ACTORS: Office of Management and Budget, Federal Agencies
On January 30, 2017, the President issued an Executive Order directing executive branch agencies and departments to repeal two regulations for every new regulation promulgated. The Order also directs that the costs of new regulations in FY2017 be completely offset by the repeal of existing regulations, and in future years be offset within a regulatory budget to be prescribed for each agency by the Office of Management and Budget (OMB). This Order creates huge uncertainty in selecting regulations to adopt and repeal, discourages new regulations even if they offer large benefits in excess of their costs, and vests huge discretion in the OMB Director.
Process. The Executive Order defines “regulations” broadly to include agency statements designed to implement, interpret, or prescribe law or policy, including procedures. It does not apply to independent agencies and commissions. It exempts regulations related to military, national security, or foreign affairs functions; regulations related to agency organization, management, or personnel; and any category of regulations exempted by the OMB Director. The Order imposes two distinct, interrelated requirements:
- Two-for-One Requirement. Whenever an agency proposes a regulation for public notice and comment, or otherwise promulgates it, the agency must “identify at least two existing regulations to be repealed.”
- Cost Offset Requirement. In FY2017, the “total incremental cost” of all new regulations to be finalized by each agency, “including repealed regulations,” shall be “no greater than zero.” Moreover, all “new incremental costs associated with new regulations” must be completely offset by the “elimination of existing costs associated with at least two prior regulations.” For each future fiscal year, the OMB Director will identify for each agency “a total amount of incremental costs” that will be allowed for issuing and repealing its regulations. The head of each agency must include in the agency’s annual “regulatory plan” the incremental costs of all new regulations and total costs or savings associated with regulations targeted for repeal. No regulations exceeding the agency’s approved total incremental cost allowance will be allowed, “unless required by law or approved in writing by the Director.”
Interim Guidance. By Memorandum dated February 2, the Acting Administrator of OMB’s Office of Information and Regulatory Affairs (OIRA) issued interim guidance to agencies. The interim guidance provides that in FY2017 the regulations subject to the Order will include all “significant regulations.” These are the 300 or more regulatory actions each year currently subject to OIRA review, that have an annual effect on the economy of $100 million or more, or that may adversely affect in a material way the economy, any sector thereof, productivity, competition, jobs, the environment, health or safety, or other units of government; that create serious inconsistency with other agency actions; or that raise novel legal or policy issues. (See Fact Sheet 12.) The guidance exempts rules affecting transfer payments.
The interim guidance provides that the most expansive definition of costs, “opportunity costs,” will be used to determine the incremental costs of new regulations and offsets from repeals. It provides that in calculating offsets from repeal, agencies may not use the Regulatory Impact Analysis that supported the regulations’ original adoption but must conduct a new analysis; and agencies may not consider sunk costs of compliance with these existing regulations, but only prospective savings. Benefits are not to be considered in any determinations under the Order, only costs.
Constraints. The Order has six similar provisos: “unless prohibited by law,” “unless otherwise required by law,” “to the extent permitted by law,” “unless required by law,” “implemented consistent with applicable law and…the availability of appropriations,” and not “construed to impair or otherwise affect the authority granted by law to an executive department or agency or the head thereof.” However, the guidance takes a narrow view of what is exempt, and says OIRA must in each case determine whether to grant a waiver based on critical issues, and/or the need to comply with an imminent statutory or judicial deadline (while stating that offsetting repeals will still need to be identified).
Discussion. The effect of this broadly drafted Order will be largely determined by OIRA definitions and internal implementation practices. Periodic discussions between agencies and OMB about which rules to propose or to forego for lack of offsets, which rules to target for repeal, prescribing or negotiating an agency’s annual “total incremental cost allowance,” and deciding on waivers as well as whether a rule is “required by law” or otherwise exempt, may occur outside of public view. Notably, an agency can be assigned a negative incremental cost budget by OMB, requiring it to find repeals in excess of any new regulations, or even in the absence of any new regulations.
The effect on federal agency operations will be significant. It will be difficult for agencies to project costs and offsets before launching rulemakings, and finding candidate regulations for repeal will be difficult given existing statutory mandates and the scarcity of sufficiently “costly” repeals. One member of the Administration’s OMB landing team predicted that adopting the cost definitions and applying them to significant regulations, as the interim guidance does, will impose “high” additional demands on federal staff workloads.1 Implementing the Order will be challenging and may not be possible in many instances. Existing regulations’ costs have often been internalized into industry’s standard operations and new equipment, so there may be little if any cost savings available to offset new regulations.
Repeals will require rulemaking in accordance with all statutory and regulatory procedures: notice and comment, cost-benefit analysis, paperwork reduction, federalism analysis, and justifications for changes in agency position, and in many cases compliance with NEPA [National Environmental Policy Act], ESA [Endangered Species Act], and other requirements. An agency cannot simply say “we’ve decided training of pesticide applicators is no longer needed,” or “exploration permits are no longer required on federal lands,” without justifying its change in position and a repeal’s consistency with the statutes. Rules whose adoption was expressly required by law, including pursuant to court orders, would need to be replaced by rules that meet the same statutory and judicial standards.
Opportunities for Public Engagement. The Order itself does not create any right enforceable against the U.S. However, litigation challenging its application to specific repeals or delays in new regulations may be brought under the APA [Administrative Procedures Act] and substantive laws, and the Order would provide no defense. Stakeholders wanting to contest the Order’s impact can be expected to bring targeted litigation to compel agencies to add regulations to their regulatory agendas even if not offset. Public Citizen, NRDC, and the Communications Workers of America filed a lawsuit in February challenging the Order on its face, and alleging that the Order adds requirements that are not allowed by underlying statutes.
Interested parties will likely press agencies to identify and justify their regulations as “required by law,” as well as to identify repeal targets and cost estimates long in advance of discussions with OMB, so that tradeoffs are in public view. They can also be expected to highlight rules that get lost in the limbo of agency compliance with the Order and to push for disclosure of, and an opportunity to comment on, periodic agency negotiations with OMB.
Action Areas to Watch. All environmental, health and safety, and natural resources rules issued by executive branch agencies will be assessed under this Order.
1 Marcus Peacock, Implementing a Two-for-One Regulatory Requirement in the U.S. (Dec. 7, 2016).