Analysts were disappointed by a recent report from the Office of Management and Budget on the cost and benefits of federal regulation. OMB had taken the lead in educating Congress and the public on the need to weigh the benefits of proposed regulations against their costs to the economy and society.

As recently as December 1996, an OMB report stated that "The use of sound economic analysis in the design of regulations, such as the benefit-cost and cost-effectiveness analyses ... is vital to generating maximum health, safety, environmental and other benefits to society for the limited resources available."

But critics say its new report suggests cost-benefit analysis is only one tool among many to use in evaluating regulations -- and not a very important tool at that.

The OMB was ordered by Congress to assess the impacts of federal rules -- particularly those having an effect on the economy of $100 million or more in mandated, increased costs. Analysts say the OMB report shows Congress is right to be concerned:

• Federal agencies produced 5,476 final rules, 65 of which were major rules, between April 1, 1996, and August 21, 1997, according to the General Accounting Office.

• OMB estimated total annual costs of federal regulations for 1997 at $289 billion in 1996 dollars -- of which $144 billion was for environmental regulation.

• It estimated total annual benefits at $298 billion -- of which $162 billion is environmental benefits.

• It found $136 billion in benefits for other social regulations versus $54 billion in costs.

• And for economic regulations, the OMB pegged the cost to the economy at $91 billion annually -- with zero benefits.

The OMB vastly understates the total costs of regulations, compared to estimates by independent experts, by not accounting for such compliance costs as paperwork or the indirect costs to society. Also the OMB did not review rules issued by independent agencies. And its figures do not include rules that were not finalized, such as the Environmental Protection Agency's ozone and particulate matter rules -- which it is estimated will cost more than $100 billion per year when fully implemented.

Analysts say that federal agencies do not have an effective system for evaluating regulatory costs and using them to efficiently allocate scarce resources. They say a regulatory budget should be developed requiring regulators to repeal rules that aren't cost-effective.