Pareto Policy Solutions, LLC

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Pareto Policy Solutions, LLC is a policy analysis and advocacy firm committed to advancing sustainability through “smart” regulation: regulation that rewards, and does not penalize, superior performance.  Often, such actions leverage advances in science and technology and make the regulatory program itself more effective as well as more efficient.

OMB Clarifies New Executive Order on Regulation

On February 2nd, the White House Office of Management and Budget (OMB) issued interim guidance to federal agencies on Section 2 of President Trump’s January 30th Executive Order (EO), entitled “Reducing Regulation and Controlling Regulatory Costs.” This new EO calls on federal regulators to eliminate two existing regulations for every new regulation. For anyone wondering where regulation is heading in the new Administration, the EO and interim guidance (which is available from the OMB website) is your GPS.

In a nutshell, this is what the OMB guidance says: Covered federal agencies must ensure that significant regulations issued between Noon of January 20, 2017 and September 30, 2017 impose a net incremental cost of zero unless otherwise required by law. And covered federal agencies must ensure that for every new significant regulation that imposes a cost, two existing regulations are eliminated. Regulatory objectives must not be sacrificed. And OMB will serve as the referee to make sure agencies comply.

Now let’s clarify some of the most important details.

First, the interim guidance greatly narrows the scope of the EO. The new EO covers only “significant” rules—those that undergo OMB review in accordance with EO 12866 Section 3(f). (Of the roughly 3,600 regulations issued annually, only about 320 are considered significant rules.) Independent agencies—which issue about 15%-20% of the most costly rules—are excluded, as are “transfer rules”—those regulations governing income transfers from taxpayers to beneficiaries. Also excluded are certain kinds of regulations (i.e., those pertaining to national security, the military, a foreign affairs function, internal agency management, or only affect federal agencies).

Second, the transactional requirement (“One In, Two Out”, or OITO) is a general guide to achieve the larger policy goal (an incremental regulatory budget of net zero). There appears to be some wiggle room in that agencies can apply the cost savings from eliminating existing requirements to offset the costs of new regulations without having to satisfy the net zero cost requirement for every single transaction (i.e., for each new significant rule).

Third, benefits matter. The interim guidance makes it clear that regulatory objectives are not to be sacrificed. This is very good news for public protections, and it makes efficiency (i.e., cost effectiveness) the watchword. And it is also good news for fans of cost-benefit analysis (CBA) because CBA is the tool that agencies and OMB will employ to implement OITO. The new EO effectively expands the requirement for CBA for just economically significant regulations (about 60 per year) to all significant regulations (about 320 per year).

These clarifications are important to understand. But there is one more thing that is perhaps the most important thing of all:

OMB serves as both judge and jury. OMB is writing the rules agencies must follow, OMB will decide on future exclusions, on waiver requests, and whether agencies can “trade” with each other to achieve the incremental “net zero” budget target. OMB also decides which significant guidance documents are covered under the new policy. “It is good to be King,” said every king, ever.

As regulated entities and organized interests plan ahead, they should keep in mind that the new EO does not change statutory requirements or judicial decisions, but it does direct the discretion of regulators. In the future, regulators will be thinking more about how to minimize cost while achieving regulatory objectives. This is the ultimate take-away from the new EO.

The latest OMB interim guidance is not the last word. Rather, it is just the beginning. OMB is soliciting public comment from agencies and the public until February 10th, which is a small window even by OMB standards. (Comments must be sent electronically to reducingregulation@omb.eop.gov.) More changes to existing executive orders, new executive orders, and additional OMB guidance can be expected with respect to regulation and the regulatory process.

One thing is crystal clear: the new President is serious about changing the culture of federal regulators.

 

 

 

 

 

 

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