A top official of the Office of Management and Budget has told an industry group that her office found that the risks of potential cancer-causing substances are far less than various federal regulatory agencies have estimated.

Wendy Lee Gramm, director of OMB's Office of Information and Regulatory Affairs, also said she is considering guidelines to tell the regulatory agencies how to conduct cancer risk assessments.

Critics, fearful that OMB will weaken the government's regulation of suspected carcinogens, accuse OMB of venturing where it has neither the legal right nor the technical ability to tread. "Incredible" said Rep. John D. Dingell (D-Mich.) who is leading an effort to cut off funds to Gramm's office.

"Just common sense and good science," Gramm said.

Dingell and Gramm are on opposite sides of a bitter controversy over whether OMB ought to second-guess the regulatory agencies' cancer risk assessments. Critics say these assessments have become matters of life and death, sometimes requiring industry to spend millions to prevent exposure to a chemicals and other potential carcinogens.

OMB has not hesitated to make its powerful bureaucratic voice heard. The Occupational Safety and Health Administration recently proposed strict regulations on formaldehyde because OSHA had decided it was a potential carcinogen. OMB reviewed the same evidence, took into account a new study, used different statistical methods and decided that formaldehyde was merely an "irritant."

"I find it rather amazing that OMB is using guidelines to tell the agencies what to do," said Dr. Frederica Perera, assistant professor at of public health at Columbia University. "I am not aware that OMB has expertise in biology, epidemiology and toxicology, which are necessary for risk assessments. This should be the role for the scientists and decision-makers at the agencies."

But not everyone agrees.

"OMB is wrongfully attacked as a bunch of malevolent industry toadies, the Darth Vaders of the administration," said Paul Portney, a senior fellow at Resources for the Future, a nonprofit research organization. "They are not trying to cripple little children. They have brought a lot of problems on themselves by operating in the dark. But they are asking questions that definitely need to be asked.

"There is nothing wrong with OMB second-guessing the regulatory agencies and occasionally questioning their science," Portney said. "Regulations cost the public a lot of money and somebody has to ask, 'Is it worth it?' "

That is the question OMB asked about formaldehyde. OMB said the cost of OSHA's proposed regulation would be $655 million to $5 billion for each cancer case prevented, according to OSHA's figures. When OMB recalculated the numbers based on its own statistical principles, the cost rose to $72 billion per cancer case avoided.

Every aspect of the cancer risk assessment process, which often starts with laboratory studies on rats or mice, is controversial.

One group of scientists, for example, thinks that benign tumors in laboratory animals almost always represent early stages of malignant tumors. Another group thinks that benign tumors ought to be discounted, or "weighted" differently than malignant ones in considering whether the substance under investigation is likely to cause cancer. OMB has sided with the latter group.

Similiarly, groups of scientists argue over the significance of so-called negative studies -- in which animals exposed to suspected carcinogens don't get tumors or ailments. "Animal tests are not particularily sensitive methods of predicting cancer," Perera said. Consequently, some researchers almost routinely ignore negative results when they have clear positive results to go on.

But another scientific camp favors including all studies, negative as well as positive, in risk assessment. OMB has sided with them.

OMB describes its position as the weight-of-the-evidence approach.

"Weight of the garbage," retorted an OSHA scientist who asked not to be identified. "These are code words for throwing in everything and watering down the risk."

Dingell and many other members of Congress, most governmental regulatory officials, and most environmental, consumer and labor interest groups believe cancer risk decisions are best made by technical experts in the regulatory agencies.

Gramm says that the agencies make the decisions, not her office.

But the agencies find OMB's comments to be more than mere advice. OMB spokesman Edwin L. Dale Jr., explaining OMB's opposition to the nine-digit zip code early in the Reagan administration, illustrated why this could be the case. OMB's comments are requests, he said, but, "This is a nuance of words. If we ask any agency not to do something, it is understood that they will not do it . . . . OMB, after all, does speak for the president."

Even so, OMB, after six years of heavy fighting on the regulatory battlefront, has acquired a kind of beleaguered air, a feeling of losing more often than winning.

Gramm, head of OMB regulation, told the American Industrial Health Council on May 22 that her agency is considering "developing more specific guidance for performing risk assessments." Two weeks later, Dingell got hold of her speech and she described the effort as "guidelines, not hard and fast rules that an agency must follow." Jim Kamihachi, head of Gramm's regulatory analysis group, went further. "We have no plans to implement cancer risk assessment guidelines," he said.

"We don't do rat studies here," said deputy regulatory director Robert Bedell. "We accept the science as given to us. We make sure decision-makers understand their overcautious assumptions, and we may question their judgment. We ask tough questions and pursue the answers until they make sense."

MIT associate professor Nicholas A. Ashford, a vociferous critic of OMB, asserted that "they wouldn't know how to identify the smart answer if they saw it." Ashford described the OMB rule-reviewing staff, some of whom have worked for several administrations, as operating with "arrogance, ignorance and nonaccountability."

As to expertise, OMB's Bedell said the formaldehyde rule was evaluated by three economists, two with PhDs. The OSHA formaldehyde rule team included an epidemiologist, a toxicologist, an industrial hygienist and a biochemist, all with PhDs, and a biostatistician and another hygienist.

Dingell protested that an "office staffed primarily by economists and policy analysts" has no business assessing cancer risks. "Dr. Gramm's speech is further evidence that the Office of Information and Regulatory Affairs is heavily involved in sweeping regulatory review activities notwithstanding its limited mission," he said.

OMB's role in cancer risk assessment raises important public policy questions. Are risk assessments primarily scientific or political? Does OMB need scientific expertise to question risk assessments? Is OMB a backdoor conduit for industry arguments? There is also the factual question of whether OMB, which also oversees an agency's budget, can ever play a strictly advisory role.

"Nobody has any idea of what the real risk is from any of these chemicals," said J. Clarence Davies, executive vice president of the Conservation Foundation. "There are so many assumptions built into each one of these assessments -- something like 50 decision points in risk assessment -- where the science isn't good enough to decide and so you just have to make an assumption.

"These are more political decisions than scientific decisions," he said. "The problem is that OMB may take these numbers more seriously than one should." Risk assessments ought to be done in the agencies, he said, "so the real decision-makers are accountable."

Carnegie Mellon's Lester B. Lave said, "The problem is that OMB has a lot of economists and economists have one song to sing. That song is about efficiency and cost effectiveness. The political process is not fundamentally about efficiency and cost effectiveness.

"That's why these decisions about what is an 'adequate' level of protection ought to be made by Congress, by writing laws with guidelines about what are permissible risks," he said.

Dr. Franklin E. Mirer, director of the health and safety department at the United Auto Workers, said OMB's arguments appear to be "cynically prescribed tests science will never be able to meet."

"The record is clear that OMB interferes with, holds up, and arbitrarily demands the rewriting of occupational health standards," Mirer said. "OSHA wrote a short-term exposure rule for ethylene oxide. OMB simply crossed it out -- it was crossed out with a pen." OMB's role in this instance is the subject of a lawsuit by the Ralph Nader-founded Public Citizen Litigation Group pending before the U.S. Court of Appeals here.

In laying out OMB's "weight of the evidence" approach to the Industrial Health Council, a coalition of 165 industrial firms and trade associations in the chemical field, Gramm was, in effect, preaching to the choir. Many industry scientists say they believe the OMB approach to risk assessment is more sound scientifically than that used by the regulatory agencies.

But Mirer charged that "OMB is almost worse than a backdoor conduit for industry arguments. Their knee-jerk antiregulatory attitude probably works to the detriment of industry."