To Avoid Midnight Regulations in 2016, Obama Tells Agencies to Set Priorities Now

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By Cheryl Bolen

Feb. 11 — The Obama administration is already cautioning regulatory agencies to prioritize regulations now or risk the rules being labeled “midnight regulations” in 2016, which might cause significant delays or even repeal.

The concept is an old one. Midnight regulation, critics say, is the practice of pushing through lots of new regulations in the final months of an administration, before the next president can stop them.

But what constitutes the final months of an administration, how long a rule has to be under development to be considered “new,” and whether the rule is responding to a true emergency are all open to interpretation.

Howard Shelanski, the current administrator of the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget, is the nation's top regulatory official. In an interview with Bloomberg BNA, Shelanski was asked for his definition of midnight regulation.

He said he looks at it this way: At what point do rules need to be in the pipeline and well under way so that there is a proper review process for those rules? And at what point do you really run out of time for that proper review process?

Sen. Portman Sees Danger

“Pushing out major regulations in the eleventh-hour of an administration reduces transparency and accountability,” Sen. Rob Portman (R-Ohio) told Bloomberg BNA in an e-mail Jan. 10. “That’s why I introduced bipartisan legislation in the past two Congresses to reform the practice of midnight regulation, and plan to do so again this year.”

Portman, who was the director of OMB for one year during the George W. Bush administration, introduced the Regulatory Accountability Act in 2011 and in 2013, but the legislation didn't advance.

Primarily, the Regulatory Accountability Act would have required additional cost-benefit analyses, including considering the costs and benefits of “any reasonable alternatives” to a regulation. But the act also would give a new president the opportunity to immediately suspend the implementation of midnight regulations, defined as those issued 60 days before inauguration day, and open a public comment period on whether the regulations should be amended or withdrawn.

On Jan. 16, 2015, the House passed its version of the Regulatory Accountability Act (H.R. 185) introduced by Rep. Bob Goodlatte (R-Va.).

A year ago, the House passed a four-bill regulatory package that included a Regulatory Accountability Act.

Front of the Line

Shelanski said he hadn't yet thought through the precise week or month when the administration would be entering what might be called a “midnight regulation” phase.

“What we are working with agencies on is making sure that their most important policy priorities move to the front of the line, so that we can really work those though a rigorous process that serves the American public, that serves the parties that are being regulated [and] that makes sure that we at OIRA do our job,” Shelanski said.

The goal is “that we get rules out that are well-tailored to their objectives, that have good flexibility and alternatives, and that maximize the net benefits and are no more costly as necessary,” he said.

But achieving that goal takes time, primarily because they want public comment, Shelanski said. The administration wants the rulemaking process to be transparent and well thought out, he said.

“So we are working now, here in January of 2015, on getting priorities lined up, so that we do not find ourselves at some point in 2016 with really important policy priorities unexecuted,” Shelanski said.

Shelanski said he would worry about the exact definition of a midnight regulation and how the administration will handle remaining matters in 2016 when it gets to that point.

Historical Tradition May Be Unavoidable

Sherzod Abdukadirov, a research fellow in the Regulatory Studies Program at the Mercatus Center at George Mason University, said midnight regulation is a “historical tradition” and may be unavoidable in the Obama administration.

“You always see this type of surge in last-minute regulations with virtually every administration,” Abdukadirov said. “If history is any guide, most likely we will see the last minute push in the Obama administration as well, especially given that this is their second term,” he said.

A July 2012 Congressional Research Service report found that during the final months of recent presidential administrations, federal agencies increased the number of rules issued. And, despite a 2008 memorandum issued by White House Chief of Staff Josh Bolten, at the beginning of President George W. Bush's last year, saying there would be no midnight regulations, the number of rules that federal agencies promulgated in the final months of the Bush administration increased.

During the first six months of Bush's final year in office, agencies published a total of 31 major final rules, the CRS report said. But in the second six months, agencies published 63 rules—a 103 percent increase.

The number of major rules in the second six months of 2008 also was higher than the number in the second six months of 2007, or 63 major rules in 2008 compared with 41 major rules in 2007—a 54 percent increase, the report said.

An increase in the number of major rules published also was apparent in the final months of President Bill Clinton's administration, the report said. According to a Government Accountability Office database, in the final six months of 2000, agencies published 52 major rules. This represented a 73 percent increase over the same period in the previous year, during which the agencies published 30 major rules, it said.

Efficient, Not Rushed

This year, OIRA's Shelanski said agencies need to move forward efficiently to execute the Obama administration’s policies consistent with good regulatory practices and rigorous analysis.

Still, Shelanski said he doesn't believe in rushing the rulemaking process or compromising important standards for regulations.

That said, OIRA staff have greatly reduced the backlog and review time for regulations over the past year and a half, Shelanski said. OIRA has been good about keeping to normative times, he said.

Clinton issued Executive Order No. 12,866, “Regulatory Planning and Review,” in 1993, which establishes and governs the process under which OIRA currently reviews agency draft and proposed final regulatory actions. The order directs OIRA to complete its review of rules within 90 calendar days of submission and allows the agency to extend the review process once by no more than 30 days, upon written approval of the director.

Shelanski said he has benefited from discussions with public advocacy groups and business communities about improving the regulatory process.

The business community, such as the U.S. Chamber of Commerce, the Business Roundtable, the National Association of Manufacturers and individual businesses, as well as the Small Business Administration, have made clear to OIRA how important it is for industry to know what’s coming, and to get standards in place so that they can begin to adapt and plan their businesses going forward, Shelanski said.

No Deadlines, Yet

It’s too soon to start imposing deadlines on agencies, in part because the regulatory agencies still have a lot of work on their plates—much of it prescribed by statute and some of it under court order or consent decree, Shelanski said.

Other rulemakings are just driven by the new kinds of issues that arise, Shelanski said. So the administration always has to be a little flexible in the order of prioritization and these kinds of back-end deadlines, because priorities can change, he said.

Still, the reason OIRA is working hard with agencies in early 2015 is so they can bring the most important rules through the process this year and finalize them sometime in early 2016, Shelanski said.

He wouldn't say that there won't be regulations after that. “But we are trying to move the most important regulatory priorities up in the line so that they don’t get caught short at the end of the administration,” Shelanski said.

Get Rules Out Now

Amit Narang, regulatory policy advocate at Public Citizen, said his organization felt there were some increased delays in rule reviews in the latter half of 2014, although not nearly on the scale of 2012.

Looking forward, “OIRA is going to be playing a very important role in the last couple of years” of the Obama administration, Narang said. “I think the role they need to play is one of showing that their review process can operate as efficiently as it ever has,” he said.

The Obama administration has just two years left to regulate, and even less taking into account the controversial midnight regulation period at the end of every administration, Narang said. So it has only a limited amount of time left to accomplish the regulatory objectives that not only the administration set out, but those of Congress as well, he said.

“And so they need to work very efficiently to review rules quickly, get them back to agencies and have them finalized,” Narang said. This needs to happen in the next year-and-a-half, to take into account the lame-duck period of the administration, when concerns are raised about the midnight regulation period, he said.

Time of Increased Activity

Traditionally, the midnight regulation period is known as a time of increased regulatory activity, but not necessarily more regulation, Narang said. In Republican administrations, it is often a time of deregulatory activity, he said.

Activity increases as agencies see the deadline for getting rules out before the president’s term ends, Narang said. They are moving fast to try to finish regulations, agency work and actions that have been in the pipeline for a long time, he said.

“This is why I don’t feel that it is as controversial as others make it out to be,” Narang said. “These aren’t regulations that are just cooking up overnight—that’s not how the process has ever worked.”

Rather, it completes the work of the administration, Narang said. And while this isn't controversial to him, others will label it rushing through rules at the last minute, he said.

Congressional Review Act

Another aspect of this is the Congressional Review Act, which can come into play when a president from another political party takes office.

Under CRA, if a Republican president follows Obama, regulations finalized in the last months of the Obama administration would be subject to repeal in the first few months of the next Congress, Narang said.

Enacted in 1996, but rarely used, the CRA allows Congress to review economically significant rules issued by federal agencies before the rules take effect. Congress may also vote to disapprove new rules, resulting in the rules having no force or effect. If a rule is disapproved, an agency isn't allowed to issue a substantially similar rule later.

Only One Disapproval

According to the GAO, since 1996, 43 resolutions have been introduced in the House or Senate and just two of those resolutions have passed in one chamber. Only one rule, the Department of Labor's rule on ergonomics, has been disapproved by Congress.

Congress has 60 session days, or legislative days, in which to consider a rule once it is finalized. But one observer said that to avoid CRA, a rule almost has to be finalized by mid-year, even May or June, of the year in which the president leaves office, given the number of recesses in a typical election-year congressional calendar.

Narang said there also is a need to get rules done sooner simply because of the critical benefits to public health and safety. “So irrespective of the political calendar, these rules—many of which are overdue—need to get done as soon as possible,” he said.

“The last thing the public needs now are the kind of inefficiencies and delays that we saw a couple years ago at OIRA,” Narang said. That would be a bad way for the administration to close out its regulatory agenda, he said.

The Time Is Now

Susan Dudley, director of the Regulatory Studies Center at the George Washington University, was administrator of OIRA in the final two years of the Bush administration.

“I think it is time to be talking about it, especially it’s time for OIRA to be thinking about it,” Dudley said about midnight regulations. “It takes agencies a long time from the point that they think they need to regulate something to actually have a final rule,” she said.

The proper definition of “midnight” should be the last three months of an administration, because that is the time, in the post-election period, that regulations are often issued to tie the next president’s hands, Dudley said. An exception to that would be a regulation that has been worked on for five years and happens to go out then, she said.

It is a president’s prerogative to issue regulations up until the end of his administration, Dudley said. It would be unfair to say that Obama shouldn't be able to issue any more regulations in the last quarter of his administration, she said.

Threefold Concern

Concern about midnight regulation is threefold, Dudley said. First, there is inadequate time for analysis. Second there is inadequate time for the public to comment and for the agency to review those comments. And third, the objective may be to tie the next president’s hands, she said.

What that means for OIRA is that it should start working with the agencies now, walk them through the timeline and get commitments from agencies that they will take analysis and public comment seriously, Dudley said.

This was done at the end of the Bush administration, when Dudley was first coming on as OIRA administrator, she said. One of the first things she did was to meet with the regulatory policy officials at each of the agencies and make that point, she said.

And then, in the spring of 2008, Bolten sent a memorandum to all the agencies saying they wouldn't do midnight regulations and setting deadlines for proposals and final rules.

Bolten Memo Unsuccessful

“And it wasn’t as successful as I thought it was going to be,” Dudley said. Agencies all said they understood, but once the deadlines passed, they were still sending in brand new rules for review, even after Nov. 1, which was the cutoff for issuing a final regulation, she said.

Dudley said she thought, “Didn’t you get the memo?” She said they just thought it didn't apply to their own agencies, because they thought their rules really were priorities.

She knew political appointees weren't going to like the memo, but said she was surprised at how much the career staff disliked the idea of not being able to finish a rule before the transition. Waiting to finish a rule until after the transition means there will be new appointees to educate and persuade that a certain approach is best, she said.

No Leisurely Holiday

Dudley recalled telling OIRA staff that they would be enjoying a leisurely holiday at the end of 2008, because there would be nothing to review. “Ha, it was not at all like that,” she said.

Instead, the record shows that there were fewer major rules issued in last three months of the Bush administration than in the final three-month periods of previous administrations, but there were just as many rules issued over the year, Dudley said.

Rather than stopping the rush, she said, the rush just lasted the whole year instead of the last three months.

Dudley said then-OMB Director Jim Nussle backed her up, telling agencies they weren't going to approve last-minute regulations. But there was pressure from the policy offices inside the White House, she said.

“So in the end, a lot of these rules went to the chief of staff himself,” Dudley said. “And what he did is he set up some criteria for how we were going to handle it,” she said.

One of the criteria was, did the public have adequate opportunity to comment on the proposal, Dudley said. Another was whether the rule had been submitted for interagency review by the deadline, she said.

There were several rules that met the criteria and then there were some that were emergencies, Dudley said. Some routine rules were approved as well. For example, the Department of Interior has to issue rules on the number of birds hunters can shoot every year, and the Department of Health and Human Services has to issue rules on hospital payments, she said.

Last-Minute Surge

At the end of this administration, the president and the political heads of agencies are leaving, so there will most likely be some sort of surge, the Mercatus Center's Abdukadirov said. “To what extent it's going to be, that's still a question,” he said.

Midnight regulation tends to occur for two reasons, Abdukadirov said. One is there are more controversial rules that agency leaders tend to sit on until the last minute, then leave office without suffering the political consequences, he said.

During the short window after the elections, agencies no longer need to work with Congress and it is possible to push through more controversial rules, Abdukadirov said. “So that's sort of the biggest concern,” he said.

The other reason is far more benign, Abdukadirov said. When agencies work on regulations, especially major ones, they prefer to finish them before a change in administrations. If they do not, there is a substantial delay, because they must wait for the new administration to come in and new agency heads to be appointed, he said.

True Emergency?

One example of a failed attempt at rulemaking has remained with Dudley over the years. Treasury staff came to her “rather sheepishly” to say that the secretary’s number one regulatory priority was a rule to require nutrition labeling on alcoholic beverages, she recalled.

She remembers thinking, with the housing crisis, that is Treasury Secretary Henry Paulson's number one regulatory priority?

Treasury's Alcohol and Tobacco Tax and Trade Bureau regulates the labeling of wine, beer and distilled spirits. Dudley said that if there was ever a rule that needed time for comment and interagency review, it would be this one.

Although this rule did not make it through in the final days of the Bush administration, it illustrates the difficulties of making decisions during the midnight regulation period, Dudley said.

Still, she said her hope is that, based on what Bolten did, that President Barack Obama and other outgoing presidents will issue the equivalent of the Bolten memo to agencies. “And maybe he’ll be more successful than we were,” she said.

Abdukadirov said some midnight regulations may be unavoidable.

The Obama administration could instruct agencies to try to finalize as many of their regulations early on as possible, Abdukadirov said. “But the experience with the Bush administration shows that it's not entirely successful—you still saw a certain surge in midnight regulation,” he said.

“The biggest concern is obviously with the largest and most expensive regulations, and these tend to take a long time,” Abdukadirov said. “So for them to be able to prioritize anything, they really have to start thinking about it now.”

To contact the reporter on this story: Cheryl Bolen in Washington at cbolen@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

To see the 2015 Regulatory Accountability Act (H.R. 185), go to http://op.bna.com/der.nsf/r?Open=tbay-9tmp9g.