Tag Archives: Trump

Deregulation – It’s Harder Than it Looks

Last month I wrote a post that explained why cutting the federal workforce is much harder than it might appear. That post prompted a discussion with one of my ICF colleagues (Gary Light) regarding President Trump’s Executive Order on deregulation. It should not come as a surprise that deregulation, much like cutting the workforce, is easy in theory and difficult in execution. I asked Gary to write a guest blog post so ChiefHRO readers can take a look into the complex world of federal regulations.  

President Trump’s January 30, 2017 Executive Order, “Reducing Regulation and Controlling Regulatory Costs,” is intended to reduce the number of federal regulations by requiring agencies to identify two regulations to be repealed for each “new” regulation (the “2 for 1” rule) and offset costs from “new” regulations with cost savings (the “net zero” rule).  On February 2, 2017, the Acting Administrator for OMB’s Office of Information and Regulatory Affairs (OIRA) published additional guidance for implementing the Executive Order.  To implement both the “2 for 1” and the “net zero” rules, agencies will be required to navigate several major challenges, some resulting from the Order and related guidance itself, and others inherent to the laws and conventions of the federal regulatory system.

On the face of it, the “2 for 1” rule – repealing 2 regulations for each new regulation — is both clear and significant.  But how do we count “regulations”?  And how do we look at costs? To understand the challenge, let’s review how federal regulations are published and organized. Like many seemingly easy ideas, the transition from concept to execution can be a challenge.

When an agency wants to change a regulation or wants input from the public on a possible change, it must publish a notice of the change in the Federal Register (FR). Whether the change is to make the regulation more restrictive or less restrictive is irrelevant. FR notices typically include background information, such as history and legal authority, various options that were considered or are being considered, a summary of public comments and economic impacts, and the actual regulatory language.  Final regulatory text is officially recorded by the Government Publishing Office in the Federal Code of Federal Regulations (CFR).  Watchdog groups and scholars often cite the number of pages the FR takes up in a given year, but that metric has little to do with the magnitude of regulation because the FR also includes many other agency notices, studies, public filings, and public meeting announcements. The number of words in a regulation is also far less important than what the regulation does.

Within the existing framework, how would an agency start offsetting one (or two) regulations for another?  The January 30 Executive Order defines “regulation” to exempt rules related to national security and to include Agency policy, interpretation, and guidance documents.  The OMB Interim Guidance uses to the term “regulatory action” rather than “regulation” to make it more intuitive that it may include the rollback of guidance.  Additional clarification is sure to follow, but any such “2 for 1” approach without additional guidance is inherently prone to manipulation and mischief, and may distract from the president’s goal of identifying and repealing “outdated, ineffective, or unnecessary regulatory actions.”

The second provision of E.O. 13771 – the “net zero” regulatory burden requirement – is the more substantive provision intended to focus attention on eliminating “unnecessary regulations.”  The OMB Interim Guidance suggests that the Acting OIRA Administrator sees the overall regulatory burden as the core issue and metric.  While the current guidance addresses only pre-September 30, 2017 regulatory actions, the general provisions or something like them are likely to be extended.

The OMB Interim Guidance clarifies that the “2 for 1” and “net zero” provisions apply only to “significant” regulatory actions, which generally means regulatory actions that have an effect of $100 million or more on the annual U.S. economy.  In addition, the OMB Interim Guidance clarifies that the Order applies only to regulatory actions taken by executive departments, and not to independent regulatory agencies (e.g., FTC, NRC, and FCC).   According to the OIRA web site, there were 77 such actions between October 1, 2015 and September 30, 2016.  Given the emphasis on offsetting new significant rules, an agency may need roll back two, three, or more lesser regulatory actions to offset $100 million or more in cost impact of a new significant regulation.  This would likely be the case no matter how we count regulatory actions.  On the other hand, if an agency comes up with a single deregulatory action that would fully offset the impacts of a significant regulatory action, it is hard to imagine that OMB would not exercise its authority to grant a waiver to the “2 for 1” provision.

Another interesting and important aspect of the OMB Interim Guidance is the emphasis on and suggestions for conducting new cost analyses to account for savings from deregulation.  The guidance essentially disallows reliance on past Regulatory Impact Analyses (RIAs) (i.e., cost-benefit analyses) that would have been required at the time of the original rule (assuming that the original regulation was considered a significant regulatory action).  The guidance implies – and it is reasonable to assume – that the data in past RIAs may be outdated.  However, one might expect a reference in this area to the provisions of Executive Order 12866 or OMB Circular A-4, which are the documents that require and specify the details of how agencies must analyze the costs and benefits in an RIA for a proposed significant regulation. Both of these documents remain in force according to the guidance.   In the OMB Interim Guidance, instead of referring to previously conducted cost-benefit analyses, agencies are “strongly encouraged to use program evaluation and similar techniques to determine the actual costs and other effects of eliminating regulatory actions.” The potential implication of these provisions is that, although retrospective reviews and cost analysis methodology are relatively well established, new and different forms of analysis will be needed to support deregulation.

But why focus on program evaluation and not mention cost-benefit analysis?  The guidance never mentions the societal benefits that might be accruing due to existing regulations (such as improved health associated with cleaner air or lives saved by safety standards).  Perhaps consideration of such benefits is implied within the framework of “program evaluation and similar techniques”, but it is difficult to see how the Administration intends for agencies to address potential benefits from past regulations that might be foregone to achieve regulatory cost savings.  Could the Administration consider only the cost savings and not the loss of benefits that would be associated with deregulation?

Probably not – at least without additional changes to the broader law, policies, and guidance that comprise the federal regulatory system.  Most significant federal regulations are adopted by agencies under the authority or direction of laws enacted by Congress directing agencies to engage in evidence-based rulemaking. This statutory authority provides the basis for any rulemaking, and it typically articulates the societal benefits that Congress hoped to achieve through regulation.  One way or another, this new “2 for 1” regulatory system is likely to require full consideration of costs and benefits for each regulatory action that is part of the package required to maintain the “net zero” cost impact.

Most federal regulatory actions are governed by the Administrative Procedure Act (5 U.S.C. §§ 551-559), which requires agencies to provide ample notice and opportunity for public comment on proposed regulations, and that regulatory decisions be well-reasoned rather than arbitrary and capricious.  Judicial review of regulatory actions generally requires that agencies build a case for regulatory actions, and once having done so courts review an agency decision as it is reflected in the administrative record, which consists of all the information the agency had before it when making the decision.  According to the Supreme Court, an agency must defend and provide a detailed justification for a policy change to the same extent as if the agency were promulgating a new rule.[1]   So while it may not be good enough to rely on past RIAs when Agencies consider “undoing” a regulatory action, federal courts may want to look beyond just the cost savings to consider a full cost-benefit analysis or Cost Effectiveness Analysis (if one was prepared) for the original action now being considered for repeal.

Another way that the well-established federal rulemaking process compels a comprehensive analysis of costs and benefits of each component of the overall “net zero” regulatory burden requirement is through the RIA that will be required of the new significant regulatory action that is to be offset by repealing 2 past regulatory actions.  OMB Circular A-4 directs Agencies to select an appropriate baseline against which to compare costs and benefits of regulatory actions.  Such a baseline needs to reflect how the world would likely look absent the regulatory action.  If the new regulatory action is bundled with deregulatory or streamlining actions in the same regulatory program, then the costs and benefits of the repealed or streamlined regulation would need to be considered either as part of the new regulatory action or as a change to the regulatory baseline for the new regulatory action.

The new Executive Order and related guidance, particularly the “net zero” cost impact provision, further complicate and add uncertainty to the regulatory process.   The administration has clearly raised the bar for getting new regulations through OMB.  However, because of the Administrative Procedure Act and the rules for justifying all regulatory actions (both regulatory and deregulatory), efforts to repeal regulations should consider both the costs and the benefits of past rules, despite the cost emphasis in the January 30 Executive Order and OMB Interim Guidance.  While many uncertainties remain about how this will play out, it is clear that agencies are being encouraged to think big and broadly about how to achieve regulatory objectives most efficiently, and to take a hard look at past regulations for opportunities to make them more efficient and effective.

Gary Light is Senior Vice President for ICF and an expert in developing and evaluating regulatory and policy options and programs. His expertise centers on integrating engineering, economic, and legal principles with information technology to solve complex public policy challenges. In addition to providing project, program management, and advisory services, Gary is a cocreator of CommentWorks®, ICF’s commercial Web-based application for managing public comments. 

 

[1] Motor Vehicles Manufacturers Association v. State Farm Mutual Automobile Insurance Co, 463 U.S. 29 (1983); Federal Communication Commission v. Fox Television Stations Inc., 556 U.S. 502 (2009).

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Hiring Freezes Have Consequences – And So Do Budgets

President Trump’s hiring freeze has been in place since January 23, 2017. Judging by the emails, comments, calls and questions I am receiving, there are still agencies that have questions about what they can and cannot do during the freeze.

Add to that the uncertainty about the FY 2018 (and beyond) budget, and it is understandable that many federal employees worry that winter is coming for the federal workforce. President Trump’s Executive Order today directing OMB to come up with a plan for reorganizing the Executive Branch adds even more urgency to the discussion regarding the size of the workforce. After watching the goings on for the last 2 months, I am not ready to pronounce gloom and doom for the workforce, but I do believe federal agencies and the workforce are in for more change than they have experienced in the past several decades.

Let’s take a look at a few examples. The Department of Defense is on the list of favored agencies that are likely to receive a plus up from the budget process. In a typical year, Defense hired just over 90,000 people last year. With the freeze in place, they are continuing to hire in a lot of positions, but they are also building up a backlog of unfilled jobs. Other Departments are in the same position. Homeland Security has exempted many of its jobs because they are engaged in border security, immigration enforcement, and other national security related jobs. But what about the rest? Last year DHS hired almost 21,000 people. Other agencies that have few jobs that are tied directly to national security or public safety are continuing to amass a large backlog of unfilled jobs.

Trying to catch up after the freeze is lifted would be a big problem if the intent is to do some trimming of agency payrolls. In this case, it appears that the intent is to do more than trim. Rather than modest cuts that rein in the federal payroll, it appears the administration is interested in far more significant cuts. Recent reporting in the Washington Post, Fox News and other outlets is pointing to much larger cuts, with some agencies seeing double-digit reductions in their labor budgets.

So why am I not taking the gloom and doom view? Presidential budget requests are not enacted by the Congress with no changes. In fact, the reception the President’s budget gets from the House and Senate is typically rejection. The likelihood of the Congress enacting all of the cuts the President is suggesting and doing them all at once in 2018 is remote. Many of the agencies are very popular with the American people. Many of the programs they run are popular. Decimating popular programs and/or agencies can have electoral consequences that members of Congress do not want. That said, republican budget proposals in recent years have called for some significant cuts in non-Defense programs. I expect to see budget cuts in many agencies, but I expect them to be tempered by Congress.

So – does that mean agencies have no worries and do not need to prepare for the worst? Absolutely not. In fact, any responsible agency that is in the budget crosshairs should begin planning TODAY for a significant reduction in Fiscal 2018. Even agencies that may be safe from a mission perspective will have to look at the cost of mission support services. That means not adding new staff (even if the freeze is lifted) unless not hiring them risks mission failure. It means preparing a plan to do downsizing in an orderly way. Agencies should be running the numbers to see what kind of attrition they can expect. What would early retirement produce? Would buyouts help? If so, how much? Does the agency have the money in FY 2017 to incentivize turnover now, to lessen the burden on the 2018 budget?

Downsizing effectively is far more than just letting people go out the door and not replacing them, Agencies must rethink their work, their missions, and how they get things done. An agency with 10,000 employees cannot operate in exactly the same way if it has to make do with 9,000 employees. That means new organizations, new job descriptions, new performance objectives, better work processes, and more. All of that takes time.

Agencies should also begin planning for reduction in force. No one wants to hear that, but the truth is that few agencies are prepared to run a RIF. Getting ready takes months. Running the RIF takes months. Doing the right thing and trying to minimize the number of people who are involuntarily separated takes months. If agencies wait until a budget is passed, or at least until the numbers are more certain, they will box themselves into a corner that is almost impossible to get out of. As I said in a post on March 3, RIF is expensive and the aftermath of RIF is more expensive.

If agencies do decide to begin planning now for what might happen with the Fiscal 2018 budget, they are not selling out their workforce. They are doing the right thing and trying to be prepared for what might happen. That is what leaders do. Because it is so important, agency leaders should be upfront with their workforce about what they are doing. Do not plan behind closed doors, hoping the workforce will not find out about it and get scared. They will find out about it. And they are already scared. Federal employee should be treated like the adults they are. Planning for downsizing without telling the employees builds more fear and it builds mistrust. When an agency is facing tremendous change, more communication is not only better, it is absolutely essential.

 

 

 

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