Analysis of the Regulatory Accountability Act: An Unjustified, Dangerous Overhaul of Federal Rulemaking Law
9/30/2011
The Regulatory Accountability Act (RAA), announced by Sens. Rob Portman (R-OH), Mark Pryor (D-AR), and Susan Collins (R-ME) and Reps. Lamar Smith (R-TX) and Collin Peterson (D-MN) on Sept. 22, is a radical overhaul of the federal rulemaking process that would result in a system that allows powerful special interests to dominate. It would seriously undermine public protections by slowing down the regulatory process, sparking endless litigation, and tilting regulatory outcomes in favor of moneyed interests. The bill would cast aside public health, worker safety, and environmental quality goals that are the basis of so many public protections and make estimated costs to businesses and the economy the most important consideration in rulemaking.
The RAA establishes new procedures for rulemaking by all federal agencies, including independent regulatory agencies, which have traditionally preserved a certain level of independence from the executive branch. It adds special additional procedures for “major” and “high-impact” rules. The bill makes these changes through substantial modification of the 1946 Administrative Procedure Act (APA), even though there has not been a single hearing in the Senate this year on the need for modifying the APA. The bill would supplant more than 60 years of case law and administrative procedure.
The Regulatory Accountability Act would impose two decisional criteria for producing final rules that have never before been required. These criteria would supersede all other laws, including standards such as protecting public health or using best available technologies, established in authorizing statutes. The RAA criteria are:
- The least costly alternative that achieves the “relevant statutory objectives.” The bill does permit the agency to select a regulatory option other than the least costly one if the benefits justify the additional costs and the agency justifies the option as “clearly” within the scope of the statutory provision authorizing the rule; and
- “Best reasonably obtainable scientific, technical, economic, and other evidence.”
Whether an agency's proposed rule complies with these criteria, as well as most of the information relevant to that determination, is judicially reviewable under the RAA.
Provisions that Impact All Rules
Section 553 of the APA currently requires agencies to provide notice of a proposed rule, state the legal authority for the rule, and provide an opportunity for public participation in the rulemaking process. The RAA would require agencies to consider numerous factors beyond identifying the statutory authority for the action and the problem that is to be addressed in every rulemaking, even those actions that make minor policy adjustments or clarifications. For example:
- Section 3(b)(5) would require each agency to consider alternative options presented by the agency or any other interested persons, including not issuing a rule, devolving the responsibility through the consideration of “potential regional, State, local, or tribal regulatory action,” amending or rescinding existing rules (requiring an agency to review existing rules for modification or rescission every time it considers a rulemaking), and approaches that rely on providing the public with information and market-based solutions.
- Section 3(b)(6) would require each agency to consider the costs and benefits of each rule and conduct a cost-benefit analysis (CBA) for all of the potential alternatives identified that includes “direct, indirect, and cumulative” costs and benefits, as well as estimated impacts on jobs, economic growth and competitiveness, and innovation. This requirement to conduct a CBA supersedes requirements in other laws, even those that explicitly prohibit such economic considerations. Indirect and cumulative costs and benefits are not defined. Estimated impacts on health, safety, and Americans’ quality of life are not included alongside the economic impacts.
- Section 3(b)(6) would also require each agency, regardless of requirements in other laws, to identify ways to increase cost-effectiveness of the regulation and provide incentives for “innovation, consistency, predictability, lower costs of enforcement and compliance. . ., and flexibility.” “Cost-effectiveness” is not defined, and the effect of this provision on regulations that are supposed to be promulgated based on health and safety concerns, not cost considerations, is unclear.
Each rule must go through a Notice of Proposed Rulemaking and Final Rulemaking stage. Under the RAA, an agency would be required to have a “consultation” with the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB) before proceeding with each stage.
Notice of Proposed Rulemaking Requirements
Section 3(d) requires each agency to “publish either a notice of proposed rulemaking or a determination of other agency course” and lays out specific elements that must be included in these notices. A notice of proposed rulemaking (NPRM) must include a summary of the information considered under 3(b) listed above, “a reasoned preliminary determination that the benefits of the proposed rule . . . justify the costs,” and a discussion of the alternatives proposed, including the costs and benefits of those alternatives. For each requirement, the “costs” include those mandated for consideration by subsection 3(b)(6) described above. Agencies would therefore be expected to make speculative estimates of an exceptionally broad range of costs at an early stage in the rulemaking process. These analyses will be of limited value and waste valuable agency resources because they will include assumptions upon assumptions about future economic conditions.
If an agency does not issue an NPRM and instead makes a determination of “other agency course,” the bill only requires “a description of the alternative response the agency determined to adopt.” The additional burden placed on agencies when issuing NPRMs may provide a disincentive to pursue rulemakings, even when the public would be better served by a rule.
Requirements for All Final Rules
Section 3(f) would diminish agency discretion in issuing final rules by mandating that the agency “adopt the least costly rule considered,” including the broad costs of alternatives identified by the agency or interested persons. The bill contains an exception permitting the agency to select a regulatory option other than the least costly one, if the agency can demonstrate that the benefits justify the additional costs and can justify the option as “clearly” within the scope of the statutory provision authorizing the rule. What exactly an agency must do to justify such a determination under judicial review is unclear.
Interim Rules
Congress and the courts have traditionally allowed agencies to issue interim final rules without following every required rulemaking procedure where there is a justification for doing so. The RAA does provide for agency adoption of interim rules without requiring compliance with all of the new rulemaking procedures if following every requirement before issuing a rule would be impracticable or contrary to the public interest. If agencies do not complete the procedures required by the RAA quickly, however, interim rules automatically cease to have any legal effect. The RAA provides agencies only 270 days, or 18 months for high-impact and major rules, to complete the new rulemaking (including hearing) procedures required by the act. This could result in the revocation of protective interim rules simply because an agency cannot complete the complex process prescribed by the RAA within a specific timeframe, leaving in place conditions or sub-standard rules that put the public at risk. The RAA provides for immediate challenges to interim rules issued without full compliance with the act’s new rulemaking procedures, although judicial review is limited to whether the agency abused its discretion.
Provisions Specific to Major and High Impact Rules
In addition to the procedures that all rules must go through, the bill provides added requirements for major and high-impact rules. A major rule is one that OIRA determines would have:
- An annual cost of $100 million or more, adjusted for inflation;
- A “major increase” in costs or prices for industry, individuals, or state and local governments; or
- “Significant adverse effects” on jobs, competition (including in the global economy), investment, productivity, or innovation.
The terms "major increase" and "significant adverse effects" are not defined in the bill. This definition is a change from the current definition that triggers OIRA's review of major rules.1 It is a significant change because under the RAA, any person can trigger judicial review of the determination that a rule is not a major rule. There is, however, no review of the determination that a rule does meet the definition of major rule.
A high-impact rule is one that OIRA determines is likely to impose an annual cost of $1 billion or more, adjusted annually for inflation. Like with major rules, OIRA’s decision to not define a rule as high-impact is judicially reviewable, but its decision to define a rule as high-impact is not.
In practice, this would allow a regulated entity to challenge the classification of a rule as non-major or non-high-impact and argue against the cost determination, which would include a broad and speculative range of indirect and cumulative costs. A party seeking to challenge a determination that a rule is major or high-impact, perhaps on the basis that costs were overestimated or exaggerated, would not be afforded the same opportunity.
In addition to the NPRM and final rulemaking that all rules must go through, an agency proceeding with a major or high-impact rule must add several additional steps. They must also publish an Advanced Notice of Proposed Rulemaking (ANPRM) at least three months before the NPRM and include a comment period of at least two months on the ANPRM. If the agency decides to modify or eliminate an existing rule, it does not need to go through the ANPRM stage, but can proceed directly to the NRPM stage.
When publishing a final major or high-impact rule, the agency must provide a plan for reviewing the rule at least every 10 years. Agencies already have these kinds of review procedures in place as a result of other laws, but the requirement in this bill expands the list of considerations agencies need to include in those reviews.
Formal Hearings
After the NPRM comment period, an agency proceeding with a high-impact rule must conduct a hearing (as provided in provisions of the APA for formal rulemakings) that allows for examining agency actions, the evidence used by the agency, and opportunities for cross-examination of witnesses. The bill sets out the scope of subjects that may be addressed at a high-impact rule hearing, which include: lower-cost alternatives, whether the benefits of the rule (if more costly than an alternative) exceed the additional costs, compliance with the Data Quality Act (DQA) and related OIRA guidelines, and the evidence supporting the agency’s factual basis for the rule. In addition, any member of the public who has participated in the rulemaking may petition to discuss other relevant issues at the hearing.
For major rules and all other rules, the RAA allows any member of the public to petition, within 30 days of the publication of an NPRM, for a hearing to determine whether the evidence or information used by the agency complies with the DQA. The agency must grant a hearing to any petition that presents a prima facie case that evidence upon which the agency based the proposed rule fails to comply with the DQA. This would enable countless challenges to agency science and force agencies to expend substantial time and resources before moving forward with any final rule.
Data Quality Act
The RAA codifies OMB guidelines for agencies that are required under the Data Quality Act, also called the Information Quality Act (IQA). Within 30 days of an NPRM, any member of the public may file a petition under the DQA to request a hearing to challenge data on which the agency based its decision to proceed with the NPRM. In response to the petition, the agency may choose to withdraw the rule or proceed with a hearing within 30 days of the petition. The agency must make a decision regarding the DQA petition within 60 days of the petition.
There is no judicial review of the agency’s decision to withdraw the rule. Once the final rule is published, the agency’s decision resulting from the DQA hearing is judicially reviewable. The RAA also modifies the APA to make explicitly clear that DQA challenges are judicially reviewable; in fact, the failure to file a petition for a hearing does not preclude judicial reviewability under the DQA.
Office of Information and Regulatory Affairs
Under the bill, OIRA’s regulatory review powers, which have been granted only through executive order, would be codified and expanded. There would be a “consultation” on all rules throughout government. Currently, OIRA only reviews significant (which is the equivalent of major) rules, a change that was made in the Clinton executive order on regulatory review. The RAA would give OIRA the power, or in some instances require OIRA, to establish guidelines for how the agencies are to implement the requirements of the bill, such as cost-benefit analysis, risk assessments, petitions under the DQA, and hearings. OIRA is also granted the power to update guidelines regularly and determine agency compliance with the bill’s requirements. Finally, OIRA is given the authority to “promote coordination, simplification and harmonization of agency rules” across the government. Achieving coordination and harmonization across agencies has been a long-time goal, but codifying OIRA authority in broad or vague terms could result in White House interference in interagency issues.
Under the bill, OIRA guidelines for hearings that are issued under the DQA are afforded judicial deference, as are OIRA determinations regarding agency compliance with the guidelines. OIRA lacks the issue-specific policy and scientific expertise of the agencies but would be given greater authority to influence the substance of agency actions under the RAA. The bill would also add to the volume of agency actions under consideration at OIRA, which already struggles to conduct timely reviews.
While the RAA would expand OMB’s authority, it does not provide for additional transparency in OIRA reviews. For instance, all information considered by an agency in connection with its adoption of a final rule must be made available to the public. Information provided by OIRA during consultations with the agency, however, is made publicly available only at the discretion of the president or OIRA administrator. The bill does nothing to reduce or eliminate such secrecy.
Guidance
The bill also extends OIRA review and guidelines to major guidance, which by the bill’s own stipulation is not legally binding. OIRA currently reviews “significant” agency guidance. While the definition of a “significant guidance document” includes any guidance that may be reasonably anticipated to “adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety,” the RAA’s definition of a major guidance includes only significant adverse effects on competition and other business concerns, offering no consideration of adverse effects on human health or safety. The definition of a major guidance also includes any guidance that is likely to lead to “a major increase in costs or prices for . . . individual industries,” but what constitutes a major increase is unclear.
These sweeping provisions codifying OIRA authority and guidelines is a one-size-fits-all agencies approach that would decrease agency flexibility and delay supplemental, non-binding documents intended to help clarify and improve regulations. Guidance comes in many forms and is critical to helping regulated entities, especially small businesses, comply with regulations. Delays in issuing guidance can create uncertainty and confusion for regulated businesses.
Judicial Review
At the very least, the RAA would increase the number and kind of rules courts will likely review and allow special interests to extend their resources in order to delay more rules through litigation. The RAA would also change the standard of review for the new categories of major and high-impact rules, providing less judicial deference to agency determinations.
The “substantial evidence” standard required for major and high-impact rules under the RAA provides less judicial deference to agency decision making than the “arbitrary and capricious” standard currently used to review most regulations. The arbitrary and capricious standard developed out of a judicial preference to defer to agency expertise and reluctance by the courts to substitute their judgment for the informed determinations of agencies.2 The substantial evidence standard exists under current law, but it has been used only infrequently.
Because a much larger set of rules would be subject to formal hearing requirements and judicial review under a less deferential standard, courts could see a sharp rise in the number of agency actions they must review. Courts would also be asked to re-evaluate the complex determinations made by agencies during the rulemaking process, including cost-benefit analysis, putting the courts in a position to second-guess agency decisions where they have expressed reluctance to do so. Finally, section 7 of the bill removes judicial deference to an agency’s determination of the costs and benefits of the regulatory action if the agency’s actions did not comport with OIRA’s guidelines, placing increased importance on implementation guidelines that afford agencies little flexibility.
ENDNOTES
1 This is the definition that President Reagan used in his E.O. 12291 on Federal Regulation. That definition was modified in 1993 by President Clinton’s E.O. 12866, Regulatory Planning and Review. Under E.O. 12866, a significant rule is not only focused on costs, but also on overall impacts, and covers adverse impacts (not increased costs) to environment, health and safety, and other items not included in the E.O. 12291 definition.
2 Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). The U.S. Supreme Court “recognized that considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer, and the principle of deference to administrative interpretations has been consistently followed by this Court whenever decision as to the meaning or reach of a statute has involved reconciling conflicting policies, and a full understanding of the force of the statutory policy in the given situation has depended upon more than ordinary knowledge respecting the matters subjected to agency regulations.”