Regulatory oversight before OIRA

The number and reach of regulatory agencies increased dramatically in the early decades of the 20th century. But, the extensive scope of their authorities raised concerns about the constitutionality of Congress’s apparent delegation of its Article I powers to a “fourth branch.” In response to these concerns, Congress passed the Administrative Procedure Act in 1946 to balance the competing goals of bureaucratic expertise and legislative accountability (Shepherd, Reference Shepherd1996). It required that regulations be grounded in statutory authority, that agencies seek public comment before issuing rules, and that final rules be based on an administrative record.

Most of the early regulatory agencies were established as independent commissions to avoid political influence (Humphrey’s Executer v. United States 1935); they generally issued “economic regulations,” which imposed maximum or minimum prices, quantity restrictions, and service parameters (Weidenbaum, Reference Weidenbaum2004). Evidence that these agencies appeared to be “captured” by the industries they regulated (Stigler, Reference Stigler1971) led to bipartisan deregulatory efforts from all three branches of government (Derthick & Quirk, Reference Derthick and Quirk1985).

While economic forms of regulation were declining in the 1970s and 1980s, a new type of “social” regulation – aimed at environmental, safety, and health concerns – began to emerge (Weidenbaum, Reference Weidenbaum2004). Concerns that these new regulations and reporting requirements were overly burdensome led presidents, beginning with Richard Nixon, to take steps to exert some control over them.

President Richard Nixon initiated a “Quality of Life Review” (QLR) in 1971. It required agencies to submit for Office of Management and Budget (OMB) review agendas of upcoming regulatory actions and certain proposed and final rules before publication in the Federal Register (Schultz, Reference Schultz1971; Tozzi, Reference Tozzi2011).

President Gerald Ford built on the QLR and issued E.O. 11821 (1974), which required agencies to develop an “inflation impact statement” for each major legislative or regulatory proposal. Pursuant to E.O. 11949, these later became “economic impact statements” (1977). He signed a bill establishing the Council on Wage and Price Stability (CWPS) to, among other things, “intervene and otherwise participate on its own behalf in rulemaking, ratemaking, licensing and other proceedings before any of the departments and agencies of the USA, in order to present its views as to the inflationary impact that might result from the possible outcomes of such proceedings” (Council on Wage and Price Stability Act Amendments of 1975 Pub. L. 94-78). The CWPS “regulatory review staff … operated as a relatively freewheeling analytical group that selectively and publicly critiqued regulatory proposals from a wide array of federal agencies” (Hopkins, Reference Hopkins2011, p. 71).

President Jimmy Carter discontinued the QLR but retained the CWPS economists’ role in filing comments on the public record of agency rulemakings. Carter’s “program had three principal objectives: improved regulatory management, economic deregulation, and the adoption of less-intrusive regulatory techniques” (Eads & Fix, Reference Eads, Fix, Palmer and Sawhill1982, p. 135). His cabinet-level Regulatory Analysis Review Group served as an “expert regulatory ‘watchdog’” (Fix & Eads, Reference Fix and Eads1985, fn. 19) that reviewed the most important regulatory proposals with analytical support from the CWPS economists (Weidenbaum, Reference Weidenbaum1997).

Carter’s E.O. 12044 required agency heads to determine the need for a regulation, evaluate the direct and indirect effects of alternatives, and choose the least burdensome approach (1978). He signed the Regulatory Flexibility Act, focused on minimizing regulatory impacts on small entities (Regulatory Flexibility Act of 1980 Pub. L. 96-354), and the Paperwork Reduction Act (PRA), which established Office of Information and Regulatory Affairs (OIRA) in OMB to review and approve all new reporting requirements to minimize the burdens associated with the government’s collection of information (Paperwork Reduction Act of 1980 Pub. L. 96-511).

OIRA 1981–2019

Soon after he took office in 1981, President Ronald Reagan issued E.O. 12291, giving OIRA a role in reviewing draft regulations to ensure their benefits exceeded their costs (1981). He abolished the wage and price program and moved the group of CWPS economists responsible for filing comments on regulation to the newly created OIRA along with the OMB analysts who had reviewed regulations under Ford and Carter. The directors of the OMB and CWPS units became deputies to the OIRA administrator (Hopkins, Reference Hopkins2011; Tozzi, Reference Tozzi2011). The former budget staff were assigned to specific agencies and responsible for transactional reviews and the PRA, while the CWPS economists focused on economic efficiency and the quality of agencies’ benefit-cost analysis (BCA).

President George H. W. Bush (“Bush 41”), who had served as Reagan’s Vice President and director of his Task Force on Regulatory Relief, continued the policies and practices of the previous eight years. However, one of his chief regulatory advisors observed that “the Bush administration lost the deregulatory momentum of the Reagan years” largely due to “the relaxed commitment to oversight in the Executive Office of the President” (Gray, Reference Gray1993, p. 31).

President Bill Clinton’s election in 1993 stirred hope among critics of OIRA oversight and the net-benefits approach to regulation that he might abolish regulatory review (Katzen, Reference Katzen2018a ). But, he did not act immediately to rescind the Reagan order. Instead, after several iterations and repeat consultations with various agencies and outside groups, President Clinton signed E.O. 12866 (1993) on September 30, 1993 (Katzen, Reference Katzen2018b ). While the new order’s rhetoric was softer than the Reagan order it replaced, it retained the key features of OIRA regulatory review and reinforced the focus on net benefits and the philosophy that regulations should be issued only if required by law or a “compelling public need” (1993, Sec.1.a)

President George W. Bush (“Bush 43”) retained E.O. 12866 but, at least in some respects, his OIRA administrator implemented it more aggressively than his predecessors, for the first time returning draft regulations to agencies for reconsideration pursuant to Sec. 6(b)(3) and sending “prompt letters” that suggested priority actions agencies could take to improve their regulations. During the Bush 43 administration, OMB also issued Circular A-4 on Regulatory Analysis (OMB, 2003), as well as bulletins articulating good practices for guidance documents (OMB, 2007a ), data quality (OMB, 2002), peer review (OMB, 2004), and principles for risk analysis (OMB, 2007b ).

Upon taking office in 2009, President Barack Obama directed his agencies to develop recommendations for a new executive order (Obama, Reference Obama2009), noting that OIRA oversight can serve to “ensure consistency with Presidential priorities, to coordinate regulatory policy, and to offer a dispassionate and analytical ‘second opinion’ on agency actions” (Obama, Reference Obama2009). Two years later, he issued E.O. 13563, which explicitly reaffirmed E.O. 12866 and supplemented it to address technological developments since 1993 as well as periodic review of existing regulations and other issues (2011). President Obama’s E.O. 13579 was significant in that it encouraged independent regulatory agencies to comply with some of E.O. 13563’s provisions, including retrospective review (2011).

President Donald J. Trump came to office in 2016 promising deregulation. His E.O. 13771 directed agencies to remove two regulations for every new one they issued, and to offset the costs of new regulations by removing or modifying existing rules (2017). While his emphasis on reducing regulatory costs departed from previous administrations’ focus on net benefits, he retained the Clinton and Obama executive orders requiring decisions to be made on the basis regulatory benefits and costs. The relevance of a budget constraint overlaid on existing policies is discussed below.

The durability of OIRA’s procedures and principles

Bruff argues that by the end of the Reagan administration, OIRA’s review procedures had gone from having a “distinctly experimental flavor” to “tentative acceptance in the executive branch” (Reference Bruff1989, p. 562). The fact that they have continued through the next five very different presidents (Bush 41, Clinton, Bush 43, Obama, and Trump) confers on them a rare bipartisan status (DeMuth, Reference Demuth2011; Kagan, Reference Kagan2001).

What accounts for the durability of OIRA’s procedures and principles over the course of almost 40 years and six presidents? Procedurally, as Congress delegates lawmaking authority to an increasingly large and complex body of regulatory agencies, OIRA gives the democratically-elected president a vehicle to monitor, and exert some control over, agency actions. While presidents have increased the size of White House staffs over the years, OIRA – with its transparent procedures and staff of career regulatory experts – complements and supports those advisors.

OIRA coordinates interagency disputes on regulation, liaises with White House officials to ensure regulations are consistent with presidential policies, and reviews regulations through an analytical economic lens to provide a “dispassionate and analytical second opinion” (Obama, Reference Obama2009) on agencies’ actions.

Not only does OIRA review help ensure agency actions are accountable to the elected president, but OIRA itself is accountability to Congress and the public as well. Because the OIRA administrator is a Senate-confirmed position, Congress can compel him or her to testify – something it cannot demand of White House staff. OIRA’s disclosure procedures also provide Congress and the public information on meetings with outside groups on regulations under development.

Equally important are the policies expressed in E.O. 12866, E.O. 13563, and E.O. 12291 before them, which have become well-established regulatory practice (see, for example, OECD, 2008). Although BCA is still not universally supported (Ackerman & Heinzerling, Reference Ackerman and Heinzerling2004), it is increasingly accepted across the ideological spectrum as a valuable tool for informing policymaking (Revesz & Livermore, Reference Revesz and Livermore2008; Sunstein, Reference Sunstein2017). While Congress has not adopted BCA and many statutes are silent on whether it governs regulatory decisions, the Supreme Court is increasingly interpreting silent statutes in favor of analysis (Graham & Noe, Reference Graham and Noe2016; Entergy Corp. v. Riverkeeper, Inc. 2009; Michigan v. EPA 2015).

Role for a regulatory budget

In a world with perfect information and incentives that align with public goals, BCA alone would lead agencies to issue regulations only when they can show they make the public better off. In this ideal world, a budget constraint, such as that imposed by Trump’s E.O. 13771, would be nonbinding or harmful because it would prohibit regulations that could have offered net societal benefits (Pierce, Reference Pierce2016).

In practice, of course, agencies’ analyses are based on neither complete information nor publicly-aligned incentives (Dudley & Mannix, Reference Dudley and Mannix2018). Regulators may seek to maximize their authority rather than social welfare or respond to the preferences of concentrated interests at the expense of the more diffuse public interest. In conducting analysis, they face incentives to show that the benefits of their desired actions outweigh the costs. As a counterweight to these political and institutional incentives that can lead to overregulation, Gayer et al. (Reference Gayer, Litan and Wallach2017) point out that a regulatory budget constraint may not be as anathema as it appears on the surface. When considered as a supplement to BCA requirements, it may motivate agencies to maximize benefits within a budget constraint (Dudley, Reference Dudley2016). Equally important, it may provide agencies with incentives to focus more attention on identifying existing regulations that may be underperforming.

Ever since Carter’s E.O. 12044, presidents have directed agencies to examine the benefits and costs of existing rules (Aldy, Reference Aldy2014). These directives have had limited success because agencies lacked incentives to follow through, and faced analytical difficulties in measuring ex-post impacts (Dudley & Mannix, Reference Dudley and Mannix2018). Trump’s requirement that agencies offset the costs of new regulations by reducing the costs of existing regulations (through modification or rescission) may provide needed incentives. If taken seriously, it could also spur the development of improved analytical tools for evaluating regulatory benefits and costs. Not only could this address the problem of regulatory accumulation, but also it could improve ex ante BCA by testing, and providing valuable feedback on, the assumptions used initially.

As President Carter’s Economic Report of the President concluded in 1980: