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Quick reaction to President Trump’s Regulation Reduction Executive Order
Preliminary analysis only
On January 30th President Trump signed an executive order mandating that most executive departments and agencies go on a regulatory diet. The EO requires agencies that create a new regulation to identify two regulations to be repealed. In FY 2017 covered agencies are required to keep the net cost of regulation to no greater than zero. This means that any costs of new regulation must be offset by repealing old ones.
Starting in FY 2018 agencies will be granted a “regulatory budget”. If Agency X is given a budget of $100 for regulations the new net cost of regulations (cost of new regulations minus savings from repealing old ones) needs to be at or under $100. The agencies will still need to identify two regulations to repeal for every new one.
A regulatory budget is a good idea, but the the 2-for-1 requirement seems superfluous. It may be there to force agencies’ hands and prevent them from gaming the math on regulatory cost. And as my colleague Oliver Sherouse points out:
The order has several limitations and caveats, such as exempting national security and foreign affairs regulations, as well as certain internal agency regulations, as well as giving the Director of the Office of Management and Budget the ability to exempt other regulations. The devil will be in the details, so stay tuned.
Update 1: One particular devil is whether this order applies to independent agencies, which include many of the major financial regulators (e.g. SEC, Federal Reserve). It is unclear, at least to me (I never claimed to be an expert in the dark arts of admin law). Some previous executive orders explicitly covered independent agencies, this one does not. That doesn’t mean that the order doesn’t cover them. The definition of “agency” can include independent agencies, but the EO doesn’t cite to a definition in statute. It is unclear whether “executive department or agency” is meant to cover them. Does “executive” modify “agency” or just “department”? The “good” news is this may be litigated (perhaps by the CFPB claiming it isn’t covered), so we may get a court’s opinion on the question.
Update 2: The administration has confirmed that this EO will not apply to independent regulators, which would include most financial regulators. Whether this means the administration is going to give them a pass, issue a new EO, or try to get regulatory restraint via legislation remains to be seen.
Update 3: Another question that has been raised, for example by Robert VerBruggen, is whether in FY 2018 and beyond the agencies need to repeal the regulations as they go or do they just need to do it by end of the fiscal year:
The order seems unclear. Section 3(a) says:
Beginning with the Regulatory Plans (required under Executive Order 12866 of September 30, 1993, as amended, or any successor order) for fiscal year 2018, and for each fiscal year thereafter, the head of each agency shall identify, for each regulation that increases incremental cost, the offsetting regulations described in section 2(c) of this order, and provide the agency’s best approximation of the total costs or savings associated with each new regulation or repealed regulation.
Section 2(c) references Section 2(a), which requires identification of regulations to be repealed to offset the cost of the new regulation at the time the regulation is put out for comment or otherwise promulgated. This would seem to imply that in FY 2018 and beyond the agencies need to at least identify rules to be repealed as they introduce new rules. However, Section 3(d) says:
During the Presidential budget process, the Director shall identify to agencies a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year. No regulations exceeding the agency’s total incremental cost allowance will be permitted in that fiscal year, unless required by law or approved in writing by the Director. The total incremental cost allowance may allow an increase or require a reduction in total regulatory cost.
This at least raises the possibility that the balancing must be done on a yearly basis, rather than pay-go. Hopefully clarification will be forthcoming.
See Robert VerBruggen’s thoughts on the EO here
Update 4: The Office of Management and Budget has provided guidance on how agencies should implement the EO.