As the Obama administration enters its final year, once again there are concerns about the last-minute rush to finalize regulations (see the list of potential last-minute regulations here). Since the outgoing administration faces few political constraints at the end of its term, it can use midnight regulations to cast a long shadow on policy past its own term. Once finalized, regulations are difficult to rescind or modify.
Whichever the reason, the last-minute flood of regulations overwhelms the system of checks that is built into the regulatory process. Before becoming final, each major regulation goes through two types of external checks. First, the regulation is reviewed by the White House Office of Information and Regulatory Affairs (OIRA). The OIRA checks the quality of regulation's economic analysis to ensure that it provides the most benefit at a reasonable cost.
Second, after the OIRA review, agencies open their regulations for public comments. At this stage, any party that could be potentially affected by the regulation can raise its concerns directly with the agency. Thus, if an agency missed important information or failed to consider the regulation's negative impact on some stakeholders, the commenting process provides the public a chance to alert the agency. By incorporating comments and suggestions, the agency can ultimately improve the regulation and make it more responsive to the public's needs.
Yet, a dramatically higher volume of regulations makes it harder for both OIRA and the general public to scrutinize regulations. While there is a substantial increase in the number of regulations that OIRA has to review at the end of the administration, there is no commensurate increase in its staffing or budget. Studies show that the higher volume of regulations leads to lower quality of regulatory analysis, which leads to less effective and more wasteful regulations.
Similarly, it takes time and resources for stakeholders to examine regulations and analyze their impact. Many stakeholders, especially small businesses and consumer groups, may not have the resources to deal with the significant increase in regulations they need to comment on. As a result, these regulations may be less responsive to the concerns of smaller groups with fewer resources.
Responding to criticism, various administrations attempted to take steps to counter the last-minute surge. For example, the George W. Bush administration issued a memo asking agencies to either finalize their rules by November 2008, before the midnight period, or to hold off until the next administration took office. Yet, the data still show a regulatory surge at the end of the Bush administration. The Obama administration took a similar step, requesting that agencies finalize major regulations well in advance of its final year. Yet, if history is any guide, it may be equally unsuccessful.
The last-minute rush to regulate undermines the transparency and accountability of the regulatory process. It also results in less effective regulations. To address the problem, some congressional lawmakers suggested a moratorium on regulations during the midnight period. Yet, an all-out freeze on regulations may be needlessly disruptive. In addition, it may simply shift the flood of regulations to preceding months. A more flexible approach, suggested by my colleagues at the Mercatus Center, would be to institute a cap on the number of regulations that can be issued within a specific timeframe. This approach will allow the regulatory agencies to carry out their responsibilities, but will not overload OIRA's and stakeholders' capacity for effective oversight.