Bi-Partisan Senate Legislation Would Reform the Federal Regulatory Process

A bipartisan Senate bill would modernize the Administrative Procedure Act by strengthening cost-benefit analysis across all federal regulatory agencies, improving transparency in the rulemaking process, and providing a more rigorous examination of facts underlying the most expensive rules. The Regulatory Accountability Act, S. 1029, was introduced by Sens. Rob Portman (R-Ohio) and Mark Pryor (D-Ark). Senators Susan Collins (R-Me), Bill Nelson (D-Fla), Joe Manchin (D-WVa), Angus King (I-Me), Kelly Ayotte (R-NH), Mike Johanns (R-Neb), and John Cornyn (R-Tex) are original cosponsors of the bill. A bipartisan House companion bill,HR 2122, was introduced by Rep. Bob Goodlatte (R-Va) and Rep. Collin Peterson (D-Minn), Ranking Member on the Agriculture Committee.

The legislation would codify the duty of independent federal agencies, such as the SEC and the CFTC, to analyze the costs and benefits of new regulations. It would also require agencies to adopt the least costly or most cost-effective approach to achieve their objectives. To hold agencies accountable, the bill would permit a judicial check on an agency’s cost-benefits analysis of major regulations. This review would be deferential, but the courts would ensure that agencies do not rely on irrational assumptions or treat cost-benefit analysis as a mere afterthought.

Designed to open the regulatory process to greater transparency, the Act invites early public participation on major rules and requires agencies to disclose the data they rely upon. It also would ensure that agencies use sound scientific and technical data to justify new rules, in keeping with the President’s directive that agencies should use the best available science to craft regulations.

 The legislation would also require agencies to follow a more evidence-based approach in crafting regulations that will cost more than $1 billion annually. These high-impact rules are relatively rare (the White House identified seven in development last year), but the cost of getting them wrong is steep. The legislation would give stakeholders access to an agency hearing to test the key disputed facts underlying these rules. It will take some additional work on the front end, noted Sens. Portman and Pryor, but the result will be lower costs and more stable regulatory outcomes.

This legislation heeds President Obama’s recent call for public participation and open exchange before a rule is proposed. Prior to proposing any major rule, regulators would be required to issue a simple notice explaining the problem that they intend to address and inviting the public to submit information on the need for a new rule and potential options the agencies should consider before proposing a rule. To improve the quality of new rules, agencies would be required to use the best available scientific, economic, and technical information. The sponsors believe that this is consistent with the President’s statements in Executive Order 13563.

The legislation would also cut back on what the senators call the “misuse” of guidance documents, which are described as agency directives written outside the normal public process of notice and comment, while allowing their legitimate use to continue. Specifically, it would adopt the good-guidance practices issued in a final OMB bulletin on January 25, 2007, and ensure that agencies do not use guidance to skirt the public input required to write new rules.

The legislation builds well-recognized best practices for regulatory analysis, integrating cost-benefit analysis into each step of the rulemaking process, as well as judicial review, in the case of major rules. These principles are drawn from the long-standing, partisan 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, which are currently exempt.

The legislation requires the SEC, the CFTC, and other federal agencies to adopt the least-costly regulatory alternative that would achieve the policy goals set by Congress. It permits agencies to adopt a more-costly approach only if the agency demonstrates that the alternative is more cost-effective in the long term. This directive would reinforce the Executive Order 13563’s instruction to federal agencies to minimize regulatory costs and tailor regulations to impose the least burden on society.

For high-impact regulations, defined as those costing $1 billion or more a year, the cost of getting underlying facts wrong is substantial and warrants additional scrutiny, posited Sens. Portman and Pryor. The legislation would give parties affected by billion-dollar rules access to an administrative hearing to test the accuracy of the evidence and assumptions underlying an agency’s proposal. The scope of the hearing would be limited to disputed factual issues, which, if misapprehended by the agency, could impose unnecessary burdens on the economy.

Parties affected by major rules (those involve $100 million) 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 administrative hearing, high-impact rules would bejudicially reviewed under a substantial-evidence review, which, while still highly deferential, allows judges reviewing these rules to ensure that agency justifications are supported byevidence 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.