The Coming Perfect Storm of Regulation

From: US News and World Report

By Patrick McLaughlin

President Obama’s re-election would normally mean there is no need to be concerned about “midnight regulations,” the surge in regulatory activity that occurs during the lame duck period of an outgoing presidential administration. However, according to insiders and experts on regulation, we may yet witness a post-election spike in rule-making that is similar to what we have historically seen after the Oval Office changed hands. Welcome to Washington, where even broad daylight can be made to appear like midnight.

There are three compelling pieces of evidence that bolster the claims that a flood of regulations is looming. First, the pace of rule-making under the current administration has not appeared to be anything close to normal in 2012. In an average year, about 650 significant regulations are reviewed by the Office of Information and Regulatory Affairs, which is housed inside the Office of Management and Budget. Through Election Day, the Office had only reviewed 359, and at the time of this writing, that number had grown to only 373.

Second, a large number of rules currently being reviewed by the Office of Information and Regulatory Affairs have been under review for much longer than normal.  Executive Orders explicitly limit the Office’s review time to a maximum of 90 days unless special extensions are granted. The average review time in the first three years of the Obama administration was 50 days, and since 2000, the average has been 54 days. So far this year, the average is 72 days, and will probably increase dramatically. Right now, 130 different rules have been sitting at the Office of Information and Regulatory Affairs for more than 90 days, which is not normal. Typically, the Office gets its reviews done as quickly as possible so that the regulatory agencies can move along with their work. Now, the Office is sitting on a backlog of 130 rules, and could potentially push them out the door in a hurry if it wanted to.

Third, the current administration is a year late in producing the unified agenda that is supposed to inform Congress, other agencies, and the public about the regulatory actions agencies are considering taking in the next year. Normally, the agenda is published every spring and fall, but the Obama administration has not published an updated unified agenda since the fall of 2011.

Taken together, these three facts raise several questions. For one, why would the administration significantly delay publishing the unified agenda (in defiance of its own Executive Orders and perhaps even federal law)? Despite claims of increased transparency, I am unaware of any attempt by the administration to explain this.

More mysterious is the slowdown in rule-making that we’ve seen so far in 2012. Perhaps the administration was concerned that creating new regulations could tilt a fragile economy back into recession, so it is delaying their publication until the economy is in better shape. Or perhaps budget uncertainty has led agencies to actually slow the creation of new regulatory programs, unsure if they will continue to have the funding to support the programs. Or, maybe the rules were created at a normal pace, and the administration was telling agencies to wait until after the election to publish them, which could lead to a flood of regulation.

There are also more pedestrian reasons that might converge with the possible political explanation to turn this potential post-election regulatory surge into a perfect storm of regulation. As another column pointed out over the weekend, some major, recent acts of Congress should be producing a flurry of regulations in the near future—the Affordable Care Act, the Dodd-Frank Act, and setting greenhouse gas emissions standards under the Clean Air Act. For example, as of the end of 2011, only about 80 of the 500 or so regulations required by the Dodd-Frank Act had been finalized.

Delaying regulations while the economy is fragile doesn’t sound like a bad policy. Nevertheless, I am concerned for a couple reasons. First, if the political explanation is correct, then we are witnessing a politicization of the regulatory process to a degree that would make even Nixon blush. Admittedly, regulations are often used as political tools, but that’s why we have laws that limit the ways regulations are made, such as those created by the Administrative Procedure Act and the Regulatory Flexibility Act. Additionally, sundry Executive Orders and guidance documents try to ensure that regulations are produced to solve legitimate problems, rather than to achieve political goals.

Second, if there is a backlog of regulations waiting to be sent to the Office of Information and Regulatory Affairs, then there may be problems with the quality of those regulations. The Office’s review is supposed to enforce minimum standards of quality on the regulation and the regulatory analysis that accompanies it. Indeed, some recent research is beginning to show that the Office’s review actually can improve the quality of regulatory analysis, which is good, considering the persistently low overall quality highlighted elsewhere.

My worry is that a midnight-like surge in rule-making could swamp the Office’s limited review capacity.  Previous research found that the average review time decreases by about 50 percent during midnight periods, even while the amount that the Office of Information and Regulatory Affairs has to review increases substantially. One of the best explanations for this finding is that the Office of Information and Regulatory Affairs is rushing its review due to political pressure, and as another paper recently pointed out, midnight regulations that are rushed through the production process tend to be accompanied by lower quality regulatory analyses. So while we may not have to worry about the 130 rules that have been sitting at the Office of Information and Regulatory Affairs for more than 90 days, a sudden surge in rules submitted for review accompanied by political pressure to get those new reviews done quickly could lead to lower quality regulations.

Ultimately, time will tell us whether the regulatory slowdown of 2012 was simply a building up of a backlog that would escape the floodgate after the election. But if there is a backlog, don’t count me as optimistic that those stored regulations will be released gradually. If nothing else, government workers at all levels are rewarded for making regulations, so all the people who’ve been working on crafting regulations over the past year will want to see those published ASAP.

Patrick McLaughlin is a senior research fellow at the  Mercatus Center at George Mason University.


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