Archive

Improving Regulatory Systems

Recommendations and Actions

INTRODUCTION

Public opinion polls have shown that "while Americans dislike regulations as a general matter, when asked about specific programs, such as for health and safety, they respond favorably."[Endnote 2] No one wants to return to the days when even minor accidents could be fatal or seriously disfiguring because cars were not required to have seat belts or windshields made of safety glass, or when unchecked water pollution caused dead lakes and burning rivers.

Regulatory programs have significantly improved our quality of life. For instance, the benefits of environmental regulation are illustrated by a comparison of our air and water quality to that of former Eastern bloc countries, which did not regulate pollution effectively. Another example: at least 112,000 lives have been saved in 25 years as a result of crashworthiness and brake standards issued by the National Highway Traffic Safety Administration.[Endnote 3] The Consumer Product Safety Commission helped cut in half the annual number of electrocutions involving consumer products.[Endnote 4]

Nevertheless, too many businesses and individuals feel constrained by the cumulative burden of regulations issued by many diverse federal agencies--particularly by those regulations that are poorly conceived or duplicative. Everyone running a business has his or her own illustration of unnecessary regulation. The American public's desire to get government off its back is strong.

The challenge facing government is how to do both--provide the public, the government's ultimate customer, with the protection and services it expects at a reasonable cost, while getting rid of or avoiding unnecessary, burdensome regulations. Further complicating the picture is the reality that most agencies will be required to provide more services with fewer resources. Some regulatory agencies have already seen workloads skyrocket while resources decreased.[Endnote 5] Given the budget deficit, most agencies will not have increased resources in the near future.

What are Regulations?

Regulations are federal requirements, directives, standards, or procedures, backed by the use of penalties or other sanctions, that are intended specifically to modify the behavior of state and local governments, private industry, businesses, and individuals.[Endnote 6] Regulations are almost always required whenever the federal government acts. For example, regulations assist in:

--the distribution of grants, benefits, contracts and other subsidies;

--the protection of depositors in financial institutions; and

--the enforcement of health, safety and environmental laws.

When people think of regulation, they usually think of command-and-control regulations--i.e., where the government decides precisely what action regulated entities must take. A requirement that coal-fired power plants install a scrubber (a specific type of pollution control equipment) is an example of command-and-control regulation.

Some regulatory programs, however, leave more discretion with the regulated entity and take advantage of market forces to achieve the desired result. For example, performance standards might require power plants to emit no more than a given number of pounds of sulfur dioxide per million Btu (British thermal unit) produced. Individual plants then would decide how to meet the standard. Alternatively, an information disclosure program might require food processors to label their products for content and nutrition to permit consumers to make informed choices.

In addition to issuing binding regulations, agencies also rely on other methods to establish agency policy, such as policy statements, guidance documents, enforcement manuals, and memos to agency personnel. Although legally these policies cannot bind people outside the agency, as a practical matter, they may have that effect. (These other methods are not required to undergo the regulatory review procedures described below.)

How are Regulations Developed?

Four key actors are involved in developing regulations. Congress passes legislation that authorizes or requires an agency to issue regulations. The executive branch (including independent regulatory agencies), working within the statutory limits imposed by Congress, decides the form and actual substance of regulation and issues individual rules through a rulemaking process. Interested members of the public may provide input to Congress, comment on regulations proposed by agencies, and challenge final regulations in court. Federal courts review rules when they are challenged in lawsuits brought against the government. The courts can order agencies to revise rules if they determine that rules are arbitrary and capricious or violate the Constitution or a statute.

The process by which agencies issue rules is governed by numerous statutes, executive orders and internal agency policies and requirements. A simplified, typical version of the rulemaking process is described in the flow chart in Figure 1. In fact, the process is far more complicated, as is evidenced by flow charts of several agency processes that were reviewed.

The time devoted by agencies to develop rules varies dramatically.[Endnote 7] In general, though, a relatively common time line is 12 to 18 months from enactment of the authorizing statute to issuance of a Notice of Proposed Rulemaking, and another 12 to 18 months between this notice and issuance of the final rule. The number of regulations agencies issue also varies dramatically depending on the scope and nature of the agency's programs. Some agencies, like the National Telecommunication and Information Administration in the Department of Commerce, may issue only a handful of rules a year. Others, like the National Oceanic and Atmospheric Administration or the Federal Aviation Administration, may publish hundreds (or even thousands) of regulations a year.

BASIC RULEMAKING PROCESS. The Administrative Procedure Act (APA) is the basic legal structure governing the rulemaking process.[Endnote 8] It establishes a simple and straightforward process.[Endnote 9] Under Section 553 of the APA, the agency generally must publish a notice of proposed rulemaking in the Federal Register that either sets forth the proposed rule or describes what the agency intends to do. The agency must allow the public to comment in writing on the proposed rule. (The Act does not specify a time period for comments, but agencies usually allow at least 30 days. Agencies sometimes also allow public comment at a hearing on the proposed rule.) The agency then is required to review the public comments, modify the rule as appropriate, and publish the final rule and a "statement of basis and purpose" in the Federal Register.

Over the years, a large number of other requirements have been layered on top of this simple process. Individually each requirement may serve a useful purpose.[Endnote 10] Cumulatively they have made the rulemaking process increasingly burdensome and rigid. [Endnote 11]

Additional Statutes Governing the Rulemaking Process

Several other statutes govern the rulemaking process:

--The Paperwork Reduction Act requires the Office of Management and Budget (OMB) to review all regulations that require the public to submit information (or make it available) to the government.[Endnote 12]

--The Regulatory Flexibility Act requires agencies to consider the special needs and concerns of small entities, particularly small businesses, and to prepare a "regulatory flexibility analysis" describing the rule's effect on these entities. [Endnote 13]

--The Federal Advisory Committee Act governs the use and creation of committees that include non-federal employees to get advice or recommendations in the rule-making process.[Endnote 14]

--The Negotiated Rulemaking Act provides guidelines for certain types of consensus-based rulemaking.[Endnote 15]

--The National Environmental Policy Act requires agencies to analyze the effect of the regulation on the environment and, in certain circumstances, to prepare an environmental impact statement.[Endnote 16]

--Some specific substantive statutes (e.g., the Clean Air Act and the General Education Provisions Act) mandate additional procedural requirements for specific rules.[Endnote 17]

EXECUTIVE ORDERS GOVERNING THE RULEMAKING PROCESS.

Requirements have also been added by executive orders. Presidents Nixon, Ford, and Carter each developed his own procedures for review of executive agency rules.[Endnote 18] During the Reagan and Bush administrations, Executive Order 12291 (February 1981), required agencies to forward to the Office of Information and Regulatory Affairs (OIRA) in OMB all proposed and final rules for review before issuing them in the Federal Register.[Endnote 19] OIRA's staff would review the rules for consistency with administration policy and consult with other offices within the Executive Office of the President and with other agencies. Conflicts or inconsistencies in policies or requirements, to the extent they were identified, were then resolved before OIRA would complete its review of the proposed or final rule. As a practical matter, rules were rarely issued without OIRA clearance.[Endnote 20]

During the last half of the Bush administration, some controversial rules were also reviewed by the President's Council on Competitiveness. The Council, chaired by then-Vice President Quayle and nominally composed of key Cabinet officials, worked through a White House staff that wielded great power over agency rulemaking through its participation in the OMB review process. It was criticized for giving big business special back-door access to the rulemaking process.

During the Reagan and Bush administrations, coordination and regulatory planning were also covered by Executive Order 12498 (January 1985), which required each agency to submit annually to OMB a draft regulatory program. The program was described as "a statement of [the agency's] regulatory policies, goals and objectives for the coming year and information concerning all significant regulatory actions underway or planned." OMB then reviewed the draft programs for consistency with administration principles and priorities and the planned actions of other agencies.[Endnote 21] During this time, other executive orders also required agencies to analyze regulations for federalism implications, family values, regulatory takings, and litigation effects.[Endnote 22]

The day after taking office, President Clinton announced the termination of the Council on Competitiveness. In addition, the Clinton administration is issuing a new executive order revoking and replacing Executive Orders 12291 and 12498. The Clinton administration's regulatory review process is designed to continue the concept of centralized review while avoiding pitfalls of the previous processes, such as review of too many regulations, delay, lack of adequate public participation, and lack of openness. The process will make planning more systematic, will eliminate the multiple impact statements, and will establish a triage system by which agencies and OIRA, working together, identify which upcoming rules are significant enough to warrant OMB review.

Note: The Clinton administration regulatory review executive order was developed by a special working group within the White House. This working group focused on regulatory planning and executive review. NPR addressed broader issues, although there were many areas of overlap. The two groups worked closely with each other and their efforts are complementary.

NPR strongly supports the regulatory review process developed by the White House working group, which is described in Appendix A.

AGENCY REQUIREMENTS GOVERNING RULEMAKING.

In addition to the requirements imposed by Congress through statute and by the President through executive orders, most agencies that engage in substantial rulemaking activities have developed lengthy internal review procedures to ensure coordination among agency and department offices. These procedures allow rules to benefit from the full range of expertise and perspectives within the department. The office in charge of the rule often must obtain clearance from certain staff offices (e.g., general counsel's office) and sometimes from other program offices. For those agencies that are part of a cabinet department (such as the Federal Aviation Administration, which is part of the Department of Transportation), clearances frequently are required at the department level. The entire review process, within the agency, within the department, and within the administration, is normally repeated twice--first when the rule is proposed and again when the rule is finalized.[Endnote 23]

What are the Problems With the Current System?

There are problems with both the substance of regulations and the process by which they are issued. Sometimes the problems are linked. These problems are addressed at length in the recommendations that follow; the most significant ones are summarized here.

One of the major problems is that regulatory programs rely too heavily on traditional command-and-control regulation rather than on more innovative, market- oriented mechanisms that allow regulated entities greater flexibility in meeting regulatory objectives. This over-reliance on command-and-control stems from a variety of causes, including:

--congressional and agency lack of knowledge about innovative regulatory design,

--congressional distrust of agencies, which makes Congress hesitant to grant agencies the flexibility to try new approaches,

--lack of information necessary to design an innovative regulatory approach, and

--agency and congressional distrust of regulated entities.

Another major problem with the content of regulations is that society does not always get the maximum benefits from the amount it spends on regulation. This is partially due to Congress' and regulators' over-reliance on command-and-control regulations. It is also the result of insufficient planning and prioritization, which can lead to inefficient expenditures, including forcing society to spend more money to address small problems rather than major ones.

The multiple layers of review in the rulemaking process--exemplified by the 18-foot chart with 373 boxes one agency used to describe its process--are also a problem. While extensive review and coordination are appropriate for significant rules (the government should not impose regulations lightly), such an approach is inappropriate for simple or routine rules.

The long time it frequently takes agencies to issue rules also is a major problem because it delays resolution of the problem the rule is supposed to address and creates uncertainty. Some delay arises from the need to obtain public comments or additional scientific or other information. On the other hand, undue delay can be caused by inappropriately long agency and executive branch clearance processes.

Lack of information is another serious problem. To a certain extent, this stems from the adversarial nature of the rulemaking process; in many rulemakings, regulated entities, public interest groups, and other parties are more interested in protecting their own positions than in providing useful information to the agency or finding a solution to the problem. Incomplete scientific data and the pressures of time also require agencies to make decisions without as much information as would be ideal.

What Should a Rulemaking Process Accomplish?

The rulemaking process has evolved over time to become a lengthy, complex process. To determine how to improve the regulatory system, it is necessary to identify its objectives. Ideally, the rulemaking process should produce a rule that:

--addresses an identifiable problem,

--implements the law faithfully,

--implements the President's policies,

--is in the public interest,

--is consistent with other rules and policies (federal, state, local, tribal, and international),

--is based on adequate information,

--is adequately and rationally justified,

--accomplishes goals in a cost-effective manner,

--can actually be implemented,

--is acceptable and enforceable,

--is easily understood, and

--stays in effect only as long as is necessary.

The process should:

--respond in a timely manner,

--be efficient, and

--be both fair and perceived as fair.

The rulemaking process requires agencies to balance these objectives because some of them are at odds with each other. For example, collecting adequate information takes time and may prevent an agency from responding in a timely manner. Circumstances or the state of scientific knowledge may have changed since legislation was passed so that a rule that implements the law faithfully may no longer address an identifiable problem. The easiest rule to enforce may not be the most effective or efficient. Thus, in designing a process, and in individual rulemakings, agencies must make trade-offs between the different goals of the regulatory process.

An improved regulatory process needs to produce regulations that achieve their goals more efficiently. To do this, regulators must have the flexibility to strike the proper balance among the objectives of the rulemaking process. The complexity of the rule, the level of agency expertise, the extent of public interest, the presence of scientific issues, and other factors will determine the appropriate balance. Striking the right balance will ensure that regulators select the right regulatory tool to solve the problem.

ENDNOTES

1. Although many statutes require agencies to issue regulations to implement and clarify the provisions, some statutes are self-implementing or detailed enough that regulations are unnecessary.

2. Adler, Robert, Stephen Klitzman, and Richard Mann, " Shaping Up Federal Agencies: A Basic Training Program for Regulators," Journal of Law & Politics, vol. VI, no. 2 (Winter 1990), p. 347.

3. National Highway Traffic Safety Administration and Federal Highway Administration, Moving America More Safely: An Analysis of the Risks of Highway Travel and the Benefits of Federal Highway, Traffic, and Motor Vehicle Safety Programs (September 1991), p. 48.

4. U.S. Consumer Product Safety Commission, Report on Accomplishments and Planned Activities (Washington, D.C., June 1993), p. 1.

5. The Carnegie Commission on Science, Technology, and Government reported that: [B]etween 1980 and 1985, EPA's staff decreased by approximately 10 percent, even though the agency assumed responsibility for the substantial Comprehensive Environmental Response, Compensation, and Liability Act [Superfund] in 1980; Congress also reauthorized and significantly expanded three other acts in EPA's jurisdiction during this period. . . . [I]mports of substances under [FDA's] jurisdiction tripled from 500,000 entries in 1971 to more than 1.5 million in 1990. Between 1985 and 1990, R&D expenditures in the pharmaceutical industry doubled, leading to a sharp upturn in applications for new products submitted to FDA. In 1989, agency reviewers received 82 percent more applications than in 1980. From 1980 to 1988, FDA was required to implement 21 new laws and amendments, while its overall work force decreased by 11 percent.

Carnegie Commission on Science, Technology, and Government, Risk and the Environment: Improving Regulatory Decision Making (Washington, D.C., June 1993), pp. 33-34 (footnotes omitted).

6. For purposes of this report, "regulation" is defined to exclude regulations controlling how the federal government runs itself. Other National Performance Review reports are addressing these types of rules (e.g., personnel, budget, and procurement).

7. For example, when there is an emergency, the Federal Aviation Administration can issue an airworthiness directive modifying aircraft requirements within hours of an accident without undergoing notice-and-comment rulemaking. At the other extreme, the rule requiring passive restraint devices in cars took 15 years from initiation of development, through litigation, to implementation of a final rule.

8. Public Law 404 (June 11, 1946), codified in principle part at 5 U.S.C. 551-559, 701-706 (1988).

9. Although the accompanying text describes the standard Administrative Procedure Act (APA) procedures, those procedures may not apply in certain circumstances because of special provisions in the APA. For a full description of the basic process and the exceptions contained in the APA, see Administrative Conference of the United States, A Guide to Federal Agency Rulemaking, 2nd ed. (1991).

10. Some commenters have argued that those opposed to regulation added such requirements purposefully to slow the rulemaking process. See authorities cited in Eisner, Neil R., "Agency Delay in Informal Rulemaking," Administrative Law Journal, vol. 3, no. 1 (Spring 1989), n. 24 and accompanying text.

11. Students of the regulatory process refer to this as the "ossification" of the rulemaking process. McGarity, Thomas O., "Some Thoughts on 'Deossifying' the Rulemaking Process," Duke Law Journal, vol. 41 (June 1992), pp. 1385-86.

12. 44 U.S.C. 3501-3520 (1990).

13. 5 U.S.C. 601-612 (1988).

14. 5 U.S.C. App. (1988).

15. 5 U.S.C.A. 561-570 (1993 Supp.).

16. 42 U.S.C. 4321-4347 (1988).

17. 42 U.S.C. 7607 (1991 Supp.), and 20 U.S.C. 1232 (1988).

18. Carnegie Commission, Risk and the Environment, p. 48.

19. Executive Order (EO) 12291 did not require independent agencies to clear regulations through the Office of Management and Budget (OMB). Certain categories of time-sensitive, technical, and noncontroversial rules did not have to be cleared by OMB pursuant to agreements OMB reached with some agencies. The executive order did not require OMB review of certain other categories of rules, including those relating to military or foreign affairs, or to agency organization, management, or personnel (EO 12291 1(a)). Technically, a rule could be published without OMB clearance in case of emergencies or if obtaining such clearance conflicted with statutory or court-ordered deadlines (EO 12291, 8(a)). Nevertheless, for practical, political reasons, agency heads seldom chose to publish rules without OMB clearance, except when faced with true emergencies or court-ordered deadlines.

20. Although the head of an agency or department usually had legal authority to issue the rule, politically it was almost impossible to do so prior to clearance from OMB.

21. Darman, Richard G., Director of OMB, "Presidential Review of Agency Rulemaking," memorandum for the heads of departments and agencies, April 3, 1989, attachment.

22. E.O. 12612, 52 FR 41685 (1987); E.O. 12606, 52 FR 34188 (1987); E.O. 12130, 53 FR 8859 (1988); and E.O. 12778, 56 FR 55195 (1991).

23. For an interesting discussion of how the rulemaking process works in the context of a particular rule, see Elliott, Donald, "TQMing OMB: Or Why Regulatory Review Under Executive Order 12291 Works So Poorly and What President Clinton Can Do About It," draft, August 17, 1993, pp. 10-16, forthcoming in Law and Contemporary Problems, vol. 57 (1994).

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