Trump Order to Reduce Regulation Leaves Key Questions Unanswered

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By Cheryl Bolen

An executive order signed by President Donald Trump intended to zero-out regulatory costs by eliminating two regulations for every one implemented leaves many questions unanswered and key details to be decided.

For starters, the order raises two interesting questions: How to count costs and how to count regulations, said Jerry Ellig, senior research fellow at the Mercatus Center at George Mason University.

The order requires the director of the Office of Management and Budget to issue guidance to agencies on implementing the order. According to the order, the guidance should include standards for measuring and estimating the costs of new and existing regulations, and for determining what qualifies as new and offsetting regulations.

“Bottom line is, there are ways to do this that could be practical, there are ways to do this that could be very difficult, and a lot of that depends on how they address those two questions in the OMB guidance,” Ellig told Bloomberg BNA.

Core of Order

At its core, the order requires that the costs associated with a new regulation must be offset by the elimination of existing costs associated with at least two prior regulations. The order goes into effect immediately by directing that the cost of all regulations in fiscal year 2017, which ends Sept. 30, must equal zero.

The Senate is currently holding hearings to consider Trump’s nominee for director of OMB, Rep. Mick Mulvaney (R-S.C.). All pending rulemakings were frozen under a memorandum issued Jan. 20 by White House Chief of Staff Reince Priebus.

For future fiscal years, the OMB will establish for each agency the net amount of new regulatory costs they can impose. These amounts will be included in the president’s budget every year.

Several categories of regulations are exempted from the order, including regulations issued with respect to a military, national security, foreign affairs, agency organization, management or personnel function or “any other category of regulations exempted by the director.”

Rules Don’t Cut Easily

One of the biggest challenges for agencies trying to fulfill this order will be identifying regulations to eliminate. About half of federal regulations are mandated by statute, and all others still require legal justification. Thus, any regulation eliminated is vulnerable to a legal challenge.

To eliminate a rule, agencies must initiate a rulemaking under the Administrative Procedure Act, which requires a notice of proposed rulemaking, legal justification, a regulatory impact analysis and a public notice and comment period. This is both time-consuming and subject to judicial review.

Trump signaled his intent to adopt a “one-in, two-out” regulatory approach in a video posted to his presidential transition website on Nov. 21. Since then, regulatory scholars have questioned how such a policy would work in practice.

Agencies will be faced with the difficult choice of not doing a new rule that responds to a real need or a statutory mandate, or repealing rules that are still doing a lot of good.

What Counts as a Regulation?

According to research by the Mercatus Center, for the 130 non-budget, economically significant regulations proposed between 2008 and 2013, 49 percent were required by statute. For the remaining 51 percent, the statute allowed the agency to decide whether a new regulation was necessary.

The language in the executive order states that agencies must comply with existing law, and does not tell agencies to eliminate regulations they are required by law to implement, Ellig said.

“But that gets back to the question of, ‘What do you actually count as a regulation?’” Ellig added, saying it’s unclear whether it means a set of requirements published as one regulation in the Federal Register, or if each regulatory requirement contained in a set counts separately.

British Columbia, for example, counts regulatory requirements, not the set, Ellig said. This allows regulators to simplify a regulation and eliminate some of its burdens, yet still maintain a rule that accomplishes something, he said.

“The way that [OMB] decides what to actually count as a regulation will have a big effect on how flexible this is and how practical it is,” Ellig said.

Hard to Pull Rules

In 2011, President Barack Obama ordered a “retrospective review” effort that required all regulatory agencies to look back at their existing regulations for those that could be streamlined, modified or eliminated. But by the end of his presidency, even with industry input, agencies had eliminated only about 70 regulatory requirements.

“The biggest challenge that one encounters in trying to pull rules off the books or to reform rules is that there isn’t a very big constituency for removing preexisting rules,” said Howard Shelanski, former administrator of the Office of Information and Regulatory Affairs, a unit of the OMB.

Once incumbent firms have accommodated a regulatory regime and absorbed its costs, they don’t necessarily view it as fair to reduce those costs or that compliance regime for new firms coming into the marketplace because it could give them an advantage, Shelanski said.

"[E]very jurisdiction, the U.K., Canada, every place that has tried to launch a serious retrospective review effort or sort of one-in, one-out effort has run into the same problems, the same challenges,” Shelanski said. And that is: it’s difficult to find regulations to eliminate, he said.

Ignoring Benefits

For decades, agencies have been required to calculate both the costs and benefits of major regulations, and to ensure the benefits outweigh the costs. Trump’s executive order would impose a regulatory budget, or an overall limit on costs, which does not exist now, Ellig said.

In its analysis of the order, Public Citizen, a public interest organization, said the idea that two rules should be eliminated for each one adopted has “no rational basis.” Rules should be considered on their own merits, it said.

“This executive order is as radical and unworkable as the other ones Trump has signed,” said a statement by Robert Weissman, president of Public Citizen.

The order will result in immediate and lasting damage to the government’s ability to save lives, protect the environment, police Wall Street, keep consumers safe and fight discrimination, Weissman said.

Legislation Still Needed

Sen. James Lankford (R-Okla.), chairman of the Homeland Security and Governmental Affairs Subcommittee on Regulatory Affairs and Federal Management, said he supported the executive order.

“Requiring agencies to identify existing regulations for repeal before they promulgate new regulations is a successful practice to ensure the cumulative regulatory burden is properly controlled,” Lankford said. “Likewise, controlling regulatory costs through a budget is also a practice many countries have found successful.”

Still, Lankford said he would continue to pursue regulatory improvements through the legislative process.

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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