Research note: Cost-Benefit Analysis in Regulation

The primary autoregulative process when state agencies begin promulgating rules and regulations is the cost-benefit analysis (CBA). Despite having many names across states, the CBA or impact statement is an important system in which agencies self-evaluate the effectiveness and scope of a proposed rule’s regulatory impact on business and government. Moreover, these reports play an important role in legislative scrutiny and public feedback, clearly informing outsiders of a rule’s possible effects. However, these reports can also cause resource and capacity issues for agencies when research and analysis requirements are over-ambitious. Therefore, these statements should ideally be required when a certain economic impact threshold is surpassed or at the petition of an elected official or group of concerned citizens. 

Nebraska’s impact statement requirement is not dissimilar to the aforementioned broader guidelines. Agencies must submit to the governor an explanation of the rule’s necessity and consistency with legislative intent, as well as a description of impacted entities and a quantification of fiscal impacts on the government and regulated parties. However, this process is notably more obscure than our midwestern compatriots. Iowa requires an impact statement for rules that reach a threshold of expenditures over $100,000 annually, along with a small business statement and a jobs impact statement. Wisconsin requires an economic impact statement that evaluates alternative measures, and an independent economic analysis can be requested to ensure accuracy. Kansas outlines that economic impact statements must describe the measures taken by the agency to minimize costs to business and economic development and must be accompanied by an environmental benefit statement if necessary. Without legislative and public review, the Nebraskan agencies forgo the accountability seen in other midwestern state agencies.

As Nebraska moves forward, its policy regarding impact statements must prioritize transparency, safeguarding against decisions influenced by partisan agendas. Fortunately, neighboring states offer inspiring models for renovation. A few possibilities follow.

• Incorporating a comprehensive small business impact statement, which evaluates compliance costs for small entities alongside alternative policy measures, is essential. A regional comparative analysis could shed light on the potential impact of proposed regulations on state competitiveness.
• Additionally, an entrepreneurial impact review could assess the broader implications for start-ups and emerging businesses.
• An ex post facto review would provide valuable insights by analyzing actual impacts in hindsight, a process with precedence in the United States.
• Finally, incorporating independent reviews for a certain threshold would ensure accuracy and honesty in self-created impact reports. If the agency’s report is inaccurate by a certain percentage, they could be liable for the cost of the secondary report.

While just a few possibilities, a restructured analysis process is necessary for any serious consideration of adjusting Nebraska’s regulatory review process.

Sources

• James Broughel. “The Mighty Waves of Regulatory Reform: Regulatory Budgets and the Future of Cost-Benefit Analysis.” Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA, June 2019. 
• Nebraska Legislature. (1945). “Administrative Procedure Act,” Neb. Rev. Stat. §§ 84-920 to 84-929 (2017).