Cost-benefit analysis doesn’t have to cost much
Over the last three months, the political world has been abuzz with exciting developments from Washington. Virtually every day brings major policy reforms from the Trump Administration, which is moving at a blistering pace not seen in decades. The Elon Musk-led DOGE, in particular, is fundamentally changing how government operates by applying the principles of the business world to federal agencies.
Though events in DC are getting almost all the attention, some equally significant reforms are underway in the states. Many state legislatures are now in session, and they’re debating thousands of bills, many of which also aim to enhance government efficiency.
One of the efficiency-promoting bills getting a lot of traction this year is the REINS Act. The basic idea behind REINS is pretty simple: the legislature often delegates power to the executive branch, authorizing agencies to pass new laws called regulations. These regulations can impose billions of dollars in cost, and the legislature may never look at them again. The REINS Act changes this dynamic by requiring the legislature to vote for or against significant rules (say those that have an annual economic effect of $200,000). If the legislature fails to approve these significant rules, they never take effect.
REINS reclaims power for both the legislature and the people: unelected bureaucrats shouldn’t be deciding the most important issues that affect people’s lives. That role should be reserved for their duly elected representatives.
But some state legislatures are having qualms about how the REINS Act might work in practice. One concern they’ve raised has to do with deciding which regulations are subject to the REINS Act. Determining a rule’s annual cost requires doing a cost-benefit analysis (CBA). And many state legislatures are scoring REINS as having a major fiscal impact, given the supposedly high cost of doing a CBA.
If the people doing the scoring are mostly familiar with the federal regulatory state, that sentiment is understandable. Federal regulatory CBAs, which are called “regulatory impact analyses” or “RIAs,” are extraordinarily complex documents produced by teams of PhD economists. They run into hundreds of pages and are incomprehensible to anyone other than regulatory economists. They’re so complicated, in fact, that only about 2 percent of federal regulations ever receive an RIA.
But that’s not the only possible approach. Several state governments have directed their agencies to do CBA, and the process is nowhere nearly as complicated as it is federally.
One especially notable example is Virginia. In 2022, Governor Glenn Youngkin issued Executive Order 19, which directs Virginia state agencies to do a CBA on every single regulation and guidance document they issue, cut, or amend. These actions number around 1100 per year (over 300 regulations and nearly 800 guidance documents).
In the past 3 years, Virginia agencies have managed to implement this CBA directive without hiring any new staff. Executive Order 19 did create a new office called the Office of Regulatory Management (ORM), which has a tiny staff of 4 full-time employees. Of these 4, roughly 2 spend most of their time on regulatory matters (since ORM is tasked with several other jobs).
ORM does not itself perform CBAs. Instead, it reviews agency-prepared CBAs and serves as a resource to help agencies navigate the regulatory review process. Early in its history, ORM issued the Regulatory Economic Analysis Manual, a short resource written by non-economists for non-economists that lays out in plain language how to assess regulatory economic effects.
Using this Guide, Virginia agencies have found that CBA is a lot easier than anyone anticipated. State regulations are usually much simpler than their federal counterparts. They typically focus on a discrete topic, such as reducing the training hours for cosmetologists. And it is usually very easy to calculate the economic effects of these targeted changes. For instance, cosmetologists will start earning a higher salary sooner if they don’t have to spend as much time in training. Agency staff have been able to do CBA as just one additional step involved in researching a possible regulation.
Concern about the cost of performing a CBA is not a good reason for a state to skip an opportunity to enact the REINS Act
And regulatory CBA is likely to get even easier and cheaper. Virginia ORM was largely writing on a clean slate and had to prepare its resources from scratch. Other states can benefit from Virginia’s innovations. State regulations are sufficiently similar that another state could easily retool ORM’s Regulatory Economic Analysis Manual and Economic Review Form for its own use.
Technology will also bring down costs. Though artificial intelligence isn’t yet capable of performing a CBA itself, it can accelerate many of the key components. It can help regulators research the costs and benefits of various actions. It can perform mathematical equations. It can identify similar regulations in other states or in the federal government. As agencies take advantage of these cutting-edge developments, they’ll be able to perform in minutes tasks that once would have taken hours or days.
As the Virginia experience illustrates, CBA doesn’t have to be difficult or expensive. Most agencies should be able to do the sort of CBA required under the REINS Act using existing staff, especially if they make use of the Virginia resources and targeted AI solutions.
Simply put, concern about the cost of performing a CBA is not a good reason for a state to skip an opportunity to enact the REINS Act (or, for that matter, any other efficiency-minded reform such as creating an ORM). Some combination of state-led innovations and technological developments have converted things that were once cost-prohibitive into routine and simple tasks.
And as states adopt reforms to promote greater efficiency, they’ll join a broader national trend away from just “trusting the experts” and restoring accountability to government. The REINS Act is merely one step in ensuring that “We the People” reclaim our constitutional role in holding the government to account for its decisions, but it’s an important one. State legislators shouldn’t let exaggerated fears about the costs of restoring that accountability stop them from adopting reforms that promote freedom, and in all likelihood save money, in the long run.
Reeve T. Bull is the director of Virginia’s Office of Regulatory Management.
