Regulatory Agencies Conduct Rulemaking Review

Government agencies are in the process of reviewing their rulemaking procedures and their entire body of regulations as part of a broad directive to eliminate unnecessary rules.

All non-independent federal agencies are required to submit a plan to the Office of Information and Regulatory Affairs by May 18 for regularly reviewing all existing under President Obama's executive order “Improving Regulation and Regulatory Review” issued in January.

Within two weeks following the May deadline, the agencies are required to publish their plans online in an open government Website page, in accordance with the Open Government Directive from December 2009.

But not all agencies will need to comply. Since executive orders don't have jurisdiction over independent agencies, like the Securities and Exchange Commission, it is implied that they are not subject to the rule, says Brian Breheny, a partner with the law firm Skadden, Arps, Slate, Meagher & Flom.

Independent agencies, including the SEC, however, are still responding to the requirement. “We take into account benefits and costs in our rulemakings, assess alternative regulatory approaches, afford the public a meaningful opportunity to comment on our proposed regulations through the Internet, and coordinate our rulemakings with other agencies to harmonize regulations,” the Commission said in a statement from March in response to the executive order. The SEC is accepting public “suggestions” on three topics: “regulations and exemptions relating to the offer and sale of securities,” “disclosure and reporting requirements,” and “updating commission rules to promote economic growth.”

It may be for the best that the SEC isn't subject to a whole slew of new review requirements, Breheny says.  “It's so hard to focus on [the review] with so many other regulations like Dodd-Frank coming out,” he says. In addition, slashing old requirements could seem arbitrary if they are immediately replaced with so many new ones. “While agencies are potentially thinking about getting rid of some rules, Dodd-Frank, the healthcare bill, and other bills are adding so much more on,” says Breheny. “It would be nice to see some of the rules change, but how many new rules are you going to get anyway because Congress imposes a bunch of new requirements?”

Last week, the Food and Drug Administration called for comments to help it formulate its plan, requesting in particular that comments “identify regulatory problems that have the greatest impact on the public health,” said Leslie Kux, assistant commissioner for policy, in an April notice on the agency's Website.

“The FDA plans to use the comments and data we receive to help us assess what rules to review and how to prioritize reviews,” says Shelly Burgess, a spokeswoman for the agency.

The Environmental Protection Agency wrapped up its invitation to the public to provide input on its proposal in early April. “By late May or early June, you will have the chance to read our preliminary plan for periodic retrospective reviews on this Website, as well as an initial list of regulations that we plan to review first,” said the agency on its Website.

“In short, we will let more sunlight into our agency,” says Lisa Jackson, administrator of the EPA. “The American people will not trust us to protect their health or their environment if they do not trust us to be transparent and inclusive in our decision making. To earn this trust, we must conduct business with the public openly and fairly,” she says.

“I would be interested to know how people are looking at what is meant by the 'significant' regulatory scheme, because that is what is going to make this meaningful of not.”

—Mary Mullany,

Partner,

Ballard Spahr

The details of what the Federal Trade Commission will do by the 18th cannot yet be made public, says James Kohm, the associate director the FTC's Enforcement Division. The Commission already has a robust process in place to do exactly what the new measures call for, he says. “We've institutionalized the review for well over a decade and there are quite a few rules—about 30 or 40— that we've gotten rid of based on that, because they were no longer applicable or their costs weren't outweighing their benefits,” he says. “We're in the middle of something like 10 reviews right now.”

Though the Federal Deposit Insurance Corporation is independent and therefore not under jurisdiction of the executive order, the agency is still looking to make changes. “We are currently looking at steps suggested in the executive order that we are not already doing to reduce burden,” says FDIC spokesman David Barr. In 1996, Congress passed The Economic Growth and Regulatory Paperwork Reduction Act, requiring federal banking agencies to review regulations once every 10 years to identify any outdated, unnecessary, or overly burdensome rules or requirements, says Barr.

Will Real Reform Come?

The important issue is whether the executive order could actually bring about real reform, or whether it is just window dressing. In addition to issuing new rules based on new legislation, the executive branch is requiring agencies to have a plan that they follow to revisit “significant” regulatory initiatives, says Mary Mullany, a partner at Ballard Spahr. “I would be interested to know how people are looking at what is meant by the ‘significant' regulatory scheme, because that is what is going to make this meaningful or not,” says Mullany. “If you're going to say that everything is ‘significant,' then this is just process.”

EXECUTIVE ORDER

The following excerpt is from the President's Executive Order 13563, which requires retrospective review of significant rules:

“Within 120 days of the date of this order [May 18], each agency shall develop and submit to the Office of Information and Regulatory Affairs a preliminary plan ... under which the agency will periodically review its existing significant regulations ....”

The purpose of this Memorandum is to offer guidance on the processes through which

preliminary plans will become finalized. Agencies are encouraged, to the extent feasible, to take

the following steps after the initial 120-day period:

Immediately after May 18. Executive Order 13563 emphasizes the value of public participation in the rulemaking process. To promote public participation and transparency, agencies should make their preliminary plans available to the public within a reasonable period (not to exceed two weeks) after May 18. For example, agencies may wish to publish their plans online on the agency's Open Government Webpage (www.agency.gov/open). Publication of plans should be in an open format that enables the public to download, analyze, and visualize any information and data.

Days 1 through 30 after releasing preliminary plans. Because members of the public are likely to have useful information and perspectives, agencies should promote public consultation about the plans. Agencies are encouraged to use the first thirty days after releasing their plans to engage in such public consultation. Consultation may take the form of public meetings, Federal Register notices, social media, or other kinds of outreach to the public. To ensure that diverse views are considered, agencies are particularly encouraged to reach out to stakeholders with an interest in the initial list of rules in the preliminary plans. The list of rules for review should be reconsidered during the period between the preliminary and final plans.

Days 31 through 60 after releasing preliminary plans. After receiving public input, agencies are encouraged to revise their plans in ways that are responsive to the public input received.

Days 61 through 80 after releasing preliminary plans. Agencies are encouraged to finalize their plans no later than 80 days after releasing their preliminary plans. Agencies are encouraged to make these final plans available to the public and, again, may wish to publish their plans online on the agency's Open Government Webpage (www.agency.gov/open).

Future retrospective reviews. With its emphasis on “periodic review of existing significant regulations,” Executive Order 13563 recognizes the importance of maintaining a consistent culture of retrospective review and analysis throughout the executive branch. To promote that culture, future regulations should be designed and written in ways that facilitate evaluation of their consequences and thus promote retrospective analyses. To the extent consistent with law, agencies should give careful consideration to how best to promote empirical testing of the effects of rules both in advance and retrospectively. Plans should also be periodically reviewed and updated.

Source: The Executive Order's Retrospective Review of Significant Rules, Jan. 18, 2011.

The question for agencies now is how they will comply with the requirements and how they will invite comments on the effectiveness of their regulatory schemes, Mullany says. Once they get that information, their only choice will be to make a determination to amend the rules—and then go through the whole rule amendment process, she says. That's a lot of hoops to jump through. “While the concept of this is right on, I'm concerned the requirement is just an additional burden on agencies,” says Mullany.

Still, companies may see it as a positive way to look at the regulatory framework. For example, the rule will put organizations on notice as to what the government's plans are, Mullany says. “If you're governed by a particular government agency, it would be valuable information for your future planning to know that the agency has put one particular body of regulatory work on its radar screen,” she says. “They're telling you in advance that there is something that they're going to look at.”

Indeed, the new measures “hold great promise” for companies, says Lyman Johnson, a law professor at Washington and Lee University law school. “It's an opportunity for companies not just to effect prospective regulations, whether it's lobbying at the legislative or rulemaking level, it's a chance to actually change existing rules—it's an opening,” he says. “For companies to have some say in how agencies ought to be paying attention to existing rules with a mind toward modifying or repealing—that's an enormous opening, because it's an avenue for them to change the entire regulatory framework, instead of just trying to change it going forward.”

In the end, it seems that while real change may come of the order, there is no guarantee. “This could be very significant in that it forces the government agencies to have a process in place to force them to periodically review existing, substantial regulations,” says Lance Gable, a professor at Wayne State University Law School. “At this point, regulations are reviewed occasionally, but there's no requirement that they be reviewed. And this seems like that would change.”

Given the very tight turnaround for agencies to propose a plan, it is possible that the initial proposals might be fairly simple, says Gable. “But even if they are simple, they are still required to put something into place, and that's more than what was required before for a periodic review,” he says. “It seems very much like an expansion of the process by which regulations are made and maintained,” he says.