Rulemaking Reset

Wednesday, April 12, 2023

On April 6, 2023, the Biden Administration launched a substantial effort to revise procedures that govern how federal rules are reviewed, revised, and approved within the federal administrative process. A new Executive Order entitled Modernizing Regulatory Review (E.O. No. 14094) makes revisions to longstanding E.O. No. 12866 (Regulatory Planning and Review), which has governed executive branch rulemaking for three decades. Among noteworthy changes, the Biden Executive Order establishes a new financial threshold for review of rules by the Office of Management and Budget’s (OMB’s) Office of Information and Regulatory Affairs (OIRA). It directs OIRA to adjust how benefit-cost analysis for rulemaking is done, mandates greater access by “underserved” groups to the OIRA review process, and directs OIRA to consider potential reforms, including technological changes, to notice-and-comment processes.

Clipper Ship

Acting the same day, OIRA issued draft guidance documents and draft revisions to OMB procedures detailing how federal agencies (and OIRA itself) will conduct their review of rulemaking actions. These newly released draft documents are subject to a 60-day public comment period. They include a new draft OMB Circular A-4 (Regulatory Analysis), revising the version issued in 2003, and a preamble describing the changes. OMB also proposed a new draft OMB Circular 94 (Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs), applicable to policies and programs (but not regulatory impacts), which will replace the 1992 version.

Last week’s action implements some of the administrative law pledges we noted in a previous blog post summarizing President Biden’s Modernizing Regulatory Review Memorandum issued on inauguration day. That Memorandum directed OMB to revise OMB Circular A-4 to include consideration of new developments in science and economics, to account for regulatory benefits that are not readily quantifiable (e.g., justice, equity), to propose procedures that take into account the distributional consequences of regulations, and to “ensure that regulatory initiatives appropriately benefit and do not inappropriately burden disadvantaged, vulnerable, or marginalized communities.”

Threshold for OIRA Review

In general, the OIRA regulatory review procedures under consideration apply only to “significant” rules. Since the 1970s, this has been defined as rules with an annual impact on the economy of $100 million or more, or having certain other impacts. This figure has never been adjusted. See ELI’s prior blog post, Regulation: Is $100 Million What It Used to Be?, which notes that this review threshold has been used since the Carter Administration. Executive Order No. 12044, adopted in 1978, required regulatory analyses for all regulations that “will result in an annual effect on the economy of $100 million or more.” This has been carried forward for the last 45 years without adjustment.

The new Executive Order amends the long-standing threshold by amending E.O. No. 12866 to apply to any regulatory action that is likely to result in a rule that may: “have an annual effect on the economy of $200 million or more (adjusted every 3 years by the Administrator of OIRA for changes in gross domestic product); or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, territorial, or tribal governments or communities.”

Benefit-Cost Analysis

The economic analysis will also change. One of the significant changes will be how agencies (and OMB) will apply a discount rate in comparing benefits and costs. OMB notes: “The higher the discount rate, the lower is the present value of future benefits and costs. For typical investments, with costs concentrated in early periods and benefits following in later periods, raising the discount rate tends to reduce discounted net benefits.” Previous administrations typically applied a discount rate of 7% to regulatory actions, or sometimes 3%. The discount rate for regulatory impact analysis has been fairly high ever since the practice began in the early 1980s (prior to Circular A-4).

In preparing a revised Circular A-4, OMB conducted various reviews of interest rates, cost of capital, etc., and has determined that a lower discount rate should be applied. OMB notes that over the last 30 years, the actual discount rate “has averaged around 1.7 percent in real terms on a pre-tax basis. . . . For simplicity, transparency, and tractability, OMB is setting one default rate for social rate of time preference for all effects from the present through 30 years into the future, rather than a more elaborate discount rate schedule.” In the environmental context, this means that regulations whose health and social benefits are in the future, while costs are borne in the near term, will be easier to justify.

OMB is also noting that an even lower discount rate may be appropriate for a truly long-term regulatory analysis. “Special ethical considerations arise when comparing benefits and costs across generations. Although most people demonstrate time preference in their own consumption behavior . . . it may not be appropriate for society to demonstrate a similar preference when deciding between the well-being of current and future generations. Future citizens and residents who are affected by such choices cannot take part in making them, and today’s society must act with some consideration of their interest.”

OMB is also proposing to afford greater consideration by agencies of distributional effects that may influence the economic analysis, while not requiring it. It says: “we have proposed revisions that emphasize agency discretion to perform preliminary screening of rules to determine which are most likely to have significant differentiated effects on particular demographic groups and to analyze important distributional effects in those cases.”

Meeting With OIRA

Another reform changes how OIRA may interact with outside parties while reviewing an agency rulemaking not yet approved for publication in the Federal Register. OIRA explains: “E.O. 12866 meetings occur at the initiative of outside parties who request a meeting with OIRA about a regulatory action that is under OIRA review to present their views. OIRA invites to these meetings representatives from the agency or agencies that would issue the regulatory action, though participation may be limited by scheduling or other considerations. E.O. 12866 meetings serve as listening sessions for OIRA officials.” Traditionally these meetings have been requested and held primarily at the instance of well-organized and funded interest groups, trade associations, and the like. Dates and attendees of these meetings are searchable, but not their contents.

The April 6 Executive Order amends this portion of E.O. No. 12866, directing OIRA to facilitate participation in such meetings by those “who have not historically requested such meetings, including those from underserved communities.” In its Draft Guidance implementing Section 2(e), OIRA indicates that it will seek to encourage such meetings and that “OIRA proposes that the term ‘not historically requested’ be used to describe a subset of members of the public, including organizations and individuals, who have not previously participated in the E.O. 12866 meeting process within the last three years.”

While a welcome addition to a flawed process, via an attempted rebalancing of the interest groups heard from, it is likely that the traditional well-represented interests will continue to dominate the OIRA docket. OIRA’s traditionally opaque policy process will evidently continue to not be as transparent or accessible as the APA requirements that are intended to guarantee public involvement in rulemaking. OIRA says that it “is considering the disclosure of additional information about specific E.O. 12866 meetings that may be helpful to OIRA, to agencies, and to the general public.”

Notice-and-Comment Reforms

The Executive Order provides in Section 2(d) that “The Administrator of OIRA, in consultation with relevant agencies, as appropriate, shall consider guidance or tools to modernize the notice-and-comment process, including through technological changes. These reforms may include guidance or tools to address mass comments, computer-generated comments (such as those generated through artificial intelligence), and falsely attributed comments.”

This portion of the Order is not fleshed out in the current OIRA draft documents, but should trigger serious consideration given the scale of current federal rulemakings. It will be particularly important to enable serious consideration to be given to well-documented comments—and to distinguish these not only from mass comments but also from AI comments that may challenge the capacities of regulatory agencies and their rulemaking-support contractors. Notice-and-comment rulemaking is the clipper ship of the U.S. administrative law system, but its hull has become encrusted by the barnacles of process and duplication. It’s time for some innovative re-engineering, monitoring, and aggressive maintenance.