A Holistic Approach to Regulatory Reform

Sam Batkins, American Action Forum

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Regulatory Overreach

“Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation.” President Obama’s Executive Order 13,563 on regulatory reform echoed what many of his predecessors have stressed through their executive orders. However, after several presidents, executive orders, and countless legislative efforts, it is clear that: 1) reform efforts have failed and 2) our current system promotes neither economic growth nor job creation.

The American Action Forum catalogues federal rules that impose private sector or intergovernmental costs, and their corresponding paperwork burden. In 2011, we tracked more than $231 billion in costs from proposed or final federal regulations, including more than 133 million paperwork burden hours, adding to more than 10.3 billion total compliance hours.

The problem of federal overreach is real and states are often either passive participants in regulatory activity or unwilling instruments of executive policy. Despite the Unfunded Mandates Reform Act (UMRA), intergovernmental mandates continue unabated. Based on the regulations under White House review, there are 53 measures that have federalism implications.

According to our database, these regulations alone could impose more than $169 billion in privatesector or intergovernmental costs and 17.6 million new paperwork burden hours.

Before tackling reform of the administrative state, the Forum identified the drivers of new costs:

1. Congress: Legislators too often cede regulatory authority to the executive. In the current Congress, there are four bills that impose significant burdens on states or the private-sector.
2. President: The executive has a constitutional responsibility to enforce previous laws but administrative prerogative and “midnight” regulations impose significant burdens.
3. Independent Agencies: Regulations like “net neutrality” illustrate that independent agencies have few checks on their power. They are exempt from executive orders and often fail to produce routine cost-benefit analyses.
4. Courts: Consent decrees with regulated entities often create legal and regulatory burdens on other businesses without following the normal guidelines. There are currently 57 courtmandated actions, ten of which have an impact greater than $100 million.

No one solution will address all four cost drivers simultaneously and provide states with greater flexibility to implement their desired regulatory policy. The scope of regulatory overreach requires a holistic approach and concerted action at all levels of government.

Proposed Solution: “Upstream Approach”

The first phase of regulatory reform should start where most regulations begin: Congress. Instead of attacking harmful regulations after promulgation, an “Upstream Approach” could curb regulatory excess before agencies have broad rulemaking authority under a particular law.

The Upstream Approach would:

1. Require all agencies to conduct retrospective reviews of regulations after promulgation.
2. Demand agencies rescind duplicative rules.
3. Place a limit on the number of agency regulations during implementation of a law.
4. Establish regulatory “pay as you go,” requiring the elimination of a significant rule whenever an agency adopts a significant new rule (“One-in, One-Out”).
5. Prohibit new regulations where costs exceed benefits.

Ideally, Congress, or a state, would pass this approach through comprehensive reform legislation. Alternatively, Congress could incorporate the upstream approach in each piece of legislation, similar to “Constitutional Authority Statements” currently in use.

This approach would merely codify retrospective reviews and the rescission of duplicative rules already taking place. The idea that Congress should place a limit on the number of regulations is somewhat novel, but it would allow the legislative branch to control future regulatory implementation without acting as a super-regulatory body. In addition, prohibiting rules where costs exceed benefits merely ensures that agencies pick the least costly alternative that still achieves the regulatory goal.

Proposed Solution: Freedom for States

Pending regulations with federalism concerns account for significant regulatory costs. For example, five notable federal regulations could cost Massachusetts more than $280 million, according to Forum data. The Upstream Approach will indirectly aid states by curbing some costly rules but it does not directly address the federal-state compact.

Congress attempted to curtail unfunded mandates when it passed UMRA but the law has failed to achieve its goal. According to the Government Accountability Office, UMRA includes 14 exemptions. The Congressional Budget Office noted that 13 bills have triggered UMRA since 1996, with countless more evading review.

Unfunded mandates deserve a legislative response. Reform should amend UMRA to:

1. Mandate that all rules with federalism implications follow heightened Administrative Procedure Act (APA) guidelines. Currently, regulations avoid UMRA scrutiny if agencies issue an interim final rule.
2. End APA exceptions for rules emanating from independent agencies.
3. Enhance judicial review. Amending Title IV of UMRA could lead to greater state and private-sector oversight through the judicial process. Currently, if agencies fail to comply with UMRA, the omission “shall not be used as a basis for staying, enjoining, invalidating or otherwise affecting such agency rules.” Striking this language from UMRA could provide heightened oversight during the regulatory process.

Proposed Solution: Applying “One-In, One-Out”

On a national level, and in Massachusetts, adopting Britain’s regulatory reform could yield cost savings. The program requires that for every new regulation imposing a direct cost, government must also “remove or modify an existing regulation of an equivalent cost.” This reform has already saved £3.32 billion ($5.15 billion).

In the U.S., it may be difficult to repeal regulations with a scheduled statutory or judicial deadline. Thus, this proposal should include “baskets,” similar to those used in tax law. Rules with statutory and judicial timelines comprise untouchable baskets, and all other rules are discretionary. Thus, “One-in, One-out” would not apply to 11 percent of current actions.

Conclusion

Ideally, these reforms would provide a much-needed check on the four drivers of regulatory costs. States, such as Massachusetts, would be afforded additional relief through UMRA reform and could borrow aspects of Britain’s “One-In, One-Out” program for local reform efforts.

Future success in regulatory reform demands an understanding of federalism and the recognition that our competitors overseas are busy freeing businesses from new regulatory burdens.

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