Business of Government Stories
Friday, October 2, 2020
The policy and oversight of agency rulemaking reflects how analytics and professional staff work link with White House priorities.

This week marks the 27th anniversary of the signing of Executive Order 12866, which has set out principles for development and review of Federal agency regulations across the last four Administrations.  The Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB) oversees EO 12866; a view of key highlights behind the directive and its amendments provides an informative guidepost for understanding the story of Federal regulatory reform over the past several decades.  This review is necessarily focused on only some of this history -- for a more detailed review of the rulemaking evolution and issues involved in OIRA regulation, see this informative article by Susan Dudley, former OIRA Administrator (and also previously OIRA career staff economist!)

 


Why is the story of regulatory review based on an executive order and not a legal statute? - Dan Chenok describes.

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Antecedent:  Executive Order 12291. EO 12866 replaced a similar EO issued by President Reagan in 1981.  EO 12291 vested OIRA-- newly authorized under the Paperwork Reduction Act (PRA) of 1980, signed into law by President Carter – with authority to review all proposed and final regulations by agencies before they were made public in the Federal Register.   This significantly expanded OMB’s authority to influence the content and direction of agency rules.  Section 2 of the EO directed that regulations had to follow key principles focused on cost-benefit analysis, including that “the potential benefits to society for the regulation outweigh the potential costs” and other criteria.  The Reagan EO gave OIRA 60 days to review final rules and 30 days for proposed rules, but OIRA could extend these timelines without limit.

OIRA expanded its staff capacity through the 1980s to review rules, and the professional career staff brought significant analytical expertise to OMB in carrying out its responsibilities.  However, Congressional leaders raised numerous concerns about OIRA’s impact, and Congress did not confirm an OIRA Administrator during almost the entire term of President George H.W. Bush (nor did Congress reauthorize the appropriations for the PRA – see below).  Jim MacRae, an exceptional career executive, served as Deputy Administrator and Acting Administrator during these years, and OIRA worked closely with the White House Competitiveness Council – guided by Vice President Dan Quayle and led by David McIntosh, later a member of Congress from Indiana -- for political direction of regulatory strategy.  This connection expanded perceptions that OIRA was following political direction in its analysis – perceptions that, as a new OIRA staffer, I saw were unfounded.

A New Administration and a New Order. When President Clinton came to office, he nominated Sally Katzen as OIRA Administrator, who was quickly confirmed thereafter.  One of her first goals was to lead the process of updating and reissuing the regulatory review EO – including how best to update processes and criteria. For example, the standard of EO 12291 that the potential benefits of rules had to “outweigh” potential costs – which was often interpreted to require monetizing impacts and making a strict benefit-cost calculation – was changed to a standard in EO 12866 that a rule requires “a reasoned determination that the benefits of the intended regulation justify its costs.”  This explicitly recognized that policy judgements represent an important element of regulatory decisionmaking, alongside quantitative analysis.  Similar changes were made to enhance agency discretion and public access around rulemaking

Another significant shift in the Order concerned the scope of rules subject to OIRA review – which had encompassed all rules under EO 12291.  I had direct involvement with this part of the story.  Specifically, the new regulatory leaders at the Department of Education argued that OMB staff – meaning me as the OIRA “Desk Officer” overseeing ED rules, working with the OMB Budget officer for ED – were spending too much time in reviewing and delaying procedural rules that largely governed delivery of grant funds to schools.  Working with Katzen and the new ED General Counsel, we developed a pilot process whereby ED would send a list of rules that were “significant” and thus merited OMB review, as well as a list of other rules that they believed to be non-substantive.  OIRA could review both lists, and had the final say as to whether a particular rule was significant.  After a few cycles, OIRA and ED found that this process enabled ED to move lower-impact rules more quickly, and allowed OIRA to focus time on review of more important rules.  This process was the model for what would be enshrined in EO 12866 as the “significant” rule standard, which was expanded to apply to all agencies along with criteria that still stand to define significance and reviewability by OIRA:  annual economic impact of $100 million or more, interference with actions planned by other agencies, material impact on the budget, and “novel or legal policy issues.”

Statute or EO?  PRA Reauthorization and Rulemaking Authorities. Probably the major issue in the lengthy PRA reauthorization involved nothing to do with paperwork reduction or information policy; the PRA’s primary procedural requirement involves agencies sending all surveys, forms, and other information collection requirements to OIRA for review and public comment prior to issuance.  Rather, many Congressional leaders did not support OIRA’s extensive role in regulatory oversight, arguing that agencies should have greater freedom to issue rules absent OIRA review, the core of which was and remains based on executive order and not statute.  This has been a core principle of regulatory review in the US – that is, the President oversees executive agencies, and their rulemaking activity needs to conform with Administration policies and interagency priorities. OIRA thus acts as an agent of the Presidency in developing policy and exercising oversight of agency regulatory activity.

Of course, the OIRA Administrator is subject to Senate confirmation, and a series of statutes (see below) have bolstered Congress’ role in the regulatory process – but Administrations of both parties have, since 1981, opposed enacting OIRA’s basic regulatory oversight role and favored using executive authority (12291 and then 12866 as reaffirmed in several subsequent EOs). Led by Sally Katzen, the Clinton Administration successfully convinced Congress to reauthorize the PRA without reference to the regulatory issue in 1995.

Congress has continued to pursue laws that increased its ability to influence the outcomes of the regulatory process (see this Congressional Research Service report for a comprehensive listing of relevant laws). Probably the most important of these statutes was the Congressional Review Act of 1996, which gave Congress streamlined authority to overturn agency rules.  Congress exercised this authority only once prior to 2017, overturning the Department of Labor’s Ergonomics rule in March 2001 (which I had previously reviewed as the OIRA Desk Officer for Labor); more recently, the current Administration has worked with Congress to overturn 14 rules adopted during the Obama Administration.

“Prompts” and Quality. The first OIRA Administrator of the George W. Bush Administration, John Graham, had been a longtime academic expert on regulation.  Graham brought several priorities to his tenure that focused on continued improvements in the full lifecycle of regulatory development.  Two key changes that are still in place today include:

  • Prompt” Letters:  OIRA review had generally focused on receiving rules from agencies and then leading a coordinated review process in response.  Rarely had OIRA worked with agencies to identify a new outcome that might merit a new or amended regulation.  Graham worked with OIRA to issue a Prompt Letter “to suggest an issue that OMB believes is worthy of agency priority” and that “contain a suggestion for how the agency could improve its regulations.”  OIRA issued over a dozen such letters between 2001 and 2006.  Although none have been written since, they remain part of the regulatory toolkit.
  • Information Quality Guidance:  The 2001 OMB Appropriation called for OMB to issue governmentwide information quality guidance.  Graham used this directive to develop guidance on information that informed regulation, specifically focusing on “influential scientific, financial, or statistical information” where “influential” primarily focused on information used in regulatory development and oversight.  This is among the few OMB guidance documents that links a Paperwork Reduction Act process with a substantive addition to OIRA’s rulemaking authority.  Later, the first OIRA Administrator in the Obama Administration, Cass Sunstein, would similarly focus on infusing the economics of information further into regulatory review.

Technology and Transparency Helps the Whole Process. Much of the agency development, public comment, and rules under OIRA review since 2001 have been presented at www.regulations.gov, a site started under the E-Government strategy (described in this prior story post).  This website enables online public comment on all rules, not just those subject to OIRA review.  The site continued to be strengthened and its evolution was detailed in a 2013 IBM Center report, Rulemaking 2.0.

Rules under OIRA review are published online as part of www.reginfo.gov.  The Obama Administration’s focus on Open Government included a specific focus on making rulemaking more transparent, building more functionality into these two sites and enhancing public participation.  This evolution helped contribute to greater transparency in EO 13563, which was issued by President Obama in 2011.

Retrospection as a Reg Review Tool.  EO 13563 generally reaffirmed the principles enshrined almost 40 years ago in EO 12866.  The new EO also called for periodic agency review of existing regulations, which was consistent with a goal of numerous Prompt Letters.  This principle of retrospective review for current rules underlies two subsequent EOs that cross Administrations:

  • EO 13610, which enhanced public participation in the retrospective review process; and
  • EO 13771, the current Administration’s priority that requires agencies to remove two current rules for every new rule and to reduce the costs of current regulation to make economic room for new rules.

Presidential Transitions Bring a Fresh Look at Regulations.  A Presidential transition, which may occur this year following the election, always brings a fresh look at regulatory process and policy.  Each new Administration, in a process almost always led by the incoming OIRA Administrator, takes a thorough look at the policies of its predecessor and determines how best to shape a regulatory agenda that reflects new priorities – as reflected by several of the EOs described above, and others that can be found in the Susan Dudley article cited above.

More immediately, a transition is commonly accompanied by two processes overseen by OIRA:

  • Issuance of “midnight rules” that are rushed out to address priorities of the outgoing Administration, -- Susan Dudley writes about her 2008 experience with this phenomenon at the end of the Bush Administration in 2008-9 in this article, and
  • Issuance of a “regulatory freeze” under which all rules are halted in their development and review on January 20th after the Inauguration ceremony, and new leaders take a case-by-case look at each potential new regulations for release until a new regulatory strategy is announced.

Lessons for New Leaders.  The strategy, principles and policies of rulemaking have evolved considerably over the last 40 years.  Understanding the arc of the regulatory story is important, if only to highlight areas where new ideas have actually been tried before and how to learn from and build on those experiences. As has been the case in the episodes described here, as well as many others documented in numerous additional reports and articles.

Finally, a prime constant in this evolution is the OIRA career staff.  I was honored to serve in OIRA for nearly 14 years, and know firsthand the expertise and dedication to objective, neutral analysis that they bring to their review responsibilities.  Their role, and a similar role played by OMB staff on budget and management issues, is highlighted in OMB:  An Insider’s Guide, a recent publication from the White House Transition Project written by former OMB executives across 50 years of leadership.  A new team would do well to understand OIRA and OMB through familiarizing themselves with the e-book’s content.

For further reading.

Administrative Law Review special issue on OIRA's 30th anniversary : https://www.jstor.org/stable/i23065465.

Journal of Benefit-Cost Analysis edition on OIRA:  https://www.cambridge.org/core/journals/journal-of-benefit-cost-analysis/issue/FEF31134CBB73FAF3AF93346D9BC9624

George Washington University Regulatory Studies website on E.O. 12866: https://regulatorystudies.columbian.gwu.edu/tracing-executive-order-12866%E2%80%99s-longevity-its-roots

The Office of Information and Regulatory Affairs and the durability of regulatory oversight in the United States, by Susan Dudley in Regulation and Governancehttps://onlinelibrary.wiley.com/doi/abs/10.1111/rego.12337

 

 

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Business of Government Stories

The past 30 years provides important lessons both for today’s leaders and for those of future administrations. Little has been written about the role leaders and teams have played in the evolution of management reforms. We are starting a series called “Business of Government Stories” where we will narrate the stories of many of the most influential events that have shaped government over the past generation. Our series will focus on the people behind this management evolution and feature a podcast with reflections on the stories behind these reforms.

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