By Gary Marfin, former Associate Dean of the School of Engineering at Rice University and Manager of Government Relations with Conoco, and Christopher H. Marraro, a partner with BakerHostetler in the firm’s Washington, DC office.
* * * *
On his first day in office President Biden promised to modernize the regulatory review process. On April 6, 2023, he issued Executive Order 14094, entitled “Modernizing Regulatory Reform.” The President stated on that first day, “It is the policy of my Administration to mobilize the power of the Federal Government to rebuild our nation and address” the challenges it faces, including “systemic racial inequality” and “the undeniable reality and accelerating threat of climate change.” The April 6 Executive Order, while significant, did not, of course, by itself modernize regulatory review. In part that’s because the Order directs the Office of Management and Budget (OMB) to propose changes to be finalized in coming months. It is also because regulatory reform currently is more of an ongoing process than a single event. Moreover, the totality of the Biden Administration’s reform efforts is not encompassed by the reform actions undertaken or initiated in Executive Order 14094, but also by those actions initiated under the Trump administration but discontinued under Biden.
The primary objective of the April Executive Order is threefold: to improve the effectiveness of the regulatory process (Section 1); promote inclusiveness in that process (Section 2); and improve regulatory analysis (Section 3).
Section 1 — Regulatory Review
The most important provision of this section, indeed one of the most important provisions in Executive Order 14094, is the President’s directive to amend the definition of a “significant regulatory action.” Executive Order 12866 defined a significant action as an action having an “annual effect on the economy” of $100 million dollars or more. Partly to bring the number of regulations viewed as significant in line with other administrations, and partly to recognize the growth in the economy since the 1993 threshold, the April Order raises the level to $200 million or more, and retains the earlier language about adversely affecting “in a material way the economy” or a sector of the economy.
Of course, the higher threshold will not alter the challenge of arriving at regulatory cost and its offsetting benefits. Both the regulating agencies and the regulated community may debate regulatory cost and its attendant benefits, with regulated entities often perceiving a cost higher than that envisioned by an agency. In any event, the annual cost of a regulation is not some preordained number exogenous to the process; rather, ascertaining cost can itself be part of the regulatory process, the result of input from a variety of sources.
Setting an economic threshold is not the only way that a regulatory action can be considered significant. Since 1993 a regulatory action could be considered significant if it raised novel legal or policy issues. Subsection (4) of Section 1 of the April Order recognizes as significant actions that raise legal or policy issues “for which centralized review would meaningfully further the President’s priorities or the principles set forth in this Executive Order.” Under the April Order, the Administrator of the Office of Information and Regulatory Analysis (OIRA) is charged with determining the need for “centralized review” in a “timely manner.”
Section 2 — Inclusive Participation
This section is focused on participation in the regulatory process, directing agencies and the OIRA to “to provide equitable and meaningful participation” to interested parties, including the interests of underserved communities. Agencies are encouraged to cast a wide net in seeking input, and examples of potentially interested parties are provided. Agencies are also directed “to clarify opportunities for interested parties to petition for the issuance, amendment or repeal of rules under 5 U.S.C. 553 (e)” and to maintain with OIRA a log of such petitions. Whether this will lead to more focused rulemaking or just slow an already elongated and complicated process will take time to assess.
Section 2, subsection (d) addresses what may well be considered a novel problem in the regulatory arena—the growing availability and deployment of artificial intelligence (A.I.). While the President directs agencies to be inclusive, the administration is concerned that A.I. threatens to introduce misinformation into the process. In response to this technological development, the Order directs the Administrator of OIRA to provide yet unspecified “guidance and tools” to address “mass comments, computer generated comments (such as those generated through artificial intelligence), and falsely attributed comments.”
This is an important and timely directive. The availability of A.I. is growing rapidly. Indeed, the agencies themselves will increasingly rely on A.I., perhaps to accomplish the very objective of this subsection. The difficulty is that concomitant with its benefits, A.I. brings the potential to inject misinformation that will have to compete with the legitimate information of genuinely interested parties. Both regulators and the regulated community have a stake in avoiding that outcome.
Section 3 — Improving Regulatory Analysis
OMB’s Circular A4 “is intended to aid agencies in their analysis of the benefits and costs of regulations, both when such analysis is required under Executive Orders 12866 and 13563 and when agencies undertake analysis as a matter of discretion.” Last updated 20 years ago, the revised Circular “seek[s] to ensure that analytic guidance reflects new developments in economic and other scientific understanding.” For the regulatory agency, it is, in many ways, a source of “lessons learned” across agencies so that agencies need not reinvent the wheel. OMB Circular A-4 provides in pertinent part that:
You will find that you cannot conduct a good regulatory analysis according to a formula … A regulatory analysis should, all else equal, aim for specificity in identifying how the state of the world in the regulation’s presence would differ from the state of the world in its absence. Where there are data or methodology challenges, less-specific inputs (e.g., for monetization) are sometimes used; however, even where a relatively general approach was the best available in the past, it is appropriate to reconsider whether greater specificity could, given scientific advances, be practicable in the regulatory analysis currently being conducted.
Although principally intended for regulatory agencies, Circular A-4 provides an instructive framework on agency analysis and methodology that can benefit the regulated community in its attempt to understand agency actions.
The reforms the Order rescinds reflect President Biden’s commitment to regulation and his belief that not only did the regulatory process need to be modernized, but regulatory agencies also needed to be empowered; ready “to use robust regulatory action to address national priorities.” Accordingly, the President issued an order that revoked unspecified value-laden “harmful policies and directives that threaten to frustrate the Federal Government’s ability to confront these problems and empowers agencies to use appropriate regulatory tools to achieve these goals.” President Biden not only rescinded “harmful policies and directives,” he abolished “any personnel positions, committees, task forces or other entities” established pursuant to them. Biden left no doubt that there was, it could be said, a new regulatory sheriff in town.
No target was as infamous as Executive Order 13771. Issued under President Trump in 2017, Section 2 of this Order initiated the widely publicized approach of two regulations out, for every new regulation proposed:
Sec. 2. Regulatory Cap for Fiscal Year 2017. (a) Unless prohibited by law, whenever an executive department or agency (agency) publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.
The Order was arguably flawed. The number of regulations is not per se an indicator of economic burden (or benefit for that matter; much the same can be said for the number of pages in the Federal Register). It’s the substantive content of regulations, not the number of them, that matters.
This brings into sharp relief the differences in regulatory reform between President Biden and President Trump. President Trump’s regulatory reform is focused on controlling regulatory cost, on reducing its economic burden. Under President Biden, reforming regulation is largely about facilitating it. The modern world, according to Biden, needs regulation to address a range of challenges, now and forthcoming. Whether that is because of a perceived legislative stalemate in Congress or because of a belief that the federal government is the universal benefactor of the American people is beyond the scope of this article. Either way, such regulatory philosophy has constitutional implications by potentially trampling on the separate roles that the Founding Fathers so carefully delineated in the first three articles of the Constitution.
Under Presidents Trump and Biden it has become clear that regulatory reform consists of measures on a spectrum with one pole focused on cost and the other on facilitating regulation. In theory, it’s possible to envision a mid-point, some happy, sustainable medium to regulatory reform. Realistically, however, there is no happy medium here; a midpoint is unlikely to be politically acceptable in the near future. This is why regulatory reform is a process. It’s also nothing new. The objectives pursued under the banner of regulatory have long varied across administrations. Expect it to continue.