Regulatory 'Pay-Go' (cont'd)

From Gimmick to Policy

(continued)

Of course, the above hypothetical presumes each new rule has the same cost as the existing rule that it is replacing (or, to be more precise, the prospective cost estimate of each new rule is equal to the real cost of the rule that it is replacing). In reality, such perfectly equivalent exchanges between existing and new rules would almost never take place, and this could introduce another mechanism for ratcheting down the total regulatory budget over time. Under a more likely scenario, the EPA might seek to institute a new rule that has a prospective cost estimate of $60 million. The EPA might find that its best option for an existing rule to eliminate is one that imposes a cost of $70 million. The supporters of regulatory pay-go do not explain what would happen to that leftover $10 million. The EPA might be able to "bank" that $10 million and apply it to a future regulation. Alternatively, the total regulatory budget might be permanently reduced by $10 million. Under this alternative, the public would enjoy fewer safeguards, while corporate interests would literally get to "keep the change" in the form of regulatory relief.

The Creation of New Agencies or Reorganization of Existing Agencies Would Challenge the Implementation of Regulatory Pay-Go

Another question that proponents of regulatory pay-go have not considered is whether they would establish a single administration-wide budget or if each agency would operate under a separate regulatory budget. The resolution of this question would in turn help determine how the concept of a regulatory budget would be adapted to allow for the introduction of new agencies or efforts to reorganize existing ones.

New agencies. Imagine if regulatory pay-go had been in place before Congress created the Consumer Financial Protection Bureau (CFPB), a new agency designed to prevent potentially harmful abuses by the financial services industry. If regulatory pay-go operated under a single administration-wide regulatory budget, then the first few regulations issued by the CFPB would likely have to displace an existing regulation from another agency, since the CFPB would start with a regulatory budget of $0. But which existing regulation from another agency would get cut? Proponents of regulatory pay-go have not explained the process by which such decisions would be made. These decisions will likely be contentious, since each agency will want to guard against any cuts to its regulatory budget. On the other hand, if each agency operated under a separate regulatory budget, then the CFPB would have to have its own regulatory budget constructed, presumably by cobbling together pieces of other agencies' budgets. This, too, would likely be a contentious process. Yet, proponents of regulatory pay-go have provided no explanation for how this process would be carried out or how they would determine the size of a new agency's budget.

Agency reorganization. Proposals for creating a single food safety agency have been floating around for decades. The proposals would combine some or all of the functions of the fifteen different agencies that play a role in food safety, including most notably the Food and Drug Administration (FDA) in the Department of Health and Human Services (HHS) and the Food Safety Inspection Service (FSIS) in the Department of Agriculture (USDA).[xxiv] Creating a single food safety agency would likely be straightforward under a single administration-wide regulatory budget. In contrast, attempting this same reorganization would be considerably more complicated if agencies operated under separate regulatory budgets. For instance, the policymakers involved might have to decide which portion of the HHS's regulatory budget belongs to the FDA or which portion of the USDA's regulatory budget belongs to the FSIS in order to create a regulatory budget for the new food safety agency.

Regulatory Pay-Go as Illegal Executive Order or Incoherent Legislation

Agencies cannot simply eliminate existing rules by decree; instead, they must follow the standard notice-and-comment process established under the Administrative Procedure Act (APA), the law that governs federal rulemaking. Critically, an agency must articulate a rational policy reason for eliminating the rule that is both supported by the rulemaking record (i.e., any analyses or reports the agency produces along with any public comments the agency receives) and consistent with any applicable law.

Governor Romney's proposed regulatory pay-go program, which he says he would create by executive order, would almost certainly violate APA rulemaking procedures. Under such a program, an agency would likely lack a rational policy basis to support its proposal to eliminate an existing rule, except for the need to clear space in the regulatory budget so that a new rule could be instituted in its place. Executive orders lack the force of law and thus cannot provide agencies with legal authority to eliminate rules mandated by other laws. Without this legal support, most rulemaking actions to eliminate existing rules likely would not survive judicial review.

Even Senator Warner's proposal, which would create regulatory pay-go legislatively, is at risk of running afoul of the APA. A regulatory pay-go law would provide agencies with legal authority to eliminate rules mandated by other laws, but the APA would still require that rulemaking actions to eliminate existing rules have a rational basis that is supported by the rulemaking record. How a court might apply "arbitrary and capricious" review in these cases is unclear. At the very least, the agency would likely have to make some showing that the rule being eliminated is no longer needed to achieve the objectives of the statute under which it was issued. A reviewing court might also require that an agency show that it had considered other rules before choosing one to eliminate.

Regulatory Pay-Go Doubles the Ossification Problem

The combination of increasingly complex rulemaking procedures and insufficient resources already prevents the EPA, OSHA, and other regulatory agencies from effectively carrying out their statutory missions by issuing needed rules in a timely fashion. The new rulemaking procedures created by regulatory pay-go would make this troubling situation even worse.

Because the APA requires agencies to follow notice-and-comment procedures before eliminating existing rules, regulatory pay-go effectively doubles much of the work that an agency must undertake in order to issue a new rule. Agencies would likely combine the two actions into a single rulemaking or undertake the two rulemaking actions simultaneously, but the time and resources this would save would probably be marginal. Agencies would still have to prepare two proposals, review public comments for both proposals, and amend both proposals as necessary to respond to the public comments. In this time of fiscal restraint, Congress is unlikely to provide agencies with increased funding to carry out these additional tasks, which will prevent agencies from implementing regulatory pay-go effectively and in a timely manner.

Promoting the Public Interest: A Vibrant Regulatory System

Supporters of regulatory pay-go are right about one thing: the U.S. regulatory system is not promoting the public interest as well as it should be. But their diagnosis of the problem could not be farther from the mark, and their proposed solution is transparently calculated to sacrifice safeguards for health, safety, the environment and more on the altar of industry profit.

The regulatory system is supposed to protect people and the environment against unacceptable risks, but inadequate resources and excessive procedural constraints have prevented regulatory agencies from fulfilling this task in a timely and effective manner. Evidence of inadequate regulation and enforcement abounds—from the BP oil spill in the Gulf of Mexico to the Upper Big Branch Mine disaster that claimed the lives of 29 men, from the decaying natural gas pipeline networks running beneath our homes to the growing risk of imported food tainted with salmonella, botulism, or other contaminants showing up on grocery store shelves. It was inadequate regulation of the financial services industry that triggered the current economic recession and left millions unemployed, financially ruined, or both.

The regulatory system can and should be reenergized. Congress needs to work with the president to identify the resources that agencies need to carry out their statutory missions, including the development, implementation, and enforcement of regulations. In addition, Congress and the President each need to identify any unnecessary analytical requirements and procedural constraints that prevent agencies from issuing effective rules in a timely manner. Taking these steps will not be simple, but without them, the U.S. regulatory system will continue to operate in an ad hoc, reactionary fashion, leaving public health, safety, and environmental protection to the whims of the marketplace.

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Published October 2012 by the Center for Progressive Reform

End Notes

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1. Believe in America: Mitt Romney’s Plans Jobs and Economic Growth 61 (2011), available at http://www.mittromney.com/sites/default/files/shared/BelieveInAmerica-PlanForJobsAndEconomicGrowth-Full.pdf

2. Id. at 7.

3. [See, e.g., Mark R. Warner, Op-Ed., To Revive the Economy, Pull Back the Red Tape, Wash. Post, Dec. 13, 2010, available at http://www.washingtonpost.com/wp-dyn/content/article/2010/12/12/AR2010121202639.html

4. Office of Mgmt. & Budget, Executive Office of the President, Draft 2011 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities 3, available at http://www.whitehouse.gov/sites/default/files/omb/legislative/reports/Draft_2011_CBA_Report_AllSections.pdf.

5. Envtl. Protection Agency, The Benefits and Costs of the Clean Air Act from 1990 to 2020, 7-9 (Mar. 2011), available at http://www.epa.gov/oar/sect812/feb11/fullreport.pdf.

6. Isaac Shapiro, Tallying Up the Impact of New EPA Rules: Combined Costs of Obama EPA Rules Represent a Sliver of the Economy and are Far Outweighed by Cumulative Benefits 1 (Econ. Pol’y Inst., Briefing Paper No. 311, 2011), available at http://w3.epi-data.org/temp2011/BriefingPaper311.pdf.

7. See Aaron Smith, BP: We’ve Spent $2 Billion on Clean-Up, CNNMoney, June 21, 2010, available at http://money.cnn.com/2010/06/21/news/companies/bp_oil_spill/index.htm. In June of 2010, Credit Suisse predicted that the total costs would be around $37 billion, with $23 billion in clean-up costs and $14 billion in settlement claims. Linda Stern, Gulf Oil Spill Could Cost BP as Much as $37 Billion, MoneyWatch.com, June 8, 2010, available at
   http://moneywatch.bnet.com/economic-news/blog/daily-money/gulfoil-spill-could-cost-bp-as-much-as-37-billion/728/.

8. Office of Mgmt & Budget, Executive Office of the President, Fiscal Year 2012: Analytical Perspectives: Budget of the U.S. Government 47 (2011), available at www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/spec.pdf. The Congressional Budget Office (CBO), which employs a different methodology for calculating costs than does the OMB, estimates the costs of TARP to be $19 billion. Cong. Budget Office, Report on the Troubled Asset Relief Program—March 2011, 1 (2011), available at http://www.cbo.gov/ftpdocs/121xx/doc12118/03-29-TARP.pdf. See also Barbara Butrica, Karen E. Smith, & Eric Toder, How Will the Stock Market Collapse Affect Retirement Incomes? 1 (The Urban Institute, Older Americans’ Economic Security Report No. 20, 2009), available at http://www.urban.org/uploadedpdf/411914_retirement_incomes.pdf.

9. Sidney Shapiro et al., Saving Lives, Preserving the Environment, Growing the Economy: The Truth About Regulation 10, 20-30 (Ctr. for Progressive Reform, White Paper 1109, 2011), available at http://www.progressivereform.org/articles/RegBenefits_1109.pdf.

10. Rena Steinzor, The Human Costs of Pander, Take 2: Obama Budget Shortchanges FDA and Food Safety, CPRBlog, Feb. 1, 2012, http://www.progressivereform.org/CPRBlog.cfm?idBlog=8B3A2AD6-CFFE-70A8-4EE4CF1313971B7F (last visited Sept. 24, 2012).

11. See OMB Watch, The Right to Know, The Responsibility to Protect: State Actions are Inadequate to Ensure Effective Disclosure of the Chemicals Used in Natural Gas Fracking 7, 11 (2012), available at http://www.ombwatch.org/files/info/naturalgasfrackingdisclosure_med.pdf.

12. The Project on Emerging Nanotechnologies, Introduction to Nanotechnology, http://www.nanotechproject.org/topics/nano101/introduction_to_nanotechnology/ (last visited Sept. 24, 2012).

13. See, e.g., Envtl. Protection Agency, Nanotechnology White Paper 58 (Feb. 2007), available at http://www.epa.gov/osa/pdfs/nanotech/epa-nanotechnology-whitepaper-0207.pdf.

14. See Lisa Heinzerling, Five-Hundred Life-Saving Interventions and Their Misuse in the Debate over Regulatory Reform, 13 Risk 151, 162 (2002).

15. See Isaac Shapiro & John Irons, Regulation, Employment & and the Economy: Fears of Job Loss Are Overblown (Envtl. Pol’y Inst., Briefing Paper No. 305, 2011) (summarizing the evidence), available at http://epi.3cdn.net/961032cb78e895dfd5_k6m6bh42p.pdf; Frank Ackerman & Rachel Massey, Prospering with Precaution: Employment, Economics, and the Precautionary Principle (Global Dev. & Env’t Inst., Working Paper, 2002) (same), available at http://www.healthytomorrow.org/attachments/prosper.pdf.

16. Frank Ackerman, Employment Effects of Coal Ash Regulation (Stockholm Environment Institute – U.S. Center, Tufts University, 2011), available at http://sei-us.org/Publications_PDF/Ackerman-coal-ash-jobs-Oct2011.pdf.  While higher electricity prices caused by the regulation would lead to some job losses, these losses are more than offset by the job gains that would result from the expenditures by industry to come into compliance with the strict standard.  In particular, coal-fired power plants would need to spend money on waste management, wastewater treatment, and construction and operation of facilities and equipment—all of which are labor-intensive activities and would generate significant increases in employment.

17. Shapiro & Irons, supra note 15, at 20.

18. Regulations Do Not Hinder U.S. Job Market, Paper Finds, OMB Watch, http://www.ombwatch.org/node/11615 (last visited Aug. 6, 2012).

19. Heidi Shierholz, Unemployment Drops to 9.7% Despite More Job Losses, Econ. Pol’y Institute, Feb. 5, 2010, http://www.epi.org/publications/entry/jobs_picture_20100205/ (last visited Sept. 24, 2012).

20. Policies for Increasing Economic Growth and Employment in 2012 and 2013: Hearing Before the S. Comm. on the Budget, 112th Cong. 4 (2011) (statement of Douglas W. Elmendorf, Director, Congressional Budget Office), available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-15-Outlook_Stimulus_Testimony.pdf.

21. Id. at 49.

22. For more on the causes of overestimation of regulatory costs, see Thomas O. McGarity & Ruth Ruttenberg, Counting the Cost of Health, Safety, and Environmental Regulation, 80 Tex. L. Rev. 1997, 2011, 2044-50 (2002).

23. See Sidney A. Shapiro & Robert L. Glicksman, Risk Regulation at Risk: Restoring a Pragmatic Approach 107 (2003) (Table 6.1). 

24. See, e.g., Marion Nestle, Rumor: A Single Food Safety Agency at Long Last?, Food Politics, Jan. 17, 2012, http://www.foodpolitics.com/2012/01/rumor-a-single-food-safety-agency-at-long-last/ (last visited Sept. 24, 2012). [back to text]

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