Thursday, September 22, 2011

Bi-Partisan Legislation Would Completely Revamp the Federal Regulatory and Rulemaking Process

Groundbreaking bi-partisan legislation reforming the federal regulatory process has been introduced by Senators Rob Portman (R-OH), David Pryor (D_AK), House Judiciary Committee Chair Lamar Smith (R-TX) and House Agriculture Committee Ranking Member Colin Peterson (D-MN). Informed by a recent Presidential Executive Order, the Regulatory Accountability Act would embed cost-benefit principles at every step of the regulatory rulemaking process, enhance the transparency of the process, and change the judicial standard of review of major regulations.

The legislation heeds President Obama’s recent call for public participation and open exchange before a rule is proposed in Executive Order No. 13563 by requiring, prior to proposing any major rule, the agency to issue an advance public notice explaining the problem it intends to address and call for public comment on the need for a new rule and potential options the agencies should consider. Similarly, federal agencies would be required to use scientific and technical evidence that meets the standards of the Information Quality Ac, consistent with the President’s call for regulating based on the best available science. (Executive Order 13563)

The legislation would cut back on what its congressional sponsors call the misuse of guidance document, which are agency directives written outside the normal public process, while allowing their legitimate use to continue. Specifically, it would adopt the good-guidance practices issued by OMB in 2007 (under then-Director Portman) and ensure that agencies do not use
guidance to skirt the public input required to write new regulations.

The OMB good guidance practices state that, among other things, given their non-binding nature, federal agency guidance documents should not include mandatory language such as ‘‘shall,’’ ‘‘must,’’ ‘‘required’’ or ‘‘requirement,’’ unless the agency is using these words to describe a statutory or regulatory requirement, or the language is addressed to agency staff and will not foreclose consideration by the agency of positions advanced by affected private parties.

The measure would builds basic cost-benefit analysis principles into each step of the rulemaking process, the proposed rule, final rule, and (for major rules) judicial review. These principles are drawn from the longstanding, bipartisan Executive Order framework created by the Reagan and Clinton Administrations and reaffirmed by President Obama in January 2011. Those principles would be made permanent, enforceable and applicable to independent federal agencies. In the Smith-Peterson bill,
compliance with these new requirements would be subject to judicial review for all rules.

The legislation also requires federal agencies to adopt the least costly regulatory alternative that would achieve the policy goals set out by Congress. It permits agencies to adopt a more costly approach only if the agency demonstrates that it is more cost-effective and serves interests clearly within the scope of the statute. This is consistent with the White House’s recent instruction to federal agencies to minimize regulatory cost and the President’s directive to tailor regulations to impose the least burden on society. (Executive Order No. 13563)

The measure has a special and more rigorous process for high-impact regulations, defined as those with an impact of 1 Billion dollars or more. Parties affected by billion-dollar rules will have access to a fair and open forum to question the accuracy of
the views, evidence, and assumptions underlying the agency’s proposal. The hearing would focus on (1) whether there is a lower-cost alternative that would achieve the policy goals set out by Congress (or a need that justifies an higher cost than otherwise necessary); (2) whether the agency’s evidence is backed by sound scientific, technical and economic data, consistent with the Information Quality Act; (3) any issues that the agency believes would advance the process. Parties affected by major
rules, defined as having an impact of $100M or more, would also have access to hearings, unless the agency concludes that the hearing would not advance the process or would unreasonably delay the rulemaking.

As a consequence of the formal hearing, high-impact rules would be reviewed under the slightly higher judicial standard of a substantial evidence review. While this standard would still be highly deferential to agency expertise, it would allow a court reviewing the regulation to ensure that an agency’s justifications are supported by evidence that a reasonable mind could accept as adequate to support a conclusion based on the record as a whole. This standard would also apply to major rules
that undergo the formal hearing procedure.