The Ftc's Public Participation Funding Program: Perceptions of Applicants

ABSTRACT - A survey of individuals and groups who have applied for public participation funding from the Federal Trade Commission to "intervene" in its trade regulation rule-making proceedings provides the data for this study. Applicants' perceptions of the intervenor funding program are analyzed to determine the extent to which the program has accomplished its major goals. Indirect effects of the FTC's funding decisions on applicants are also examined.

Citation:

Debra L. Scammon, Robert N. Mayer, and Gary Bamossy (1983) ,"The Ftc's Public Participation Funding Program: Perceptions of Applicants", in NA - Advances in Consumer Research Volume 10, eds. Richard P. Bagozzi and Alice M. Tybout, Ann Abor, MI : Association for Consumer Research, Pages: 479-483.

Advances in Consumer Research Volume 10, 1983      Pages 479-483

THE FTC'S PUBLIC PARTICIPATION FUNDING PROGRAM: PERCEPTIONS OF APPLICANTS

Debra L. Scammon, University of Utah

Robert N. Mayer, University of Utah

Gary Bamossy, University of Utah

ABSTRACT -

A survey of individuals and groups who have applied for public participation funding from the Federal Trade Commission to "intervene" in its trade regulation rule-making proceedings provides the data for this study. Applicants' perceptions of the intervenor funding program are analyzed to determine the extent to which the program has accomplished its major goals. Indirect effects of the FTC's funding decisions on applicants are also examined.

INTRODUCTION

The current movement toward regulatory reform is based in part on the feeling that some of the regulatory agencies, especially those with broad and vague statutes, are not always responsive to the interests of those affected by their regulations. To ensure that regulatory agencies hear a wide range of viewpoints, many agencies have established programs which reimburse individuals and groups for the costs of their participation (sometimes called "intervenor funding"). Virtually every federal agency involved in consumer protection has experimented with public participation funding in the last few years, but the Federal Trade Commission's program has been the longest-running and most extensively applied. The purpose of this paper is to present the results of a survey of applicants for intervenor funding and examine the program through their eves

Rationale for Intervenor Funding

The primary purpose of interval or funding is to improve the quality of regulatory decisions by facilitating public participation. Specifically, intervenor funding is designed to encourage participation by consumer groups, small businesses, and concerned citizens. The participation of these normally "under-represented" parties is presumed to result in more balanced testimony and the articulation or new persPectives.

A second purpose of intervenor funding is to increase the legitimacy of agency decision making by bringing new voices into the regulatory process Enabling groups to participate for the first time demonstrates that the rule-making process is open, and by extension, its outcomes fair. Furthermore, funding first-timers can act as .a training mechanism whereby new individuals and groups can be supported in gaining experience in the regulatory process, thereby preparing them for future (hopefully unfunded) participation.

The FTC Experience with Intervenor Funding

Under the Magnuson-Moss Act (1975), the FTC is authorized to grant funds for public participation in its rule-making proceedings. In allocating these funds, the Act specifies that recipients must (1) represent an interest which would not otherwise be adequately represented or (2) represent views that are necessary to a fair determination of the issues. Additionally, recipients must be otherwise unable to pay the costs of participation.

Between August, 1975 and September, 1980, the FTC funded grants totaling nearly $7,045,000 in 18 different rule-making proceedings (FTC 1980). [Although the FTC still has the statutory authority to grant funds, it did not request funds in fiscal years 1981, 1982 and 1983.] Funds have been granted to 66 different participants The average amount for a single grant has been $29,919 Awards have ranged from 5139,256 to the National Consumer Law Center in the Credit Practices Proceeding to $40 to the Indiana Home Economics Association in the Food Advertising Proceeding; The average total funds granted per proceeding has been $113,525. By far the largest share of funds was granted to participants in the Children's Advertising Proceeding --$340,762 allocated to 11 participants (see Table 1). These funds have been expended for attorneys' fees, expert witnesses' fees, experimental studies, surveys, testimony, and travel expenses

The FTC's program has served as a model for similar programs in the National Highway Traffic Administration, the Consumer Product Safety Commission, the Food and Drug Administration, and several other federal agencies (National Consumers League 1977). In addition, the FTC's program has given impetus to intervenor funding in other nations (Kane 1980)

TABLE 1

TOTAL FUNDING AND NUMBER OF FUNDED PARTICIPANTS BY PROCEEDING

LITERATURE REVIEW

From its inception, the FTC's program of intervenor funding has been controversial. While some people call it "an investment in democracy" (Kennedy 1980; Willet 1980), others charge that the program is little more than a disguised subsidy for a few consumer groups (Simpson 1980) and that the FTC staff solicits and funds only those groups that agree with its position (Schultz 1980). These criticisms have prompted oversight hearings (Pertschuk 1979; Fulton 1980), modifications in program implementation (FTC Improvement Act 1980), and agency reluctance to request funds from Congress (FTC 1982).

To date, only one study has attempted to critically evaluate the FTC's program (Boyer 1979, 1980, 1981). Relying on data available from FTC files and hearing records, as well as from a limited survey of participants in six or the 18 rule-making proceedings conducted as of 1979, Boyer tried to judge the effectiveness of the program. '!is evaluation was hampered primarily by the lack of generally accepted measures of effectiveness. Despite this difficulty, Boyer generated objective measures and drew tentative conclusions as to the extent to which the program promoted-balanced advocacy, encouraged participation by first timers, and influenced the outcomes of rule-making proceedings. He recognized, however, that "subjective issues are probably the most important ones in evaluating this program" (Boyer 1980, p. 97).

An indirect source of information regarding the intervenor funding program is the participants themselves. One study (LaBarbera and Lazer 1980) examines perceptions and attitudes of FTC rule-making participants, but not specifically those receiving public participation funds. The study's sampling frame consisted of 2,791 individual consumers who had commented on ten proposed trade rules. Since fewer than a quarter of public participation funds recipients are individual consumers, the study's sample of 420 consumers is unlikely to contain many funds recipients. Thus, the results are of limited use in examining the intervenor funding program. A separate study or the perceptions or fund applicants is still needed.

METHOD

Subjects

The population for this study is a List or all individuals and organizations who had applied for funds from the FTC as or September 30, 1980. The General Council's Office Of the FTC furnished names and addresses of 87 applicants. It applicants were organizations, contact people were also identified. Information regarding the rule(s) for which each applicant requested funds and the disposition of the requests (e.g., denied or amount of funding granted) was also furnished by the FTC.

Since the population of interest consisted of only 87 groups and individuals, every attempt was made to encourage participation in the study. A questionnaire was mailed to each applicant along with a cover letter expLaining the purpose of the study and the importance or each applicant's cooperation. The researchers were identified as acting independently vt any government body. Applicants were assured that their responses would remain confidential. Two mailings approximately two months apart and follow-up telephone calls resulted in 62 responses and 46 completed questionnaires. The response rate among funded and unfunded applicants was 71% in each group ($7 of 66 accepted applicants and 15 vt 21 denied applicants). Because not all returned questionnaires were completed, a detailed description or the response status or applicants in both groups is presented in Table 2.

TABLE 2

RESPONSE STATUS OF FUND APPLICANTS

Instrument

Separate questionnaires were developed for funded and non-funded applicants. The majority of items were common to both questionnaires. Funded applicants were also asked questions such as what actions they would have taken had they not received FTC funding, how they felt their participation had influenced the proceedings, and how they spent the money granted them. Non-funded applicants were asked why they thought their requests had been denied and what participation, if any, they had managed without FTC funding. Both open-ended and closed-ended questions were used. The frequency and extent of the responses to the open-ended questions indicates that respondents were highly involved in the task.

Study Limitations

Although the study is based on a census of all applicants for intervenor funding, analysis is hampered by the limited number of applicants. For example, the determinants of whether an applicant was funded or not are difficult to study since only 15 applications were denied. Analysis is further constrained by the fact that some applicants could not be contacted for the survey. Some organizations were defunct and some individuals were deceased. [The response rate for individuals was lower than that for organizations, and there was a greater percentage or individuals among those denied funds than among those receiving grants.] Certain analyses, while logical from an evaluation point of view, are not possible given the way the program was implemented. One might be interested in explaining differences in the size of grants, but such differences are simply a function or the size of the requests. The results of this survey apply only to applicants for funding and not to those attorneys, experts, and witnesses who were in turn hired by fund recipients

FINDINGS AND DISCUSSION

The effectiveness of the intervenor funding program must be judged in terms of its underlying goals which are to ensure the consideration of diverse views and to bring new participants into the rule-making process. The achievement or these two goals should promote a third goal -- more efficient and equitable decisions. The data from this survey are presented to assess these goals.

Balanced Advocacy

Prior to the passage of the Magnuson-Moss Act, for every one witness that was either an individual consumer or consumer group spokesperson, there were 3.3 witnesses representing business interests (Boyer 1980). Intervenor funding affected this balance by disbursing funds to 3.4 individual consumers or consumer groups for every one business representative funded. Because unfunded witnesses far outnumber funded ones, consumer witnesses still constituted only 17.8% of all witnesses in the first nine trade regulation rule hearings conducted after passage of the Magnuson-Moss Act, compared to 15.8% prior to its passage (Boxer 1980, p. 109). Thus, intervenor funding represents only a small step in achieving balanced testimony.

The FTC's public participation program promoted a balance of a second kind. The FTC awarded funds to groups with a variety of motivations for participation. Respondents described their primary motivation as "political/philosophical" in $3.2% of the cases, as "financial/ economic" in 38.6% and as "research" in 18.2%. Businesses were most likely to be motivated by economic interests, consumer groups by political/philosophical interests, and individual consumers by research interests.

In the absence of funding the majority of testimony would likely argue for a rule weaker than proposed by the FTC or for no rule at all. In attempting to achieve balance in the overall testimony, the FTC selected more applicants who favored a stronger rule (51@5%) than who favored a weaker rule (9.1%). An additional 27. 3% of the funded witnesses agreed with the rule as initially proposed, and 12.1% opposed any rule at all. It is evident from these data that the FTC was willing to entertain critical perspectives from both those who felt it was doing too much and those who felt it was not doing enough.

To what extent did intervenor funding facilitate the expression of viewpoints that would not otherwise have been articulated. Respondents were asked what actions they would have taken, if any, had they not received funds from the FTC. Over half (51.5%) of the funded respondents indicated that they would not have participated in any fashion had they not received funds Among the funded respondents who said that they would have still participated in some fashion, looking for other sources of funding and lobbying Congress were the most likely alternatives (22.9% said each of these actions was likely or very likely). Participating jointly with another group was considered likely or very likely by 17.6% of funded respondents. [Those applicants who did not receive funds were asked which actions (if any) they took to represent their interests. Only one of the five respondents in this group participated. Of the four who took no action, two perceived their interests were represented by other groups.] Despite this expressed willingness to pursue other avenues for participation, the majority of respondents (52.9%) perceived that their position would not have been presented by themselves or by another party had they not been funded.

New Voices

Intervenor funding can achieve its first goal of promoting balanced advocacy without attaining its second goal of bringing new voices into the rule-making process. This would be the case if funding consistently was awarded to a small set of individuals and groups who adequately represented the major positions on a given issue. It is therefore important to examine the extent to which intervenor funding was used to facilitate the participation of individuals and groups who had not previously taken part in regulatory proceedings

How many recipients of FTC funds had never participated in rule-making proceedings? Of those responding to the survey, 22.5% of recipients had never participated at any agency. With respect to the FTC, 64.1% of respondents were first-timers. This is in contrast to the reported claim by FTC staff that 95% of recipients were participating in their first rule-making procedure (Fulton, 1980 p. 777). Among respondents who had participated somewhere before:

37.5% had done so with other federal or state agencies but never with the FTC:

7.5% had participated previously at the FTC but never with any other agencies, and

27.5% had participated previously at both the FTC and some other agency.

Overall, then, about a quarter of fund recipients were participating in their first regulatory proceeding with any agency. Almost two-thirds of fund recipients were new to the FTC. Given the need to ensure high quality advocacy for a variety of positions, the Commission seems to have struck a reasonable balance between funding "known" and "unknown quantities."

The quest for new voices has not precluded the funding or a few parties in more than one rule-making proceeding. Six groups have received funds in more than three proceedings, two groups in as many as five. This concentration of funding can be viewed in several ways From a negative point or view, it may be interpreted as an attempt to promote the financial stability or groups who could have afforded to participate without funding" (Schultz 1980). Also on the negative side, the concentration of funding may reflect an unholy alliance whereby the FTC funds particular groups because of their willingness to support the rule-making staff's position (Simpson 1980). Viewed more positively, this concentration may reflect the FTC's decision to emphasize the usefulness of a group's past contributions to rule-making in awarding funds (FTC undated)

Impact on Rule

The third goal of public participation funding is to improve the quality of agency decision making. An objective evaluation of the impact of the intervenor funding program on the outcome of proceedings is difficult for a variety of reasons. A major reason is the -act that a large proportion of proposed trade regulation rule proceedings are still in progress or the rules have been dropped for reasons unrelated to testimony (e g , a change in administration) Another reason is that rarely can particular changes in a rule be traced to specific testimony. And, of course, it is impossible to distinguish the impact of testimony from that of non-record events (e.g., a scandal or a downturn in the economy). For these and other reasons (Boyer 1980), a subjective evaluation takes on greater significance The approach taken in this study is to assess the perceptions of participants who had received funds from the FTC

Of those respondents able to assess .heir impact, 17 felt their influence was great or moderate, 7 felt it was slight, and 7 felt they had no influence at all. The most commonly cited type of influence was affecting specific changes in the rule Other respondents felt that they had broadened the Commission's thinking and consideration of alternatives For example, one respondent said that they "raised the novel issue of the relevance of children's linguistic Competence to their ability to cope with TV advertising." Further, one respondent stated that "our participation led to tremendous voluntary industry changes."

Consumer organizations perceive themselves as having the greatest degree or influence while trade associations and small businesses perceive themselves as having the least. There are exceptions to this pattern. One consumer-oriented respondent said that "the likelihood that the final outcome was affected by intervenor funding was extremely minimal given industry's political and lobbying clout." Perceptions of influence also vary with a participant's position on the rule as initially proposed. The greater the support for a strong rule, the greater the participants' perception or their influence (see TabLe 3) This suggests that the FTC is not simply using the funds to bolster its case because recipients who wanted the Commission to be more aggressive were the most likely to reel they had an impact.

TABLE 3

PERCEPTION OF INFLUENCE BY POSITION ON INITIAL RULE

Impact or Participation on AppLicants

it is to be expected that intervenor funding may influence the content or trade regulation rules. Less obvious is the tact that receipt or denial or funding may also influence the applicants themselves

If the criticism is true that intervenor funding has been used to help keep consumer organizations afloat, then one would not expect char such organizations would report that the receipt of funds hurt their financial situation. Contrary to this expectation, seven or twenty-one consumer organizations claimed that their funded participation hurt them financially. Only four consumer organizations perceived that the receipt or funds improved their financial situation, while ten said that funding had no financial impact. Four of fourteen (28.6%) business participants reported char their financial situation had been improved -- a higher proportion than for either consumer groups (19.0%) or private citizens (12.5%).

Apparently, participation often cost much more than applicants anticipated. The FTC did give supplemental funds to 17 of the 21 respondents who asked for it, but many participants were still not reimbursed for all their costs One disgruntled recipient wrote, "The proceeding dragged on for six years with costs being more than double what the FTC approved. If we had known what was involved at the outset, we would have never participated "

The receipt or denial of funds also can affect the ways in which citizens and organizations are perceived by their constituencies and the general public. Over half or the funded organizations (consumer as well as business) reported that receiving intervenor funding increased c heir credibility with their constituencies. Only one or thirty-three organizations felt that funding decreased its credibility In terms or generating publicity for themselves or their organizations, 48.7% or respondents said the publicity was positive as compared to 12.8% who indicated it was negative Applicants who did not receive funds report char denial does not damage their credibility or generate negative publicity. Overall, then, receiving FTC funds tends to have a positive effect on an individual's or organization's image, and denial does not appear to harm the image of unfunded applicants

In addition to affecting an organization's finances and image, requesting funds can influence an applicant's perception of the regulatory process and the likelihood or future participation. Of the rive respondents who were denied funding, three indicated that their sympathy for the problems of the government regulatory process had been decreased. The modal response among funded applicants was that their sympathy had not been affected, but more respondents reported that their sympathy had been increased than decreased (14 versus 4). Individual citizens were most likely to increase their appreciation for the problems of government, business groups were least likely, and consumer groups were largely unaffected.

In terms of their likelihood or future participation in the regulatory process, three or the five denied applicants had been discouraged. On the other hand, 18 or the 39 funded respondents reported that their future participation had been encouraged. (Business groups, consumer groups, and individual citizens were nearly equally likely to have been encouraged.) Seven or the 39, however, indicated that the likelihood or their future participation had been decreased. Perhaps more relevant is whether funded participation encouraged or discouraged first-timers at the FTC. If "repeat players" are eliminated from this analysis (since it is not necessary to encourage them), 19 of 24 parties said their future participation had been encouraged while only three claimed it had been discouraged.

Perceptions of Procedures

How did applicants perceive the process for obtaining public participation funds? Table 4 presents mean values for both funded and unfunded applicants regarding the ease, speed, paperwork requirements, eligibility requirements and fairness of the application process. in terms or the mechanics or the application process, perceptions were generally favorable and indistinguishable between those who received and did not receive funding

TABLE 4

PERCEPTIONS OF THE APPLICATION PROCESS BY THOSE GRANTED AND DENIED FUNDING

However, applicants who were denied funding viewed the eligibility requirements as unreasonable and the selection process as unfair Recipients held the opposite views. Thus, if denied applicants are discouraged from reapplying for funds in future rule-making proceedings, it does not appear to be the fault of the application process but only its outcomes.

Applicants' Suggestions for Improvement

Reflecting on their experiences as applicants, respondents were asked to suggest improvements in the FTC | S public participation funding process. For some respondents, improving the program was not the issue; preserving and expanding it was. One of them indicated that intervenor funding is "the only way to allow participation by groups and experts with vital interests . . . and experience in the particular field, but who . . . cannot bear the expense of preparing testimony in a form satisfactory to the FTC." Another mentioned that these funds are essential to "democratic and sound government policy decisions." At the other extreme, two respondents felt the program should be totally eliminated, one as part of government cost-cutting. The other stated emphatically that "the FTC and the intervenor process are immoral, unethical. and should be abolished."

The most common suggestions for improvement pertained to the application and reimbursement processes. Calls for clearer guidelines, more information, less paperwork, faster decisions, simpler accounting, and more realistic auditing procedures were voiced. The second most common suggestion was for the FTC to improve public awareness of the program, perhaps through an advertising campaign. (Recall that there have only been 87 applicants.)

Several respondents felt that the program could be improved by allocating the funds differently. One respondent felt that small businesses and trade associations had no place in the program. Another believed that business applications should be judged by the potential impact of the proposed rule on them, not by their ability to pay. With regard to the adequacy of personal compensation, an attorney argued for higher fees for legal representation, while a non-attorney asked that executive staff be paid .as much as attorneys.

A final set of suggestions reflects the inevitable intrusion of self-interest into the intervenor funding process several respondents felt that the selection of recipients by the Commission itself either created the appearance of a conflict-of-interest or actually was one. They objected to the possibility that the FTC might select witnesses who were known to agree with the staff 's position. To avoid this problem, it was suggested that the program should be administered by an independent body.

One respondent claimed that his selection was aboveboard, but that an FTC attorney tampered with the testimony that he had asked his own attorney to prepare. This same witness alleged improper conduct by a U.S. Senator. it claimed that, having submitted his application for funding, the Senator phoned him the next day to ask him to write the other 99 Senators to vote for more funds for the FTC

CONCLUSION

From the perceptions of applicants, it appears that the intervenor funding program has had some success in achieving its intended goals of promoting balanced advocacy and encouraging first-time participants. It is much harder to judge whether the program has improved the quality of the FTC's regulatory decision making. The program receives generally good grades from applicants in terms of the administration of the program, although a few respondents point to occasions in which politicization has flawed the process. Overall, though? the impression given by the respondents is upbeat As one wrote, "The amount of funds is minuscule and the public benefit enormous."

REFERENCES

Boyer, Barry B. (1979), "Expense-Reimbursing Public Participants in Administrative Rule-making: The Federal Trade Commission Experience," Working Paper, Administrative Conference of the United States (November).

Boyer, Barry B. (1980), "Compensating Public Participants in Administrative Rule-making: The Federal Trade Commission Experience," Working Paper, Administrative Conference of the United States (April).

Boyer, Barry B. (1981), "Funding Public Participation in Agency Proceedings: The Federal Trade Commission Experience," Georgetown Law Journal, Vol. 70, No. 1, (October) 51-172.

Federal Trade Commission (1980), Fact Sheet, "Compensated Participants' Contributions," Available from the FTC Office of General Counsel, Washington, D.C.

Federal Trade Commission (1982). News Summary, March 26, p. 1.

Federal Trade Commission (undated), Rule-making and Public Participation Under the FTC Improvement Act. Available from the FTC Office of General Counsel, Washington, D.C.

Federal Trade Commission Improvement Act (1980). P.L. No. 96-252.

Fulton, Bill (1980), "Should Regulators Pay the Public To Take Part in Their Proceedings?" National Journal (May 10), 776-778.

Kane, T. Gregory (1980), Consumers and the Regulators: Intervention in the Federal Regulators Process. The Institute for Research on Public Policy, Montreal, Canada.

Kennedy, Edward M. (1980), "The Need for Citizen Participation Funding," At Home With Consumers, Vol. 1, No. 3, (January), 9, 8.

LaBarbera, Priscilla A. and Lazer, William (1980), "Characteristics of Consumer Participants in Federal Trade Commission Rule Making," Journal of Consumer Affairs, Vol. 14 (Winter), 405-417.

Magnuson-Moss Act (1975), 15 U.S.C., Sec. 209 (h) 57a (h); P.L. 93-637.

National Consumers League (1977), Testimony before the Subcommittee on Administrative Law and Governmental Relations of the Committee on the Judiciary. House of Representatives, 95th Congress, First Session, (March, April), 660-665.

Pertschuk, Michael (1979), Dissenting and Additional Views on the Federal Trade Commission Improvements Act of 1979. 96th Congress, First Session, House of Representatives Report No. 96-181.

Scammon, Debra L. and Robert N. Mayer (1981), "Public Participation Funds Cut Could Affect Government Regulations," Marketing News, Vol. 14, No. 22 (Man 1), 12.

Schultz, Mark (1980), "Intervenor Funding: Taxpayer Rip-Off," At Home With Consumers, Vol. 1, No.3 (January), 5, 7.

Simpson, Alan R. (1980), "Public Interest Intervenor Funding: Escalating Handouts to Lobbyists," At Home With Consumers, Vol. 1, No. 3 (January), 3.

Willett, Sandra L. (1980), "Consumer Representation in Government Decision-making: A Case for Public Participation Funding," At Home With Consumers, Vol. 1, No. 3 (January), 4, 6, 7.

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