In a January 18 Wall Street Journal op-ed entitled, “Toward a 21st Century Regulatory System,” President Obama announced provisions of a new Executive Order aimed at “addressing burdens that have stifled innovation and have had a chilling effect on growth and jobs.”i The Executive Order,ii signed by the President that same day, requires federal agencies to assess the necessity and effectiveness of existing “significant” regulations and to consider certain “principles” when drafting rules.iii Adherence to these principles would ensure that regulations “protect public health, welfare, safety and our environment while promoting economic growth, innovation, competitiveness and job creation.”iv Supplementing the Executive Order, the President issued two memoranda containing directives on regulatory flexibility for small businesses,v as well as increased accessibility to “publicly-available compliance information.”vi

Following the 2010 congressional elections, in which Republicans regained control of the House of Representatives and reduced the Democratic majority in the Senate, many believed that the Administration would be forced to rely increasingly on federal agency rulemaking rather than congressional action to move its policy agenda forward. In anticipation of this and in response to what U.S. Chamber of Commerce (the “Chamber”) President Tom Donohue called a potential “regulatory tsunami,”vii business groups have devoted additional resources to monitor and respond to agency rulemaking and regulatory activities. On Capitol Hill, Rep. Darrell Issa (R-CA), the new chairman of the House Oversight and Government Reform Committee, recently sent letters to over 150 companies, business groups and think tanks asking for information regarding regulations believed to be harmful to job growth in their respective industries and for suggestions to improving the regulatory process.viii

Given the current political and economic climate, it is not surprising that the Executive Order has received initial praise from the Chamber, the National Association of Manufacturers and other business groups historically critical of the President’s regulatory agenda. Rep. Issa as well as House Majority Leader Eric Cantor (R-VA) have also applauded the President’s decision to address regulatory review issues.

Although the Executive Order does not necessarily indicate a change in existing and planned rulemaking initiatives, it does represent a signal that the President may try to reach consensus with the business community and a Congress hostile on some regulatory matters. Importantly, it presents industries and companies with an opportunity to bring to the Administration’s attention rules and regulations that they believe should be modified or rescinded, based on the criteria set forth in the Executive Order and accompanying memoranda.

 Section-By-Section Summary of the Executive Order

 General Principles of Regulation

Section 1 reaffirms and supplements President Clinton’s Executive Order 12,866 of September 20, 1993, which outlines existing federal agency regulatory requirements and the Office of Management and Budget’s (OMB) role in the rulemaking process.ix Each agency must:

  1. Propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify);
  2. Tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things and to the extent practicable, the costs of cumulative regulations;
  3. Select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety and other advantages; distributive impacts; and equity);
  4. To the extent feasible, specify performance objectives rather than specifying the behavior or manner of compliance that regulated entities must adopt; and
  5. Identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.x

This section also directs agencies to use the “best available techniques” in order to quantify anticipated costs and benefits accurately when applying these regulatory principles.

 Public Participation

Section 2 directs agencies to take into consideration the views of affected public and private stakeholders as well as relevant experts during the rulemaking process. This section requires agencies to post proposed and final rules as well as relevant scientific and technical findings on the rulemaking docketxi in a timely and easily accessible manner. Before issuing notices of proposed rulemaking, agencies are required to seek views of those likely to benefit from as well as those likely to be negatively impacted by the proposed rules.

 Integration and Innovation

In order to provide additional certainty for the public and businesses and reduce unnecessary costs, Section 3 requires inter-agency coordination to simplify and harmonize redundant or inconsistent regulations. Agencies also will be required to consider ways to promote innovation in determining how best to achieve their regulatory goals.

Flexible Approaches

Section 4 requires agencies to reduce burdens and maintain flexibility in their regulatory approaches, including using warnings and conveying information to the public in a clear and straightforward manner.

Science

Section 5 requires agency regulatory actions to be guided by “objective scientific evidence.”xii

Retrospective Analyses of Existing Rules

Section 6 requires each agency, within 120 days of the date of the Executive Order, to develop and submit to the Office of Information and Regulatory Affairs (“OIRA”) a preliminary plan to review all of its existing significant regulations to determine whether any of them should be modified, streamlined, expanded or repealed. Periodic retrospective reviews should focus on regulations that may be outmoded, ineffective, insufficient or excessively burdensome.

Summary of the Accompanying Memoranda

In order to further facilitate a well-operating regulatory system, the President issued two memoranda on January 18 that direct the federal agencies as follows:

Regulatory Compliance

Within 120 days of the Executive Order, agencies are required to prepare plans to make public information regarding their regulatory compliance and enforcement activities accessible, downloadable and searchable online, and in a manner that facilitates easy access, encourages cross-agency comparisons, and engages the public in new and creative ways of using the information. In addition, where appropriate and permitted, agencies are required to examine enforcement and compliance data sharing across the government.

The greater disclosure, access, use and sharing of compliance information is intended to foster fair and consistent enforcement by the public, bring about greater accountability by the government, promote public welfare, and level the playing field among the regulated community.

Regulatory Flexibility, Small Business and Job Creation

The current economic environment underscores the need for agencies to develop regulations in a costeffective manner that promote economic growth, innovation, competitiveness and job creation, particularly within the small business sector.

In order to facilitate such development, executive departments and agencies are required, when initiating a rulemaking that will have a significant economic impact on a substantial number of small entities, to decrease unjustified economic burdens on small business owners and other small entities through increased flexibility.

Such flexibility could include:

  • Extended compliance dates that take into account the resources available to small entities;
  • Performance standards rather than design standards;
  • Simplification of reporting and compliance requirements (e.g., by using streamlined forms and electronic filing options);
  • Different requirements for large and small firms; and
  • Partial or total exemptions.xiii

If an executive agency elects not to provide such flexibility, it is required to explain such a decision in the proposed or final rule.

Why is this Important?

Many have dismissed the Administration’s actions as mere political pandering to the business community that will have no impact on the burdens that businesses, whether large or small, face. Others have said that the “proof will be in the pudding” and are awaiting the results of the required regulatory reviews.

There are still others who see this as an opportunity to highlight objectionable rules that they believe can be modified under the criteria of the Executive Order. In particular, where actual experience under a regulation has shown an agency’s rulemaking assumptions about burdens to be incorrect, the Executive Order provides a post-promulgation platform not previously mandated. Also, taken at face value, the Executive Order elevates the minimization of net burdens in the priorities agencies consider when making choices among alternatives. It remains to be seen whether courts will interpret the Executive Order as reducing the level of deference given to agencies on judicial review.

In making their case, industries, companies and interest groups should develop detailed and fact-based arguments to establish that certain rules are outmoded, ineffective, insufficient or excessively burdensome and should be modified, streamlined or repealed. In addition, the regulated community should similarly communicate that argument to key members of Congress, such as Chairman Issa as well as Rep. Fred Upton (R-MI), chairman of the House Energy and Commerce Committee, who have pledged to examine closely rules and regulations deemed unjustifiably burdensome.