Regulatory: Consequences of Congress’s proposed regulatory reform bill

What will really happen if it passes.

The House of Representatives will soon vote on legislation designed to introduce substantial changes into the process for adopting major regulations. The bills under consideration would significantly affect new rules promulgated by the environmental and financial supervisory agencies. No regulatory reform bill will pass the Senate before the 2012 elections, but this exercise may foreshadow an important policy issue of 2013.

The debate over the proposed legislation has been entirely political. Proponents argue that changes are needed to facilitate job creation and control runaway administrative bureaucracies. Opponents claim that the bills will obstruct the promulgation of rules necessary to protect public health and safety. This column takes a different approach and considers the practical effects of the proposals’ three main changes: That (1) all rules be subject to cost-benefit analysis; (2) rules of all agencies must be subject to Presidential review before issuance and (3) all major rules must be enacted by statute. 

1. Universal Cost-Benefit Analysis. This requirement would significantly change rulemaking under the Clean Air Act, which precludes the Environmental Protection Agency (EPA) from considering costs in issuing the cornerstones of its regulatory system, the National Ambient Air Quality Standards (NAAQS). Efforts to update the NAAQS have long been controversial, as the EPA has focused on the health effects and deemphasized other practical consequences of its rules.

The independent financial supervisory agencies would also be substantially affected. These entities are not currently required to conduct formal cost-benefit analyses of new rules either by statute or by Executive Order 12,866, which imposes this obligation only on agencies subject to Presidential control. The agencies insist that they conduct extensive, informal cost-benefit analyses of their proposed rules, in consultation with the regulated entities. However, the transition to preparation of formal, public studies could be problematic. For example, the Securities and Exchange Commission is required by law to perform cost-benefit analyses. In Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011), the court recently overturned a third agency rule for violating this requirement after a withering critique of its analysis.

2. Pre-Promulgation White House Review. For years, proponents of centralized Executive authority have argued that the independent regulatory agencies, like all other agencies, should be required to submit major rules to the White House for pre-promulgation policy review. Congress has rejected these proposals, saying that the more influence the President has over the agencies, the less influence the Legislative Branch will have.

The most important independent agencies are the financial supervisory agencies, especially the Federal Reserve Board. The Department of the Treasury and the Fed share common economic perspectives and work closely together, creating a channel through which the White House may already have substantial input on Fed policy decisions. Existing consultation processes also give the Treasury significant influence over decisions by the smaller bank regulatory agencies that operate within its gravitational field. Thus, it is difficult to assess how much practical difference there might be between the rules produced through the current policy development process and those that might emerge after formal Presidential review.

3. Enactment of Major Rules by Statute. Another proposal would require that major rules (those with $100 million or more in economic impacts) must be adopted by enactment of a statute. Under this approach, Congress would lose its ability to reach compromises at a high level of abstraction and delegate to the agencies the dirty work of implementing ambiguous provisions, reconciling conflicting interests and absorbing the resulting political criticism. Voting on dozens of controversial rules each year would force Members to take personal responsibility for difficult problems they can now avoid.

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John Cooney

John F. Cooney is a partner in the Washington, D.C., office of Venable.

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