Government Regulatory Agencies Have Zero Cost Discipline

Update: Sen Inhofe seems ready to provide some cost scrutiny. Help the man out, write your Senators today and tell them to support the Inhofe Resolution!

There are some parts of government that face consequences when they overrun their costs by a significant value. The people get dragged up to DC, they must justify their existence and if they fail…The career dissipation light flickers. The USC section quoted below examines what happens if a Major Defense Acquisition Program (MDAP) experiences a procurement cost growth greater than 25%.


For programs with unit cost increases of at least 25%, a SECDEF certification is required. Certification responsibility has been delegated to the Under Secretary of
Defense(AT&L)(USD(AT&L)), who, by law, must certify that:
• Such acquisition program is essential to the national security;
• There are no alternatives to such acquisition program which will provide equal or
greater military capability at less cost;
• The new estimates of the program acquisition unit cost or procurement unit cost
are reasonable; and,
• The management structure for the acquisition program is adequate to manage and
control program acquisition unit cost or procurement unit cost.

(HT: 10 USC §2433)

Government regulatory agencies have no such legislated consequentialism. They get granted power and once they’ve got the car keys, they can drive it like they stole it. Hence, they predictably low-ball their costs when they are seeking legislation and then stick to the taxpayer hard on the back end. I blogged this cost-gaming phenomenon with ObamaCare a few months back. Here I describe how cost-phasing was used to produce a misleading estimate for public consumption.

We perceive the true mendacity of passing a law in 2010 and phasing its actual operation to start in 2014 when we compare the costs for each estimate from 2020 to 2022. The original estimate has no such costs; the new estimate has $481Bn. Yep, that’s almost ½ Trillion that got laundered via the ground rules and assumptions relevant to how the CBO estimates costs.



We seem to have yet another disingenuous regulatory finding. In this case, it involves the EPA’s new MACT regulation involving emissions from coal-fired electrical power plants. According to the American Action Forum, the EPA has “misplaced” about $22.4Bn of costs on a $9.6Bn estimate. A partial sampling of the missed costs follows below.

A handful of American energy businesses will face a combined $32 billion in costs to comply with the Obama Administration’s Utility MACT rule, according to recent annual reports from two dozen energy producers that have announced power plant closures. While two dozen companies hardly encompasses the entire American energy industry, their compliance costs alone are three times higher than EPA’s estimate for Utility MACT for the entire country. The EPA estimated this rule would cost Americans $9.6 billion.

This is a cost growth of 233.33% from just a partial sample. This is very early in the MACT program. We have just started finding the unknown unknowns. I’m arguing over a difference of $4Bn in an estimate I performed on a program on the order of $50Bn and everyone I work with considers it a total Joe Biden.*

If I’m not as visible on for a couple of weeks, it’s because myself and the other person who estimated this program are going equation-by-equation, parameter-by-parameter, until we find which seat cushion the $4Bn got stuffed into. My $4Bn discrepancy is over an estimate lifecycle of 36 years. This MACT cost-growth is over a short-term period of economic analysis.


Yep, the USG gets interested** when an MDAP grows by 8%. EPA regulatory compliance costs grow by a factor of $200% or more and only the private industry effected cares enough to squawk.*** This comes at a time when budget sequestration looms on the horizon in 2013.

The GOP has a homework assignment if they want to solve America’s economic woes. Let’s make EPA, DHS, and every other regulatory agency start taking cognizance for how they estimate their costs *before* these regulatory findings get handed down. These costs need to be *reviewed.*

The rest of the Federal Government needs to get Independent Cost Estimates performed and they need to undergo reconciliation. Maybe the OPM or the CBO can force them to produce a reviewed and refereed cost position. Then, and maybe *only* then, these estimates can stop being onagerous at best and political propagandic exercises at their loathsome worst.

* – A Big Trucking Deal
** – And I’m on extended TDY until we straighten it all the Joe Biden out.
*** – We are lucky they are *telling* us that this idiotic regulation would cost over 5,000 people their livelihood. The EPA sure didn’t care!



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