Putting a Cap on Regulation

Vol. 6, No. 11

Susan Dudley is Director, Regulatory Studies Center & Distinguished Professor of Practice, Trachtenberg School of Public Policy & Public Administration, George Washington University.

Reprinted with permission from Administrative and Regulatory Law News, Spring 2017 (42:3), at 4–6. ©2017 by the American Bar Association. Reprinted with permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

 

President Donald Trump is moving quickly to make good on his campaign promise to reduce regulation, which he called “one of the greatest job-killers of them all.” President Donald Trump, Remarks at the Republican National Convention (July 21, 2016; transcript available here). During his second week in office, he signed Executive Order 13771, requiring agencies to offset the costs of new regulations by removing existing burdens. Exec. Order No. 13,771, 82 Fed. Reg. 9339 (Jan. 30, 2017). Then, at the end of February, he issued E.O. 13777, establishing mechanisms for implementing both E.O. 13771 and regulatory procedures and policies that Presidents Clinton and Obama had put in place. Exec. Order No. 13,777, 82 Fed. Reg. 12,285 (Feb. 24, 2017).

With his characteristic humility, President Trump declared the orders would yield “the largest ever cut by far in terms of regulations.” Dave Boyer, Trump Signs Order to Cut Red Tape for Businesses, WASH. TIMES (Jan. 30, 2017). Indeed, they do reflect a dramatic shift in regulatory practice, though the ultimate outcome of this shift may not be visible for years. Cf. John F. Cooney, Federal Regulations During President Trump’s First 100 Days, ADMINISTRATIVE & REGULATORY LAW NEWS (Winter 2017).

Here’s a rundown of what these two cross-cutting regulatory executive orders actually do, and how far they might go towards “deconstruction of the administrative state.” Philip Rucker, Bannon: Trump Administration is in Unending Battle for ‘Deconstruction of the Administrative State’, WASH. POST (Feb. 23, 2017).

 

E.O. 13771: “Reducing Regulation and Controlling Regulatory Costs”

Though E.O. 13771 refers to a “budgeting process,” it does not call for a strict regulatory budget comparable to the fiscal budget, where the government would have to quantify the costs of existing regulations (an insurmountable task). See Susan E. Dudley, Can Fiscal Budget Concepts Improve Regulation?, 19 N.Y.U. J. LEGIS. & PUB. POL’Y 259, 268 (2016). Instead, it imposes two separate constraints. First, it requires agencies to eliminate two regulations for every new one they issue (what the administration is calling a “one-in-two-out”). Second, it sets a cap on incremental regulatory costs.

This incremental cost cap is likely to be the more binding of these constraints. In fiscal year 2017, the E.O. sets the cap at zero, so that for every dollar of cost imposed by new regulations, agencies would have to find offsets of an equal dollar amount by eliminating or modifying existing regulations. In future years, the order charges the director of the Office of Management and Budget (OMB) to establish an incremental cost allowance for each agency.

 

E.O. 13777: “Enforcing the Regulatory Reform Agenda”

President Trump’s second cross-cutting regulatory executive order is not as dramatic as the first. E.O. 13777 establishes mechanisms and provides direction for implementing the previous order. In particular, it requires heads of regulatory agencies to 1) designate an agency official to be the Regulatory Reform Officer responsible for overseeing implementation of regulatory reform initiatives and policies; and 2) form a Regulatory Reform Task Force to make recommendations for agency regulatory reforms.

The task forces had until the end of May to report to their respective agency heads on the progress of their efforts to identify regulations for repeal, replacement, or modification and to improve how regulatory reform initiatives and policies are implemented in general. Thereafter, each agency head is responsible for setting deadlines for progress reports.

 

What Role Does Benefit-Cost Analysis Play?

In response to E.O. 13771’s requirement that the OMB director develop implementation guidance for agencies, OMB issued a memorandum in early April after seeking comment on “interim guidance.” OFFICE OF MGMT. & BUDGET, MEMORANDUM: IMPLEMENTING EXECUTIVE ORDER 13771, TITLED “REDUCING REGULATION AND CONTROLLING REGULATORY COSTS” (April 5, 2017). Importantly, the guidance makes clear that the requirements of E.O. 13771 do not supplant longstanding bipartisan requirements for agencies to analyze the benefits and costs of regulations, and that such analysis will be an important element in ensuring that agencies achieve regulatory objectives. E.O. 13777 also references President Clinton’s 1996 E.O. 12866 and President Obama’s 2010 E.O. 13563, both of which call for analysis of regulatory benefits and costs and retrospective review of regulatory impacts.

In comments to OMB on the interim guidance, my colleagues and I suggest that the guidance be explicit that an assessment of the net benefits remains the best way to distinguish a good rule from a bad rule (one that does more harm than good), and for optimizing the level of a standard or otherwise fine-tuning the details of a regulation’s content. Susan E. Dudley et al., Public Interest Comment on The Office of Management and Budget’s Interim Guidance Implementing Section 2 of the Executive Order on January 30, 2017, Titled “Reducing Regulation and Controlling Regulatory Costs,THE GEORGE WASHINGTON UNIV. REG. STUDIES CTR., Feb. 10, 2017. Indeed, recent Supreme Court decisions have indicated that it would be unreasonable for agencies not to consider benefits and costs in making regulatory decisions. See, e.g., Michigan v. EPA, 135 S. Ct. 2699, 2707 (2015). Rather than replacing the benefit-cost test, the new orders should be viewed as guiding the agencies as they allocate their resources and set priorities.

 

What Regulations and Costs Will Be Covered by the Orders?

E.O. 13771 provides a more sweeping definition of “regulation” than previous orders have, and could have been interpreted to encompass guidance documents or even compliance letters. Sofie E. Miller & Susan E. Dudley, The Devil is in the Details of President Trump’s Regulatory Executive Order, THE  GEORGE WASHINGTON UNIV. REG. STUDIES CTR. (Feb. 1, 2017). However, the guidance narrows the definition of “E.O. 13771 regulatory action” to “significant” regulations and guidance documents issued by executive branch agencies, which limits the new actions subject to the offset requirements to those projected to have the largest effects on the economy and on the law. On the other hand, the April guidance defines “E.O. 13771 deregulatory actions”—those available to use as offsets for new actions—to include any action expected to result in cost savings.

Each agency’s Regulatory Reform Task Force will be responsible for evaluating existing regulations and recommending rules that should be repealed, replaced, or modified pursuant to E.O. 13771. Consistent with the president’s focus on jobs, E.O. 13777 directs the task forces to prioritize review of regulations that “eliminate jobs, or inhibit job creation.” It also directs them to identify regulations that “are outdated, unnecessary, or ineffective; impose costs that exceed benefits; [or] create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies.”

E.O. 13777 directs agency task forces to look particularly at “those regulations that rely in whole or in part on data, information, or methods that are not publicly available or that are insufficiently transparent to meet the standard for reproducibility,” which may be aimed at Environmental Protection Agency regulations that have long frustrated the regulated community. It also focuses the task forces’ attention on rules that “derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified.” This language may be aimed at regulations developed in response to President Obama’s orders regarding immigration, gender discrimination, and worker pay.

On the critical question of how agencies should measure the cost of offsets and new rules, OMB’s guidance appropriately instructs them to calculate “opportunity cost,” which is a broad measure of social welfare that best captures the diverse impacts of federal regulation on the public. Marcus Peacock, Implementing a Two-for-One Regulatory Requirement in the U.S., THE GEORGE WASHINGTON UNIV. REG. STUDIES CTR. (Dec. 6, 2016).

 

What Outcomes Should We Expect from These Orders?

Despite the sweeping nature of these executive orders, do not expect to see changes in the first 100 days or even the first year. Removing or revising existing regulations takes at least as much time and effort as developing new regulations. Indeed, the E.O.s effectively direct agencies to reallocate their internal resources away from creating new burdens and towards relieving existing ones. Agencies will have to follow the steps dictated by the Administrative Procedure Act and prepare a justification to support each change. Susan E. Dudley, Regulatory Reset: How Easy is it to Undo Regulation?, THE GEORGE WASHINGTON UNIV. REG. STUDIES CTR. (Nov. 30, 2016). They then must seek and respond to public comment before they issue a final rule to rescind or modify an existing rule. The final rule, of course, would be subject to litigation.

Presidents for the last 40 years have called upon agencies to analyze the benefits and costs of new regulations before they are issued. While this is still an important requirement, it hasn’t constrained the scope and reach of regulation. As Michael Mandel and Diana Carew of the Progressive Policy Institute note, like pebbles tossed in a stream, each individual regulation may do little economic harm, but eventually the pebbles accumulate and like a dam, block economic growth and innovation. Michael Mandel & Diana. Carew, Regulatory Improvement Commission: A Politically-Viable Approach to U.S. Regulatory Reform, PROGRESSIVE POLICY INSTITUTE (May 2013).

Back in 1980, President Jimmy Carter’s Economic Report of the President observed that “tools like the regulatory budget may have to be developed” to “make certain that the first problems addressed are those in which regulations are likely to bring the greatest social benefits.”

While the details of President Trump’s executive order have yet to be worked out, it has the potential to impose some discipline on regulatory agencies, generate a constructive debate on the real impacts of regulations, and ultimately lead to more cost-effective achievement of public priorities.

 

 

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