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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States of America his copyrights in all of his unpublished writings in National Archives collections.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
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"ocrText": "The original documents are located in Box 60, folder \"1976/07/16 - Economic Policy Board\"\nof the James M. Cannon Files at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 60 of the James M. Cannon Files at the Gerald R. Ford Presidential Library\nTHE WHITE HOUSE\nWASHINGTON\nAttached is the agenda, and\nthe papers, for the Friday\nEconomic Policy Board\nExecutive Committee Meeting.\nYou will note that considera-\ntion of the Esch-Kemp bill\nhas been moved from Thursday\nto Friday.\nECONOMIC POLICY BOARD\nEXECUTIVE COMMITTEE MEETING\nJULY 16, 1976\n8:30 a.m.\nROOSEVELT ROOM\nAGENDA\n1.\nReport on Status of Esch-Kemp Bill\nGorog Jobs\n2.\nProposed Mandatory Oil Import Program\nChanges and Alternative Options\nZarb ever\n3.\nA Strategy for Determining the Effects\nof Federal Regulatory Activities\nMacAvoy/Schmults\nTHE WHITE HOUSE\nWASHINGTON\nJuly 14, 1976\nMEMORANDUM FOR:\nTHE ECONOMIC POLICY BOARD\nFROM:\nPaul MacAvoy\nPm\nEdward Schmults (For the DCRG)\nSUBJECT:\nA Strategy for Determining the Effects of\nFederal Regulatory Activities\nFor the past two years, public attention and concern has\nbecome more focused on federal regulatory activities. The\nAdministration has initiated a broad program of legislative\nand administrative reform. Congress has initiated several\nspecial studies of regulatory activities, has held a wide\nvariety of oversight and legislative hearings and has\nenacted three major regulatory reform bills within the last\nyear.\nEach initiative has made the public aware of a specific\nregulatory problem. But it has become increasingly apparent\nthat there is a significant lack of knowledge on the effects\nof Government's regulatory functions on sectors of the\neconomy and on consumers. Even the most basic budget and\nprogram information pertaining to regulatory functions is\nnot collected, aggregated, and presented in a useable\nfashion. The data that does exist is fragmentary and not\ncomparable over any sustained period of time. In addition,\nmost agencies fail to provide a systematic accounting of\nprivate sector costs that result from federal requirements.\nProposed First Steps\nA number of steps could be taken over the next several months\naimed at improving our understanding of regulatory impacts.\nWe are seeking EPB concurrence on proceeding with the following\nefforts.\n-2-\n1. Defining and Measuring Federal Regulatory Activities\nin the Budget.\nThe objective is a clearer understanding of what programs\nwithin the Federal Government are regulatory, how these\nprograms work, the costs of administering them, their\nfinancing, and how they are enforced. The product would\nbe a Special Report on Federal Regulatory Activities,\nwhich presents budget and program information in a\nuseful way and analyzes selected issues. In addition to\nbudgetary issues, the Report would give in-depth treat-\nment to selected cross-cutting issues (e.g., enforcement\ntechniques in the regulatory agencies, why we rely on\npublic enforcement in some areas and private enforcement\nin others). The Report could be available shortly after\nthe 1978 Budget is submitted.\n2.\nImproving Economic Analysis for Decision-Making.\nWe must devote more efforts to improving the use of\nrigorous economic analysis for decision-making--\nstarting with the Inflation Impact Statement evaluation\nto be completed by OMB and CWPS this fall. See outline\nand timetable at Tab A. This evaluation will deal with\nthe quality of analysis and problems encountered in\nevaluating prospective changes in policies as a result\nof legislation or of rulemaking. It will also consider\nhow agencies use economic analysis in their regulatory\nprocess. We might also want to propose to consider\nrelated problems such as procedures for revising\nold rules and regulations.\nA decision paper on the future directions of IIS will\nbe available for DCRG and EPB review by the end of\nNovember. A Presidential decision will be sought\nshortly thereafter.\n3. Analyzing the Economy-Wide Costs of Federal Regulatory\nActivities.\nSome major costs of regulation turn on interactions\namong various sectors and activities. For example,\nincreased capital spending required by environmental\nregulation tends to increase interest rates and certain\nprices and these changes in turn indirectly affect other\nparts of the economy. Furthermore, distortions\nproduced by regulation in one sector tend to cause\ndistortions in other sectors.\nis\nFORD\nGERALD\n-3-\nThere is a considerable amount of work now underway\nin the agencies on measuring the costs of regulation--\nparticularly in environmental, health, safety and\nenergy regulation. These efforts will be much more\nuseful if they are brought together to contribute to\nthe task of describing the overall effects of regulation.\nTwo sorts of additional work are needed. First, it is\nnecessary to gradually build up a set of measures on\nthe direct effects of regulation on various sectors of\nthe economy. Second, it is necessary to establish a\nconsistent procedure for showing how the direct effects\non regulation affect the economy as a whole. The latter\ntask requires the use of a model which exhibits how\n05\nvarious sectors of the economy interact and how employ-\nment, GNP, inflation and other relevant aggregate\nNo\nvariables are determined. Such models exist and have\nbeen used within the Government to study the effects of\nparticular regulation, but such effects have not been\ncoordinated or put on an established basis\nThese efforts, aimed at building a picture of the\naggregate impact of regulation on the economy, would\nbe highlighted in a chapter of the 1977 Economic Report\nto the President.\n4.\nEncouraging Other Research and Analytical Activities.\nRelated to these analytical efforts, more attention\nneeds to be given to the methodologies and problems\nbeing encountered in various industry-level studies\nnow underway in the agencies, These studies are\nintended not only to increase public awareness of the\ncost of regulation in the aggregate but also to\ndetermine significant areas of actual or potential\nconflicts between regulations.\nThere is also a need to link these in-house efforts to\nresearch activities outside the Government, determine\nwhat division of effort should be made between the\nGovernment and the academic community, and begin to\nbetter order our overall priorities for economic\nresearch in this area.\nFORD\nGERALD\nLIBRARY\n-4- -\nTo this end, we should work toward a national research\nconference on longer-term efforts to evaluate the\nimpact of regulation on the economy. We would\nenvision holding such a conference in the fall.\nConclusion\nWe think that this four part effort taken together will\ncontribute to increasing public understanding of the\neffects of Government regulation. It should also help\nto improve the Government's capabilities for analyzing\nregulatory activities and choosing the best regulatory\napproaches in the future.\nAttachment\nLIBRATA GERALD R. FORD\nTHE\nPreliminary Outline of IIS Program Evaluation\nI. Background\nPresident Ford, in an October 8, 1974 speech to the\nCongress, stated his intention that agencies be required\nto analyze the cost implications of their major\nactions to help reduce federally-induced inflationary\npressures on the economy. Consequently, Executive\nOrder 11821 was issued on November 27, 1974 to require\nagencies to more carefully consider the economic effects\nof their regulatory and legislative proposals by preparing\nInflation Impact Statements (IIS). OMB Circular A-107,\nissued January 28, 1975, further implemented the Executive\nOrder by requiring agencies to establish criteria for\nidentifying major proposals and to establish procedures\nfor evaluating these proposals. In addition to these\nExecutive Branch requirements, there has been growing\ncongressional interest in creating legislation requiring\neconomic analyses of regulatory impacts (as evidenced\nby the approximately 25 bills requiring some type of\neconomic impact analysis submitted last winter).\nThe objective of the IIS program is to improve the\nquality of federal regulatory and legislative decisions\nby increasing the agencies' understanding of their\neconomi consequences The Executive Order expires\non December 31, 1976 unless renewed prior to that time.\nThus, CWPS and OMB have commenced an evaluation of the\nIIS program, expecting to report its findings to the\nEPB by November 15. The evaluation will try to\ndetermine if the IIS approach or another alternative\nis the best way of achieving that objective. In\naddition to exploring the program in depth with the\n10 or so agencies substantively involved in the IIS\neffort and others only tangentially involved, several\nother sources will be consulted Inquiry will be made\nthrough a notice in the Federal Register for comments\non the effectiveness of the IIS program and suggestions\nfor improving regulatory decision-making. In addition,\nconsultations with Members of Congress will provide\ntheir perspective on this issue. Heads of the\nindependent agencies will be asked to provide comments\non their own experience in analyzing the economic effects\nof their decision-making. Also, a conference of\ninterested public and private experts may be convened\nto elicit their views on the future direction of this\neffort. When the final draft of the evaluation is\ncompleted, it will be circulated to agency officials\nso that their comments can accompany the final report to\nthe EPB.\nR.\nFORD\nGERALD\nLIBRARY\n2\nII. Preliminary Outline of Evaluation Procedure\nA. Review of analytical quality\n1. Identify and review analyses that have been\nperformed (identifying those which would\nhave been done without IIS requirement and\nthose submitted needlessly).\n2. Have costs, benefits, and alternatives been\nappropriately analyzed?\n3. What is agency in-house economic analytical\ncapability?\nB. Decision-making impact\n1. Have decisions been improved by the analysis?\n2. What improvements in agency decision-making\nregarding regulatory and legislative proposals\nhave occurred?\n3. Are there procedural weaknesses which negate\ndecision-making impact?\nC. Resource demands of IIS\n1. What have been agency costs with respect to\nstaff, consultants, regulatory delay?\n2. What have been OMB/CWPS administrative costs?\nD. Future Directions\n1. If TIS terminated, what administrative alternatives\nwould be advisable (including decision-maker's\nchecklist, paperwork burden requirement, agency\nregulatory reform initiatives) ?\n2. If IIS continued, what changes would seem desirable?\n3. Should the economic impact analysis be legislated?\nIf so, what should be the key elements?\nLIVERSE GERALD R. FORD\n3\nIII. Timetable\nA. Examine IIS activity in one or more selected agencies\nfollowing elements of evaluation in Part I.\n1. This examination would be useful in structuring\nthe reviews of other agencies.\n2. Prepare draft report on these agencies: August 15.\nB. Examine IIS activity in other participating agencies:\nAugust 15 - September 15.\nC. Draft of complete evaluation: Oct. 15.\nD. Review by Directors of CWPS and OMB: Oct. 30.\nE. EPB Review: Nov. 15.\nF. Presidential Decision: Nov. 30.\n&\nFORD\nGERALD\nABUNDIT\nFEDERAL\nBREASY\nFEDERAL ENERGY ADMINISTRATION\nWASHINGTON, D.C. 20461\nADMINISTRATION\nJUL 14 1976\nOFFICE OF THE ADMINISTRATOR\nMEMORANDUM FOR MEMBERS OF ECONOMIC POLICY BOARD\nFROM:\nFRANK G. ZARB\nADMINISTRATOR\nSUBJECT:\nPROPOSED MANDATORY OIL IMPORT PROGRAM\nCHANGES AND ALTERNATIVE OPTIONS\nI.\nBACKGROUND\nIn April 1973 the Mandatory Oil Import Program\n(MOIP) was revised to replace the quota on oil imports\nwith a system of fees - 21 cents on crude oil and\n63 cents on products. These fees were to come\ninto full effect in 1980 after a transition period in\nwhich existing preferences were to be phased out. The\nprincipal long-run purpose of the program as now\nconstituted is to provide protection for domestic\nrefiners so as to encourage the location of refining\ncapacity within the United States. This protection is\naccomplished through the difference between the product\nand the crude fees and the allocation of fee-free crude\nallocations for a limited period to new refining capacity\n(\"starter\" allocations).\nSince 1973 the sharp increase in world oil prices\nand the imposition of domestic price controls has\nfundamentally altered the economic environment for\npetroleum. Moreover numerous problems have arisen in\nthe transition program:\nLong-Run Program\n-- New studies show that level of protection\nprovided domestic refiners is too low to\ncarry out the purpose of the program.\nTransition Program\n-- Creates competitive barriers to new entrants\nin distribution and marketing and prevents\nutilities and other end users from directly\nmeeting their requirements.\n2\n-- Continues geographical discriminations which are\ninequitable in impact and which may be legally\nvulnerable.\n-- In combination with crude oil price controls, is\nbeginning to create an excessive competitive advant-\nage for domestic refiners (who may be totally\ndependent on imported crude oil) vis-a-vis product\nimporters. Refiners are now receiving through\nentitlements under price controls protection of\n$1.80-3.00 per barrel (compared to 42-56 cents\nenvisioned in MOIP).\n--- Has resulted in an enormously complex administrative\nprogram.\nThese problems in part led to the President's directive\nin January 1975 that FEA evaluate the program and report to\nhim recommended changes.\nII. FEA PROPOSED RECOMMENDATION\nTo assist in making a recommendation to the President,\nFEA is requesting public comment on the following possible\nchanges in the program:\n--- An increase in the product fee from $0.63 to\n$1.05 per barrel to provide domestic refiners\nwith effective protection from $0.84-1.00.\n-- Suspension of product fees during the period of\ncrude price controls and acceleration of the\napplication of uniform product fees from 1980\nto the end of controls, May 1979.\n--- Application of uniform crude fees except for\n\"starter\" allocations.\n-- Elimination of tariff rebate from fees, i.e.,\nseparation of tariffs and the oil import program.\nThese changes would result immediately in the uniform\napplication of the crude and product fees, and would solve\nthe problems (entry barriers, geographical discrimination,\nexcessive competitive advantages and regulatory rigor mortis)\noutlined above. Before any final recommendation is submitted\nto the President, appropriate interagency review would be\nconducted.\n3\nThe proposed changes would result in a very slight\nreduction in imported product prices through 1979.\nInitially the average price reduction would be less than a\npenny per barrel of imported product (because of the\nexemptions and the tariff rebate virtually no product fees\nare being currently collected). This is more than offset\nby the increase in imported crude prices due to the uniform\napplication of the crude fee. The changes would be opposed\nby parties who now have a temporary competitive advantage\ndue to their privileged position in the transition program,\ne.g., deepwater terminal operators, and would be favored\nby those now discriminated against, e.g., utilities.\nBecause the increase in crude fees would outweigh any\nloss of product fees, the changes would result in an\nincrease in revenues in FY 1977 (about $160 million) and\nFY 1978. In FY 1979 collections will be less during the\nfirst seven months, but higher after the expiration of price\ncontrols and should on balance result in a net increase\nin revenues. More precise revenue estimates for FY 1978-79\nare being prepared.\nIII. ALTERNATIVE OPTIONS\n(1) No Action\nPROS:\n-- Preserves status quo and avoids the possible\ncontroversy caused by a general revision\nof MOIP.\n--- Provides maximum incentives for domestic\nrefining capacity.\nCONS:\n-- Continues both barriers to new market entry\nand geographical discrimination.\n-- Imposes an unjustified burden on consumers\ndisproportionately dependent on imported\nproducts, e.g., New England consumers.\n-- Continued problems would have to be dealt\nwith on an ad hoc basis, increasing program's\ncomplexity and dislocating existing interests\nalmost as much as general revision.\n4\n(2)\nImmediate Imposition of a Uniform 21 Cent\nCrude Fee and 63 Cent (or $1.05) Product Fee\nPROS:\n-- Eliminates geographical and other competitive\ninequities.\n-- Simplifies administration of the program.\nCONS:\n-- Greatly increases competitive disadvantage of\nproduct importers vis-a-vis crude importers.\n-- Significantly increases prices in District I,\nespecially New England.\n(3) Impose Uniform Product and Crude Fees at Same Levels\n(63 Cents or $1.05 per Barrel). At the expiration\nof controls, the long-run program as modified in\nPart II would come into place.\nPROS:\n-- Eliminates competitive inequities and geograph-\nical discriminations.\n-- Lessens competitive disadvantage of product\nimporters vis-a-vis crude importers.\n-- Significantly increases Federal revenues.\nCONS:\n-- Results in substantial crude and product price\nincreases.\n-- Might be considered by Congress to breach the\nagreement to suspend supplemental fees when\nEPCA was passed and thus jeopardize future\nenergy actions dependent on Congressional\nreview.\n5\n(4) Product Entitlements Combined With Option 2\nCompetitive relations between refiners and product\nimporters could be adjusted by awarding product\nimporters entitlement benefits equal in value to the\nlevel of the product fee in order to lower imported\nproduct prices.\nPROS:\n-- All the advantages of option 3 above, but would\nlessen competitive disadvantage as much as FEA's\nproposed change.\nCONS:\n-- Would significantly increase complexity of two\nregulatory programs, MOIP and entitlements program.\nFine tuning to adjust interaction between the two\nwould be very difficult.\n-- Would create strong regional opposition from non-\nimporting regions (West and Middle West) which\nwould be forced to subsidize the importing regions\n(East Coast).\n(5) Product Entitlements and Complete Suspension of MOIP\nAt the expiration of crude oil controls, the long-run\nprogram, as modified in Part II, would come into place.\nPROS:\n-- Totally eliminates a complex regulatory program\nand all the problems which require revisions in\nthat program.\n-- Would provide correct competitive relationship\nbetween product importers and crude oil importers.\nCONS:\n-- Would create regional antagonism due to transfer\nof money to East Coast.\n--- Would reduce Federal revenues.\n--- Special competitive advantages for new refining\ncapacity (relied on by many) could not legally be\nimplemented through the entitlements program and\nthus must be eliminated.\nEYES ONLY\nMINUTES OF THE\nECONOMIC POLICY BOARD\nEXECUTIVE COMMITTEE MEETING\nJuly 15, 1976\nhos\nAttendees: Messrs. Seidman, Lynn, Greenspan, Richardson, Usery,\nDixon, Rogers, Gorog, Zarb, Cannon, Porter, Lilley,\nParsky, Knauer, Duval\n1.\nCWPS Analysis of Recent Wage Settlements\nThe Executive Committee reviewed a memorandum, prepared by\nthe Council on Wage and Price Stability, on \"Major Collective\nBargaining Settlements in 1976. 11 The discussion focused on the\nCouncil staff's analysis of the 1976 master freight agreement,\nthe GE agreement, and the posture the Administration should\ntake with regard to the impact of these agreements on inflation\nas well as reviewing pending and upcoming labor contract nego-\ntiations.\nDecisions\nThe staff of the Council on Wage and Price Stability will recom-\npute the figures in their analysis of the 1976 master freight\nagreement to reflect the points raised in the discussion.\nThe Department of Labor will prepare a set of questions and\nanswers on recent wage settlements for review by the Executive\nCommittee.\nExecutive Committee members were requested to provide Mr.\nSeidman's office no later than c.o.b. Friday, July 16, with their\ncomments and recommendations regarding the approach the\nAdministration should take on wage negotiations and settlements\nto be incorporated into a paper for Executive Committee consid-\neration and review with the President.\n2. Expropriation Policy\nThe Executive Committee reviewed a memorandum, prepared by\nthe Treasury, on \"Redirecting USG Expropriation Policy.\"\nEYES ONLY\nEYES ONLY\n2\nDecisions\nThe Executive Committee requested the CIEP Expropriations\nGroup to: (1) identify and analyze U.S. Government economic\ninterests affected by actual or potential expropriation disputes\nin important areas such as petroleum, potash, boxite, .etc.;\n(2) examine possible changes or improvements in policies or\noperations to assure that U.S. Government economic interests\nare adequately taken into account, including examination of\nimproving the existing \"early warning system\" and better\nformal coordination of key policy decisions; (3) formulate\nrecommended guidelines to enable the U.S. Government to more\neffectively protect its own economic and other interests in par-\nticular cases; and (4) to explore possible multilateral actions\nwhich might be taken to further U.S. and other investing country\ninterests in expropriation cases.\nThe CIEP Expropriation Group was requested to submit a pre-\nliminary report to the EPB Executive Committee by August 20\nand to submit a final report by September 20.\nEYES ONLY\nRBP"
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