is a considerable amount of work now underway
in the agencies on measuring the costs of regulation--
particularly in environmental, health, safety and
energy regulation. These efforts will be much more
useful if they are brought together to contribute to
the task of describing the overall effects of regulation.
Two sorts of additional work are needed. First, it is
necessary to gradually build up a set of measures on
the direct effects of regulation on various sectors of
the economy. Second, it is necessary to establish a
consistent procedure for showing how the direct effects
on regulation affect the economy as a whole. The latter
task requires the use of a model which exhibits how
05
various sectors of the economy interact and how employ-
ment, GNP, inflation and other relevant aggregate
No
variables are determined. Such models exist and have
been used within the Government to study the effects of
particular regulation, but such effects have not been
coordinated or put on an established basis
These efforts, aimed at building a picture of the
aggregate impact of regulation on the economy, would
be highlighted in a chapter of the 1977 Economic Report
to the President.
4.
Encouraging Other Research and Analytical Activities.
Related to these analytical efforts, more attention
needs to be given to the methodologies and problems
being encountered in various industry-level studies
now underway in the agencies, These studies are
intended not only to increase public awareness of the
cost of regulation in the aggregate but also to
determine significant areas of actual or potential
conflicts between regulations.
There is also a need to link these in-house efforts to
research activities outside the Government, determine
what division of effort should be made between the
Government and the academic community, and begin to
better order our overall priorities for economic
research in this area.
FORD
GERALD
LIBRARY
-4- -
To this end, we should work toward a national research
conference on longer-term efforts to evaluate the
impact of regulation on the economy. We would
envision holding such a conference in the fall.
Conclusion
We think that this four part effort taken together will
contribute to increasing public understanding of the
effects of Government regulation. It should also help
to improve the Government's capabilities for analyzing
regulatory activities and choosing the best regulatory
approaches in the future.
Attachment
LIBRATA GERALD R. FORD
THE
Preliminary Outline of IIS Program Evaluation
I. Background
President Ford, in an October 8, 1974 speech to the
Congress, stated his intention that agencies be required
to analyze the cost implications of their major
actions to help reduce federally-induced inflationary
pressures on the economy. Consequently, Executive
Order 11821 was issued on November 27, 1974 to require
agencies to more carefully consider the economic effects
of their regulatory and legislative proposals by preparing
Inflation Impact Statements (IIS). OMB Circular A-107,
issued January 28, 1975, further implemented the Executive
Order by requiring agencies to establish criteria for
identifying major proposals and to establish procedures
for evaluating these proposals. In addition to these
Executive Branch requirements, there has been growing
congressional interest in creating legislation requiring
economic analyses of regulatory impacts (as evidenced
by the approximately 25 bills requiring some type of
economic impact analysis submitted last winter).
The objective of the IIS program is to improve the
quality of federal regulatory and legislative decisions
by increasing the agencies' understanding of their
economi consequences The Executive Order expires
on December 31, 1976 unless renewed prior to that time.
Thus, CWPS and OMB have commenced an evaluation of the
IIS program, expecting to report its findings to the
EPB by November 15. The evaluation will try to
determine if the IIS approach or another alternative
is the best way of achieving that objective. In
addition to exploring the program in depth with the
10 or so agencies substantively involved in the IIS
effort and others only tangentially involved, several
other sources will be consulted Inquiry will be made
through a notice in the Federal Register for comments
on the effectiveness of the IIS program and suggestions
for improving regulatory decision-making. In addition,
consultations with Members of Congress will provide
their perspective on this issue. Heads of the
independent agencies will be asked to provide comments
on their own experience in analyzing the economic effects
of their decision-making. Also, a conference of
interested public and private experts may be convened
to elicit their views on the future direction of this
effort. When the final draft of the evaluation is
completed, it will be circulated to agency officials
so that their comments can accompany the final report to
the EPB.
R.
FORD
GERALD
LIBRARY
2
II. Preliminary Outline of Evaluation Procedure
A. Review of analytical quality
1. Identify and review analyses that have been
performed (identifying those which would
have been done without IIS requirement and
those submitted needlessly).
2. Have costs, benefits, and alternatives been
appropriately analyzed?
3. What is agency in-house economic analytical
capability?
B. Decision-making impact
1. Have decisions been improved by the analysis?
2. What improvements in agency decision-making
regarding regulatory and legislative proposals
have occurred?
3. Are there procedural weaknesses which negate
decision-making impact?
C. Resource demands of IIS
1. What have been agency costs with respect to
staff, consultants, regulatory delay?
2. What have been OMB/CWPS administrative costs?
D. Future Directions
1. If TIS terminated, what administrative alternatives
would be advisable (including decision-maker's
checklist, paperwork burden requirement, agency
regulatory reform initiatives) ?
2. If IIS continued, what changes would seem desirable?
3. Should the economic impact analysis be legislated?
If so, what should be the key elements?
LIVERSE GERALD R. FORD
3
III. Timetable
A. Examine IIS activity in one or more selected agencies
following elements of evaluation in Part I.
1. This examination would be useful in structuring
the reviews of other agencies.
2. Prepare draft report on these agencies: August 15.
B. Examine IIS activity in other participating agencies:
August 15 - September 15.
C. Draft of complete evaluation: Oct. 15.
D. Review by Directors of CWPS and OMB: Oct. 30.
E. EPB Review: Nov. 15.
F. Presidential Decision: Nov. 30.
&
FORD
GERALD
ABUNDIT
FEDERAL
BREASY
FEDERAL ENERGY ADMINISTRATION
WASHINGTON, D.C. 20461
ADMINISTRATION
JUL 14 1976
OFFICE OF THE ADMINISTRATOR
MEMORANDUM FOR MEMBERS OF ECONOMIC POLICY BOARD
FROM:
FRANK G. ZARB
ADMINISTRATOR
SUBJECT:
PROPOSED MANDATORY OIL IMPORT PROGRAM
CHANGES AND ALTERNATIVE OPTIONS
I.
BACKGROUND
In April 1973 the Mandatory Oil Import Program
(MOIP) was revised to replace the quota on oil imports
with a system of fees - 21 cents on crude oil and
63 cents on products. These fees were to come
into full effect in 1980 after a transition period in
which existing preferences were to be phased out. The
principal long-run purpose of the program as now
constituted is to provide protection for domestic
refiners so as to encourage the location of refining
capacity within the United States. This protection is
accomplished through the difference between the product
and the crude fees and the allocation of fee-free crude
allocations for a limited period to new refining capacity
("starter" allocations).
Since 1973 the sharp increase in world oil prices
and the imposition of domestic price controls has
fundamentally altered the economic environment for
petroleum. Moreover numerous problems have arisen in
the transition program:
Long-Run Program
-- New studies show that level of protection
provided domestic refiners is too low to
carry out the purpose of the program.
Transition Program
-- Creates competitive barriers to new entrants
in distribution and marketing and prevents
utilities and other end users from directly
meeting their requirements.
2
-- Continues geographical discriminations which are
inequitable in impact and which may be legally
vulnerable.
-- In combination with crude oil price controls, is
beginning to create an excessive competitive advant-
age for domestic refiners (who may be totally
dependent on imported crude oil) vis-a-vis product
importers. Refiners are now receiving through
entitlements under price controls protection of
$1.80-3.00 per barrel (compared to 42-56 cents
envisioned in MOIP).
--- Has resulted in an enormously complex administrative
program.
These problems in part led to the President's directive
in January 1975 that FEA evaluate the program and report to
him recommended changes.
II. FEA PROPOSED RECOMMENDATION
To assist in making a recommendation to the President,
FEA is requesting public comment on the following possible
changes in the program:
--- An increase in the product fee from $0.63 to
$1.05 per barrel to provide domestic refiners
with effective protection from $0.84-1.00.
-- Suspension of product fees during the period of
crude price controls and acceleration of the
application of uniform product fees from 1980
to the end of controls, May 1979.
--- Application of uniform crude fees except for
"starter" allocations.
-- Elimination of tariff rebate from fees, i.e.,
separation of tariffs and the oil import program.
These changes would result immediately in the uniform
application of the crude and product fees, and would solve
the problems (entry barriers, geographical discrimination,
excessive competitive advantages and regulatory rigor mortis)
outlined above. Before any final recommendation is submitted
to the President, appropriate interagency review would be
conducted.
3
The proposed changes would result in a very slight
reduction in imported product prices through 1979.
Initially the average price reduction would be less than a
penny per barrel of imported product (because of the
exemptions and the tariff rebate virtually no product fees
are being currently collected). This is more than offset
by the increase in imported crude prices due to the uniform
application of the crude fee. The changes would be opposed
by parties who now have a temporary competitive advantage
due to their privileged position in the transition program,
e.g., deepwater terminal operators, and would be favored
by those now discriminated against, e.g., utilities.
Because the increase in crude fees would outweigh any
loss of product fees, the changes would result in an
increase in revenues in FY 1977 (about $160 million) and
FY 1978. In FY 1979 collections will be less during the
first seven months, but higher after the expiration of price
controls and should on balance result in a net increase
in revenues. More precise revenue estimates for FY 1978-79
are being prepared.
III. ALTERNATIVE OPTIONS
(1) No Action
PROS:
-- Preserves status quo and avoids the possible
controversy caused by a general revision
of MOIP.
--- Provides maximum incentives for domestic
refining capacity.
CONS:
-- Continues both barriers to new market entry
and geographical discrimination.
-- Imposes an unjustified burden on consumers
disproportionately dependent on imported
products, e.g., New England consumers.
-- Continued problems would have to be dealt
with on an ad hoc basis, increasing program's
complexity and dislocating existing interests
almost as much as general revision.
4
(2)
Immediate Imposition of a Uniform 21 Cent
Crude Fee and 63 Cent (or $1.05) Product Fee
PROS:
-- Eliminates geographical and other competitive
inequities.
-- Simplifies administration of the program.
CONS:
-- Greatly increases competitive disadvantage of
product importers vis-a-vis crude importers.
-- Significantly increases prices in District I,
especially New England.
(3) Impose Uniform Product and Crude Fees at Same Levels
(63 Cents or $1.05 per Barrel). At the expiration
of controls, the long-run program as modified in
Part II would come into place.
PROS:
-- Eliminates competitive inequities and geograph-
ical discriminations.
-- Lessens competitive disadvantage of product
importers vis-a-vis crude importers.
-- Significantly increases Federal revenues.
CONS:
-- Results in substantial crude and product price
increases.
-- Might be considered by Congress to breach the
agreement to suspend supplemental fees when
EPCA was passed and thus jeopardize future
energy actions dependent on Congressional
review.
5
(4) Product Entitlements Combined With Option 2
Competitive relations between refiners and product
importers could be adjusted by awarding product
importers entitlement benefits equal in value to the
level of the product fee in order to lower imported
product prices.
PROS:
-- All the advantages of option 3 above, but would
lessen competitive disadvantage as much as FEA's
proposed change.
CONS:
-- Would significantly increase complexity of two
regulatory programs, MOIP and entitlements program.
Fine tuning to adjust interaction between the two
would be very difficult.
-- Would create strong regional opposition from non-
importing regions (West and Middle West) which
would be forced to subsidize the importing regions
(East Coast).
(5) Product Entitlements and Complete Suspension of MOIP
At the expiration of crude oil controls, the long-run
program, as modified in Part II, would come into place.
PROS:
-- Totally eliminates a complex regulatory program
and all the problems which require revisions in
that program.
-- Would provide correct competitive relationship
between product importers and crude oil importers.
CONS:
-- Would create regional antagonism due to transfer
of money to East Coast.
--- Would reduce Federal revenues.
--- Special competitive advantages for new refining
capacity (relied on by many) could not legally be
implemented through the entitlements program and
thus must be eliminated.
EYES ONLY
MINUTES OF THE
ECONOMIC POLICY BOARD
EXECUTIVE COMMITTEE MEETING
July 15, 1976
hos
Attendees: Messrs. Seidman, Lynn, Greenspan, Richardson, Usery,
Dixon, Rogers, Gorog, Zarb, Cannon, Porter, Lilley,
Parsky, Knauer, Duval
1.
CWPS Analysis of Recent Wage Settlements
The Executive Committee reviewed a memorandum, prepared by
the Council on Wage and Price Stability, on "Major Collective
Bargaining Settlements in 1976. 11 The discussion focused on the
Council staff's analysis of the 1976 master freight agreement,
the GE agreement, and the posture the Administration should
take with regard to the impact of these agreements on inflation
as well as reviewing pending and upcoming labor contract nego-
tiations.
Decisions
The staff of the Council on Wage and Price Stability will recom-
pute the figures in their analysis of the 1976 master freight
agreement to reflect the points raised in the discussion.
The Department of Labor will prepare a set of questions and
answers on recent wage settlements for review by the Executive
Committee.
Executive Committee members were requested to provide Mr.
Seidman's office no later than c.o.b. Friday, July 16, with their
comments and recommendations regarding the approach the
Administration should take on wage negotiations and settlements
to be incorporated into a paper for Executive Committee consid-
eration and review with the President.
2. Expropriation Policy
The Executive Committee reviewed a memorandum, prepared by
the Treasury, on "Redirecting USG Expropriation Policy."
EYES ONLY
EYES ONLY
2
Decisions
The Executive Committee requested the CIEP Expropriations
Group to: (1) identify and analyze U.S. Government economic
interests affected by actual or potential expropriation disputes
in important areas such as petroleum, potash, boxite, .etc.;
(2) examine possible changes or improvements in policies or
operations to assure that U.S. Government economic interests
are adequately taken into account, including examination of
improving the existing "early warning system" and better
formal coordination of key policy decisions; (3) formulate
recommended guidelines to enable the U.S. Government to more
effectively protect its own economic and other interests in par-
ticular cases; and (4) to explore possible multilateral actions
which might be taken to further U.S. and other investing country
interests in expropriation cases.
The CIEP Expropriation Group was requested to submit a pre-
liminary report to the EPB Executive Committee by August 20
and to submit a final report by September 20.
EYES ONLY
RBP