Obama Regulators Failed to Follow Law, OMB’s Mulvaney Says

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By Cheryl Bolen

President Donald Trump has turned the administrative ship of state sharply to the right in his first 100 days, based on a belief that Obama administration regulators intentionally underestimated regulatory costs to justify any benefit.

“It is our position that the previous administration failed to follow the law in many, many circumstances,” Office of Management and Budget Director Mick Mulvaney told Bloomberg BNA in a recent telephone interview. “And that they simply imposed regulation without proper regard to the cost side of that analysis.”

One of the first directives issued on Inauguration Day was a memorandum imposing an indefinite freeze on all pending regulations, an order that remains in effect for agencies not headed by a political appointee.

However, the centerpiece of Trump’s regulatory agenda is an executive order signed Jan. 30, requiring agencies to eliminate two existing regulations for every new one issued, at zero incremental cost to the economy in this fiscal year.

Mulvaney: Costs ‘Ignored’

“We believe in regulation,” Mulvaney said in the April 20 interview. “The president does not stand for the proposition that no regulation is the goal, or that zero-level regulation is the goal.”

It just has to be “sensible” regulation, Mulvaney said. For example, the president wants to maintain the standards for clean air and water, but at the same time, he is aware of the other side of the calculation, which is the cost that people bear, he said.

During the previous administration, the actual costs of regulation “were often ignored,” Mulvaney said. Instead, if the previous administration could find any benefit whatsoever to the public, then that justified the regulation regardless of the cost, he said.

“We think that what the previous administration was doing was sort of fudging the analysis when it came to the cost side of the equation,” Mulvaney said.

“So we actually plan to look at the costs of regulations. And one of the reasons you’ve seen us repeal certain regulations already is we think that the previous administration didn’t do that,” Mulvaney said.

Official: Patently False

Mulvaney’s remarks about cost-benefit analysis in the Obama administration are patently false, said a former Obama administration official, who requested anonymity to frankly discuss the accusations.

All anyone needs to do is look at the regulatory impact analysis (RIA) that accompanies each of the significant regulations issued during the previous administration to see a detailed concern with all of the costs, the official said.

“And those RIAs have to stand up to scrutiny, because they can get challenged in court as part of the record of the rule,” the official said.

What Mulvaney is saying denigrates the career staff in his own organization, who have worked faithfully across administrations, and ignores the fact that anyone can look immediately at any of the RIAs or the cost-benefit report sent to Congress each year, the official said.

Justifying Deregulation?

Accusing the Obama administration of ignoring or underestimating the costs of regulations may be political cover for repealing beneficial rules, the official said.

During deregulation, the costs and benefits of a rule flip, the official said. The benefits of the rule become the cost of repealing the rule, while the costs of the rule become the benefits of eliminating it.

“So they’re going to want to say that those costs were really, really high, those initial costs—they’re going to want to inflate the benefits of deregulation,” the official said.

“What I worry about is this is all a setup for claiming that they are not bound—when they go to deregulate—by the cost-benefit analyses that accompany those rules,” the official said.

Quibbles, but No Failures

Many people, from industry representatives to public interest advocates, “quibbled” with a particular part or two of the Obama administration’s regulatory impact analyses, the official said.

“There’s no one who can say that they weren’t seriously done,” the official said.

At an April 13 event hosted by the Regulatory Studies Center at The George Washington University, two former officials from the George W. Bush administration addressed how agencies estimate costs, noting that the standard during that administration still applies.

For estimating costs, OMB Circular A-4, issued in September 2003 but drawing on guidelines from the 1990s, applies both to new rules and rules being repealed or modified, said Susan Dudley, former administrator of the Office of Information and Regulatory Affairs (OIRA), which reviews all significant federal regulations.

Not Easy, But Understood

“It’s not an easy thing to do, but agencies have been estimating costs since at least 1981, and one could argue before that,” said Marcus Peacock, a former OMB official during the Bush administration who returned to the office as a temporary official during the Trump transition.

OMB Circular A-4 is “state of the art” in terms of how to estimate costs, Peacock said. In his view, agencies have gotten much better at it and there are accepted conventions, although there is always room for improvement, he said.

“I think one of the great advantages of deciding to use opportunity costs to measure the costs of ins and outs is that it doesn’t change the calculation and the methods that agencies have been using and OIRA has been reviewing,” Peacock said.

Best-, Worst-Case Scenarios

For many, how costs and benefits are considered is at the core of Trump’s one-in, two-out regulatory executive order.

“Focusing only on the costs and not on the benefits is silly, pernicious and irrational,” said Richard Revesz, professor of law and dean emeritus at the New York University School of Law.

The order’s zero net cost constraint applies only for FY 2017, which ends Sept. 30, and will essentially result in an eight-month regulatory moratorium, Revesz said.

More important is what happens in FY 2018 and beyond, Revesz said. This is unclear because the order directs that for subsequent fiscal years, the director of OMB will set the regulatory cost budget for all the regulations in each agency, he said.

In the best-case scenario, an agency might be asked to submit to the OMB its plans and cost-benefit estimates for regulations in the coming year, Revesz said. Then, the OMB might give it the go-ahead to issue those rules whose benefits exceed the costs, and set a budget for those regulations to be promulgated, he said.

The worst-case scenario is the OMB director comes up with a totally arbitrary cost number for each agency, which then stands in the way of cost-beneficial rules being promulgated, Revesz said. “So a lot of the question of the impact of this [order] would be in the implementation,” he said.

Uncertain Future

The OMB has laid out an “attractive vision” for deregulation that pays close attention to cost-benefit analysis in the repeal of rules, and maybe that’s what will happen, Revesz said. “But it’s also quite likely what will happen will be quite different,” he said.

Early this month, for example, the administration delayed the effective date of the fiduciary rule that protects investors, Revesz said. But this is a rule that has benefits that exceed the costs, and so delay presumably is bad from a cost-benefit perspective, he said.

Yet, in explaining the delay, the administration focused solely on the cost of the rule, not on its benefits, Revesz said.

“So we just don’t know how [the order] will be implemented; we don’t know really whether there are significant cost savings from paperwork reduction that have no substantive impact on benefits,” Revesz said.

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

To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com

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